You are a senior consultant working for the Eurasia Group, one of the top international political/economic risk consulting firms. You have to write a memo evaluating the political/economic risks in the oil industry of China in the next two to three decades under the transition to decarbonization. You should address the questions with two horizons: 2035 and 2050.
You can assume the following likely consequences of the transition.
- Oil demand will peak in the next decade and then will decrease to between 60 and 80 mbpd by 2050.
- Natural gas demand will peak more than a decade later than oil and then will decrease to between 2000 and 4000 bcm by 2050.
- Rents in oil/gas production will have a declining trend but with higher volatility than in the past.
- Eventually, there will be a significant carbon tax (or equivalent policy) on upstream emissions per barrel. The tax can be offset by emissions reductions in the upstream activities, e.g., carbon capture.
- Energy security/geopolitical concerns will continue to be relevant.
In your memo, you must address:
- How would the oil/gas industry fare in China during the energy transition? How is oil and gas policy likely to evolve (e.g., NOC, taxes, contracts, expropriation, resource nationalism, energy subsidies, etc.)? How would political risks evolve? What oil/gas policy recommendations would you give to Chinese government? (50 points)
- How would the China’s economy be affected by the transition (e.g., volatility, Dutch disease, resource obsolescence, etc.)? How would resource wealth management (savings, stabilization, investment, diversification) be affected? What would be your recommendations for resource wealth management in your country, under the transition? (30 points)
- What could be the political impact of the energy transition on democracy/authoritarianism, institutions, and violence? (20 points)
Criteria for grading:
- The answer should consider the characteristics of the oil/gas sector in general (rents, sunk costs, risk stage, etc.) and in the country you are analyzing (e.g., the size and type of hydrocarbon reserves and the reservoirs characteristics). Also, you should consider the political, economic, institutional, regulatory, fiscal, and contractual environment currently in place, as well the level of resource dependence.
- You should apply the concepts studied in class and use the literature assigned (you do not need to make references but remember do not copy/paste or plagiarize!). You will be evaluated on your understanding of the theory and capacity to use it in a practical case, your knowledge of the cases, and your analytical abilities.