African Countries Must Develop Strategic Fiscal Policies To Survive Oil And Gas Industry Changes On Horizon – NJ Ayuk
The future of the global oil and gas industry has been a subject of great fascination and debate for decades. Since COVID-19 surfaced, there has been even more conjecture on this topic and, in particular, the most likely timing for “peak oil,” when crude production reaches its maximum rate before going into permanent decline.
Predictions run the gamut: OPEC’s latest World Oil Outlook, for example, forecasts increasing oil demand for two more decades. But the International Energy Agency stated in its 2020 World Energy Outlook report that demand for oil probably will plateau after 2030. And the 2020 energy outlook from BP states that the world has already passed peak oil and predicts even greater drops in demand as countries comply with carbon dioxide abatement measures.
While no one can pinpoint exactly how the energy industry will evolve, or when major changes will unfold, it makes sense to assume that decreased demand will occur at some point — and to prepare for the new era that follows.
In the case of African countries with oil and gas reserves, those preparations should include a close look at their fiscal regimes: the systems they have in place to determine how extractives revenues are shared among companies and the government. These could include royalty requirements (money paid to governments for the right to extract and sell their resources), taxes, production-sharing agreements (which determine how extracted resources are split between governments and oil companies), bonuses, and similar mechanisms. The key is to develop fiscal regimes that ensure fair treatment for the state without burdening companies with unreasonable obligations on top of their project risks, local content requirements, and the expenses associated with exploration and production such as rig and labor costs. Unless we give local and international companies a fair chance to profit, production activity will decline.
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