Despite their scale, national oil companies (NOCs) have until now largely escaped the heavy scrutiny experienced by international oil companies (IOCs) around emissions, and partly as a consequence, the energy transition strategies of most NOCs significantly lag those of their IOC peers, says global research and consultancy business Wood Mackenzie (WoodMac). 

NOCs account for more than half of global oil and gas output, making them among the biggest global emitters of greenhouse gases, the company points out.

The 18 key NOCs covered in a recent WoodMac report will produce 60-million barrels of oil equivalent a day (boe/d) this year, compared with the 23-million boe/d to be produced by the international majors.

“As a result, NOCs will be responsible for half of forecast upstream direct (Scope 1 and 2) emissions between now and 2030. Also, that figure is expected to rise in future as NOCs exploit their high levels of remaining resource and available capital to seek significant production growth,” says WoodMac research director Kavita Jadhav.

Despite the scale of their emissions, most NOCs are doing far less than their IOC peers to address the issue, the company states.

It notes that NOCs have provided guidance that indicates they will spend four times the amount of capital that the majors will spend this year. Out of this capital forecast, NOCs are currently committing less than 5% to decarbonisation.

In comparison, the majors have allocated about 15% of this year’s capital investment budgets to low-carbon projects, driven by regulatory, investor and public pressure.

As intergovernmental pressure increases, NOCs will be pushed to follow the example set by the majors, WoodMac notes. However, it expects the pace of change to be slower, at least in the short term.

With emissions reduction targets still mostly dictated by government and country-level climate goals, many NOCs have yet to make a net-zero commitment, the company highlights.

Senior analyst Raphael Portela avers that there are strategies NOCs can implement as they start planning for the energy transition.

“Some NOCs could double down on their current approach. Middle East and Russian NOCs, in particular, have access to vast volumes of low-carbon oil and gas reserves, which could limit their exposure to future carbon costs.

“The largest resource holders currently continue to target production growth of 2% to 3% over the next decade. Those taking this approach set targets for emissions intensity, but not for absolute reduction, and decarbonisation or renewable projects remain at the planning stage,” Porter explains.

Other NOCs are harnessing their existing resource base to fuel a low-carbon transition. Some are targeting an increasing role for gas to support national decarbonisation goals and are allocating capital to, for example, carbon capture and storage at the planning or pilot stage.  

Finally, a few are taking the first steps to diversify into renewables and alternative energy projects that align with their existing portfolio strengths and corporate capabilities.

NOCs with limited reserves who face a shorter remaining lifespan for their resources have a greater incentive to take this approach, WoodMac notes.

Jadhav believes there are opportunities for NOCs to accelerate their energy transition strategies. Current high prices mean NOCs are set to generate cash flow windfalls of about $110-billion a year over the next five years.

That would provide financial flexibility, and with it an ideal opportunity to change things.

“Sustained higher prices would allow NOCs to raise dividends and help service post-pandemic national debt at the same time as allocating capital to both upstream investment and low-carbon opportunities. If NOCs matched the majors’ capital allocation to the energy transition the effects could be dramatic,” Jadhav explains.