The coronavirus (COVID-19) pandemic and subsequent “Great Lockdown” have profoundly disrupted the... more The coronavirus (COVID-19) pandemic and subsequent “Great Lockdown” have profoundly disrupted the oil and gas industry, causing a collapse in prices and slashing of investment spending across the sector. Because of the severity of the crisis, some oil companies requested direct government bailout — wrongly in the authors’ view — while others hoped for a relaxation of the fiscal terms. The objective of this paper is to analyze whether host governments might revisit their upstream fiscal regime following the crisis, and if they do, what measures they are likely to adopt in the more immediate term. The list of factors that drive fiscal changes is long; the analysis carried out in this paper focuses on three common and interrelated key drivers — namely oil price, investment trend, and production performance. For illustrative purposes, the paper studies 10 major offshore provinces both in the OECD and emerging markets, which are considered directly competing for international capital. These provinces share similar commercial and technical challenges but government fiscal responses tend to differ, depending on several factors, including the way the fiscal regime is designed, the health of the industry before the crisis, and degree of economic dependence on oil revenues. The analysis confirms the inherent fiscal instability in the oil and gas sector, with the prominent role of oil prices, investment, and production trend as some of the common drivers of fiscal changes. Other factors include the dependence of an economy on oil revenues and the “neighborhood” effect; politics also play a role, albeit more muted. Even in the world’s most stable fiscal regime — that is, the Norwegian regime — changes have been implemented to adapt the regime to changes in local and international conditions. The Norwegian experience confirms that no fiscal regime is cast in stone, but changes can be made while maintaining the stability of government take. Overall, there seems to be consistency in the direction of travel in the more immediate future; the perception is that the industry is going through an unprecedented cycle and an alleviation of the fiscal and regulatory burden may be needed to sustain investment, production, and revenues. However, the reaction of host governments will differ, as are the measures that might be introduced and the speed at which they will be pursued. The longer low oil prices prevail, the higher the pressure to accelerate fiscal reforms is, especially if investment remains subdued.
The Surrey Energy Economics Centre (SEEC) consists of members of the Department of Economics who ... more The Surrey Energy Economics Centre (SEEC) consists of members of the Department of Economics who work on energy economics, environmental economics and regulation. The Department of Economics has a long-standing tradition of energy economics research from its early origins under the leadership of Professor Colin Robinson. This was consolidated in 1983 when the University established SEEC, with Colin as the Director; to study the economics of energy and energy markets. SEEC undertakes original energy economics research and since being established it has conducted research across the whole spectrum of energy economics, including the international oil market, North Sea oil & gas, UK & international coal, gas privatisation & regulation, electricity privatisation & regulation, measurement of efficiency in energy industries, energy & development, energy demand modelling & forecasting, and energy & the environment. SEEC also encompasses the theoretical research on regulation previously housed in the department's Regulation & Competition Research Group (RCPG) that existed from 1998 to 2004. SEEC research output includes SEEDS-Surrey Energy Economic Discussion paper Series (details at www.seec.surrey.ac.uk/Research/SEEDS.htm) as well as a range of other academic papers, books and monographs. SEEC also runs workshops and conferences that bring together academics and practitioners to explore and discuss the important energy issues of the day. SEEC also attracts a large proportion of the department's PhD students and oversees the MSc in Energy Economics & Policy. Many students have successfully completed their MSc and/or PhD in energy economics and gone on to very interesting and rewarding careers, both in academia and the energy industry.
