How are national oil companies tackling energy transition: Woodmac

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

NOCs account for more than half of global oil and gas output, making them among the biggest global emitters of greenhouse gases. The 18 key NOCs covered in Wood Mackenzie’s report will produce 60 million barrels of oil equivalent per day (boe/d) in 2022; that compares to only 23 million boe/d ( barrels oil equivalent per day) for the privately held oil Majors.

Wood Mackenzie research director Kavita Jadhav said: “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.”

Despite the scale of their emissions, most NOCs are doing far less than their IOC peers to address the issue. NOCs have provided guidance which that indicates that they will spend four times the amount of capital that the Majors will spend in 2022. Out of this capital forecast, NOCs are currently committing less than 5% of capital to decarbonisation. In comparison, the Majors have allocated around 15% of 2022 capital investment to low-carbon projects, driven by regulatory, investor and public pressure. mounts. (The European Majors allocate more, at an average of around 20%.).

As intergovernmental pressure increases, NOCs will be pushed to follow the example set by the Majors. However, expect 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.

Senior analyst Raphael Portela said: “There are strategies NOCs can take as they face 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 2-3% 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.”

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 allocating capital to, for example, carbon capture and storage (CCS) 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.

Portela said: “We are seeing NOCs targeting a range of low carbon opportunities, from electrification to CCS, biofuels, hydrogen and ammonia.”

Jadhav believes there are opportunities for NOCs to accelerate their energy transition strategies. Current high prices mean NOCs are set to generate a cash flow windfall of around US$110 billion per year over the next five years. That will provide financial flexibility, and with it a golden opportunity to switch gears.

Jadhav said: “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.

“For the Asian NOCs, higher oil and gas prices are now generating a wall of cash. We looked at what this means if prices stay higher for longer by using US$70/bbl versus our base case US$50/bbl. The result is the seven largest Asian NOCs generating an additional US$218 billion of revenue through to 2030.”

National Oil Companies Chip in to Support India’s Green Push

• Indian Oil Corporation (IOC): India’s largest oil firm IOC plans to set up ‘green hydrogen’ plants at its Mathura and Panipat refineries by 2024 to replace carbon-emitting units. IOC will set up EV charging facilities at 10,000 fuel outlets over 3 years.
• Oil and Natural Gas Corporation (ONGC): ONGC is planning to generate electricity from wind at its vast offshore acreage in order to expand its renewable energy portfolio. The company has also collaborated with SECI on renewable energy projects including solar, wind, solar parks, EV value chain, green hydrogen, storage, etc.
• Hindustan Petroleum Corporation Limited (HPCL): HPCL has collaborated with EV charging network Statiq to increase the number of the latter’s chargers open to the public to more than 200 in the states of Uttar Pradesh, Bihar and Uttarakhand. HPCL has plans for 5,000 EV stations over 5 years.
• Bharat Petroleum Corporation Limited (BPCL): Bharat Petroleum Corporation Ltd (BPCL) will set up 7,000 stations over 5 years.
• Oil India Limited (OIL): Oil India Ltd is setting up a plant to manufacture green hydrogen at its Jorhat oilfield in Assam. The pilot plant will use AEM technology is a first of its kind project in the country, said Oil India.
• GAIL Limited: In October year, GAIL announced that it will build India’s largest green hydrogen-making plant, with 10 MW capacity, in order to supplement ‎its natural gas business with carbon-free fuel.