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Assessments of the energy future are increasingly dominated by
the twin uncertainties of government climate initiatives and the
speed of the market transition away from oil and gas.
While much of the focus has been on how governments and
international oil companies (IOCs) are reacting and adapting, the
continued dominance of national oil companies (NOCs) makes them
critical to the speed and outcome of transition efforts. NOCs hold
over 60% of oil and gas reserves globally, supply 50% of
production, and account for 40% of investment overall.
Thus far, actions and preparations to address these challenges
are still at an early stage, with many NOCs focused on surviving
current low prices and unsure about what course to pursue and with
what urgency. But two questions are pressing:
What to do about emissions? Options range from business as
usual (BAU) with minimal "green" commitments such as reducing gas
flaring - to the decarbonisation of oil and gas production where
remaining resources are significant - to reinvention as a renewable
energy company where remits allow. Gulf state NOCs ADNOC, QP and
Saudi Aramco are amongst those looking to proactively decarbonise
ongoing oil and gas production, conscious that technical-intensive
decarbonisation may offer a means to prolong the relevance of the
hydrocarbon sectors that still dominate economic life.
What to do about traditional E&P resources? The primary
remit of many NOCs is to safeguard and exploit home country
reserves. However, reserve life is no longer always an advantage,
and, in cases, NOCS may look to bring forward and accelerate
development rather than face the uncertainties of a declining
global demand trajectory where low costs and lower carbon profiles
are likely to be key to maintaining market relevance.
How NOCs proceed will be a function of their respective
mandates; domestic and external drivers for action, where exposure
to zero carbon markets and finance will be key; and their scope to
adjust given technical capacity, spending power and the asset mix.
Domestically-focused NOCs will largely be constrained in making
sharp shifts given mandates to maximise the value of remaining
local resources, generate revenues and foreign-exchange earnings,
and often, fulfil social spending roles. By contrast, NOCs with
fewer domestic resources to manage - and/or less importance to the
economy - will tend to have greater latitude to act. It is no
surprise that Asian importer NOCs are amongst those leading the
charge on climate and transition approaches - Petronas and CNPC
both now have zero carbon ambitions.
These decisions in turn carry risks and costs, along with
implications for home country governments, partners, buyers and
global balances. Gauging the confluence of pressures and
opportunities for NOCs and understanding their strategies will thus
remain critical to determining industry trajectory.
For more information about IHS Markit Petroleum Economics and
Policy Solutions, visit
ihsmarkit.com/PEPS
Posted 09 February 2021 by Cat Hunter, Director, E&P Terms and Above-Ground Risk - North Africa and Levant and