The objective of this paper is to analyse how contractual stabilization devices have evolved sinc... more The objective of this paper is to analyse how contractual stabilization devices have evolved since the late 1990s, based on a survey of 20 countries and a review of the literature and evidence on stabilization clauses. Although fiscal stability is a commonly cited attribute of a desirable upstream petroleum regime, one of the commonly observed features of existing regimes is the lack of stability. The paper studies the major triggers that push host governments to revise the fiscal terms to which they originally agreed with investors; amongst various economic and political factors, one of the obvious drivers is the oil price. Chasing the price of oil, however, is a burdensome and inefficient strategy, as oil is an internationally traded commodity where short-term price volatility is the norm. The paper’s three broad conclusions include: First, classical stabilization models have not been successful in practice; Second, the more modern clauses are more likely to treat changes in fiscal terms symmetrically, and may be equally beneficial to governments and oil companies; Third, modern stabilization clauses can allow policymakers to consider the overall tax system and its impact on revenue and growth, without worrying about the specific impact on the oil and gas sector, and without penalizing investors in the sector. Fiscal stability clauses in developing countries will remain a key feature of contractual agreements and oil and gas laws for years to come. However, the effectiveness of the more modern clauses in achieving the desired outcome remains as questionable as that of previous stability models, particularly in countries which continue to lack the administrative capability to enforce these mechanisms, and where government policy in general and investment laws and the judiciary in particular lack credibility.
North Sea production has peaked. Although predicted for decades, most observers now agree that th... more North Sea production has peaked. Although predicted for decades, most observers now agree that the turning point has been reached and the UK, will again become a net importer of gas, probably this year, and of oil by about 2008. Crucial to the successful management of this period of gradual decline, argues Dr Carole Nakhle,* a petroleum analyst, will be getting the North Sea fiscal regime right. This needs to be based on an understanding of the advantages and disadvantages, of past and present tax structures.
I s it inevitable that two of the world's major wants-cheap and plentiful energy and a low carbon... more I s it inevitable that two of the world's major wants-cheap and plentiful energy and a low carbon future, should be in head-on conflict? Recent experience certainly suggests that the two ambitions can clash awkwardly unless very carefully handled. For example, the European Union and its member states have become increasingly determined to address climate change issues and to set, and hopefully, reach new and demanding targets for reducing carbon dioxide in the atmosphere. Very strong speeches have been made both by German Chancellor Angela Merkel in Berlin and by the British Prime Minister Tony Blair in favour of new carbon goals, well beyond the Kyoto benchmarks, and for higher percentages of renewable, low-carbon, energy sources as a percentage of total EU energy consumption. But in formulating these new aims Europe's leaders have also encountered new controversies, both amongst the member states and between richer and poorer societies worldwide. First, several member states, when faced with sweeping new pan-European proposals for limiting emissions, for raising the penalties for exceeding carbon limits and for sharply reducing fossil-fuel use, have hastened to point out their very different and varied local circumstances and energy needs. The EU of 25 members today is not the smaller and more uniform EU of yesterday, with 15 members or less. Today, with the accession states of Central and Eastern Europe in the club per capita income disparities are far larger, in a ratio of 24 to 1 between rich Luxembourg and newcomer Bulgaria. What richer countries can absorb and are eager to commit to, in the way of carbon pricing and other moves to internalise previously external costs, will be far from the liking of poorer and less mature economies. Furthermore, while the stronger and larger economies of Western Europe may be prepared, for the sake of curbing greenhouse gases, to shoulder the burden of more expensive energy from renewable sources, in some case with cost profiles well above current commercial levels, the same extra costs could be far more difficult to bear in the poorer member states.
Doubts have been raised and criticisms continue to be made about Lebanon’s choice of upstream pet... more Doubts have been raised and criticisms continue to be made about Lebanon’s choice of upstream petroleum fiscal terms and strategies to award oil and gas licenses. This is not surprising given the fact that it is a completely new experience for Lebanon, a country often stuck in stalemates stemming from political disagreements. Despite this, there are some internationally recognized guiding principles that Lebanese policymakers can follow. In terms of the allocation strategy, Lebanon selected competitive bidding, which is a positive step since this method is increasingly popular and supported by the international community. The key concern in Lebanon, however, is the choice of biddable parameters, which should be reviewed further. In terms of block delineation, Lebanon’s offshore block sizes do not fall outside the reasonable range, especially when the exploration risk and the relinquishment rule are taken into consideration. With respect to petroleum regulations, Lebanon seems to off...
The coronavirus (COVID-19) pandemic and subsequent “Great Lockdown” have profoundly disrupted the... more The coronavirus (COVID-19) pandemic and subsequent “Great Lockdown” have profoundly disrupted the oil and gas industry, causing a collapse in prices and slashing of investment spending across the sector. Because of the severity of the crisis, some oil companies requested direct government bailout — wrongly in the authors’ view — while others hoped for a relaxation of the fiscal terms. The objective of this paper is to analyze whether host governments might revisit their upstream fiscal regime following the crisis, and if they do, what measures they are likely to adopt in the more immediate term. The list of factors that drive fiscal changes is long; the analysis carried out in this paper focuses on three common and interrelated key drivers — namely oil price, investment trend, and production performance. For illustrative purposes, the paper studies 10 major offshore provinces both in the OECD and emerging markets, which are considered directly competing for international capital. These provinces share similar commercial and technical challenges but government fiscal responses tend to differ, depending on several factors, including the way the fiscal regime is designed, the health of the industry before the crisis, and degree of economic dependence on oil revenues. The analysis confirms the inherent fiscal instability in the oil and gas sector, with the prominent role of oil prices, investment, and production trend as some of the common drivers of fiscal changes. Other factors include the dependence of an economy on oil revenues and the “neighborhood” effect; politics also play a role, albeit more muted. Even in the world’s most stable fiscal regime — that is, the Norwegian regime — changes have been implemented to adapt the regime to changes in local and international conditions. The Norwegian experience confirms that no fiscal regime is cast in stone, but changes can be made while maintaining the stability of government take. Overall, there seems to be consistency in the direction of travel in the more immediate future; the perception is that the industry is going through an unprecedented cycle and an alleviation of the fiscal and regulatory burden may be needed to sustain investment, production, and revenues. However, the reaction of host governments will differ, as are the measures that might be introduced and the speed at which they will be pursued. The longer low oil prices prevail, the higher the pressure to accelerate fiscal reforms is, especially if investment remains subdued.
The Surrey Energy Economics Centre (SEEC) consists of members of the Department of Economics who ... more The Surrey Energy Economics Centre (SEEC) consists of members of the Department of Economics who work on energy economics, environmental economics and regulation. The Department of Economics has a long-standing tradition of energy economics research from its early origins under the leadership of Professor Colin Robinson. This was consolidated in 1983 when the University established SEEC, with Colin as the Director; to study the economics of energy and energy markets. SEEC undertakes original energy economics research and since being established it has conducted research across the whole spectrum of energy economics, including the international oil market, North Sea oil & gas, UK & international coal, gas privatisation & regulation, electricity privatisation & regulation, measurement of efficiency in energy industries, energy & development, energy demand modelling & forecasting, and energy & the environment. SEEC also encompasses the theoretical research on regulation previously housed in the department's Regulation & Competition Research Group (RCPG) that existed from 1998 to 2004. SEEC research output includes SEEDS-Surrey Energy Economic Discussion paper Series (details at www.seec.surrey.ac.uk/Research/SEEDS.htm) as well as a range of other academic papers, books and monographs. SEEC also runs workshops and conferences that bring together academics and practitioners to explore and discuss the important energy issues of the day. SEEC also attracts a large proportion of the department's PhD students and oversees the MSc in Energy Economics & Policy. Many students have successfully completed their MSc and/or PhD in energy economics and gone on to very interesting and rewarding careers, both in academia and the energy industry.
The objective of this paper is to analyse how contractual stabilization devices have evolved sinc... more The objective of this paper is to analyse how contractual stabilization devices have evolved since the late 1990s, based on a survey of 20 countries and a review of the literature and evidence on stabilization clauses. Although fiscal stability is a commonly cited attribute of a desirable upstream petroleum regime, one of the commonly observed features of existing regimes is the lack of stability. The paper studies the major triggers that push host governments to revise the fiscal terms to which they originally agreed with investors; amongst various economic and political factors, one of the obvious drivers is the oil price. Chasing the price of oil, however, is a burdensome and inefficient strategy, as oil is an internationally traded commodity where short-term price volatility is the norm. The paper’s three broad conclusions include: First, classical stabilization models have not been successful in practice; Second, the more modern clauses are more likely to treat changes in fiscal terms symmetrically, and may be equally beneficial to governments and oil companies; Third, modern stabilization clauses can allow policymakers to consider the overall tax system and its impact on revenue and growth, without worrying about the specific impact on the oil and gas sector, and without penalizing investors in the sector. Fiscal stability clauses in developing countries will remain a key feature of contractual agreements and oil and gas laws for years to come. However, the effectiveness of the more modern clauses in achieving the desired outcome remains as questionable as that of previous stability models, particularly in countries which continue to lack the administrative capability to enforce these mechanisms, and where government policy in general and investment laws and the judiciary in particular lack credibility.
North Sea production has peaked. Although predicted for decades, most observers now agree that th... more North Sea production has peaked. Although predicted for decades, most observers now agree that the turning point has been reached and the UK, will again become a net importer of gas, probably this year, and of oil by about 2008. Crucial to the successful management of this period of gradual decline, argues Dr Carole Nakhle,* a petroleum analyst, will be getting the North Sea fiscal regime right. This needs to be based on an understanding of the advantages and disadvantages, of past and present tax structures.
I s it inevitable that two of the world's major wants-cheap and plentiful energy and a low carbon... more I s it inevitable that two of the world's major wants-cheap and plentiful energy and a low carbon future, should be in head-on conflict? Recent experience certainly suggests that the two ambitions can clash awkwardly unless very carefully handled. For example, the European Union and its member states have become increasingly determined to address climate change issues and to set, and hopefully, reach new and demanding targets for reducing carbon dioxide in the atmosphere. Very strong speeches have been made both by German Chancellor Angela Merkel in Berlin and by the British Prime Minister Tony Blair in favour of new carbon goals, well beyond the Kyoto benchmarks, and for higher percentages of renewable, low-carbon, energy sources as a percentage of total EU energy consumption. But in formulating these new aims Europe's leaders have also encountered new controversies, both amongst the member states and between richer and poorer societies worldwide. First, several member states, when faced with sweeping new pan-European proposals for limiting emissions, for raising the penalties for exceeding carbon limits and for sharply reducing fossil-fuel use, have hastened to point out their very different and varied local circumstances and energy needs. The EU of 25 members today is not the smaller and more uniform EU of yesterday, with 15 members or less. Today, with the accession states of Central and Eastern Europe in the club per capita income disparities are far larger, in a ratio of 24 to 1 between rich Luxembourg and newcomer Bulgaria. What richer countries can absorb and are eager to commit to, in the way of carbon pricing and other moves to internalise previously external costs, will be far from the liking of poorer and less mature economies. Furthermore, while the stronger and larger economies of Western Europe may be prepared, for the sake of curbing greenhouse gases, to shoulder the burden of more expensive energy from renewable sources, in some case with cost profiles well above current commercial levels, the same extra costs could be far more difficult to bear in the poorer member states.
Doubts have been raised and criticisms continue to be made about Lebanon’s choice of upstream pet... more Doubts have been raised and criticisms continue to be made about Lebanon’s choice of upstream petroleum fiscal terms and strategies to award oil and gas licenses. This is not surprising given the fact that it is a completely new experience for Lebanon, a country often stuck in stalemates stemming from political disagreements. Despite this, there are some internationally recognized guiding principles that Lebanese policymakers can follow. In terms of the allocation strategy, Lebanon selected competitive bidding, which is a positive step since this method is increasingly popular and supported by the international community. The key concern in Lebanon, however, is the choice of biddable parameters, which should be reviewed further. In terms of block delineation, Lebanon’s offshore block sizes do not fall outside the reasonable range, especially when the exploration risk and the relinquishment rule are taken into consideration. With respect to petroleum regulations, Lebanon seems to off...
Uploads
Papers by Carole Nakhle