Photographer: Peter Boer/Bloomberg
National oil companies, or NOCs, are largely shielded from those
pressures. When the owners are governments, not shareholders, there
aren’t dissident board members like those now sitting inside Exxon.
That means state oil producers like those who populate OPEC+ can be
the buyers of last resort for fossil-fuel projects cast off by the
- READ MORE: What Happens When an Oil Giant Walks Away
State companies can also gobble market share by simply producing
oil that their private-sector rivals won’t. Saudi Aramco and Abu Dhabi
National Oil Co. are spending billions to boost their respective
output capacities by a million barrels per day each, and Qatar
Petroleum is spending more than $30 billion to increase its liquefied
natural gas exports by more than 50%. (Aramco and Abu Dhabi National
Oil declined to comment.)
Taken together, NOCs make up just over half of today’s worldwide
oil supply. By 2050, Rystad Energy sees that share growing to 65%.
Big Oil Is Getting Smaller
The majors' spending on oil and gas production has fallen
Source: International Energy Agency's World Energy Investment 2021;
Note: 2021 spending is an estimated figure
It’s an unmistakable trend that’s drawing heightened attention to
some of the largest and most secretive entities in the world. Many
government leaders are seeking to lower planet-warming emissions, with
nine of the 10 biggest economies staked to net-zero goals. At the same
time, these opaque government-sponsored oil producers — insulated in
most cases from both investors and environmentalists, and under little
obligation to disclose climate data — are taking over the job of
filling the millions of barrels consumed each day.
"We hear government officials and NOC officials say, ‘We look at
the divestment of international oil companies from some projects as an
opportunity for us to grow,’" said Patrick Heller, an adviser at the
Natural Resource Governance Institute. "And I do think that’s
potentially really risky."
Listen: U.S. Oil Reporter Kevin Crowley discusses the retreat of
the oil majors on Bloomberg Radio
Some observers worry that campaigns by activists to have oil majors
divest from fossil fuels could end up accelerating a shift to
government owners who operate with less transparency and,
occasionally, worse environmental records. Jason Bordoff, director of
the Center on Global Energy Policy at Columbia University’s School of
International and Public Affairs, argued in a recent essay that such
efforts could result in "unintended consequences" without the
necessary drop in demand.
For all the focus on companies like Exxon and Shell, the majors
recently accounted for only 15% of the world’s supply of oil,
according to the International Energy Agency. Some of them are set to
see their production drop, too, in part due to selling off chunks of
their existing businesses.
BP has spent the past two years pursuing divestment deals partly to
help meet its net-zero goal, and next it plans to sell a stake in an
Omani gas block to Thailand’s national energy firm for $2.6 billion.
Shell, with its own pledge to zero-out emissions, recently said it
would hand back leases to the Tunisian government instead of producing
more oil from them. Such deals reach beyond oil and gas extraction:
Mexico’s Pemex is set to buy a Texas refinery from Shell. (Pemex
declined to comment.)
An oil drilling rig on one of the causeway islands at the Saudi
Aramco’s Manifa oilfield. Aramco and Abu Dhabi National Oil Co. are
spending billions to boost their respective outputs by a million
barrels per day each.
Photographer: Simon Dawson/Bloomberg
While state-sponsored oil companies vary greatly — from Norway’s
climate-conscious Equinor to Russia’s Gazprom, a top three emitter for
decades — overall NOCs make an outsized contribution to global
emissions. Consider methane, a greenhouse gas that’s far more potent
than carbon dioxide in the short term. Countries where state-owned
entities dominate energy supply make up three-quarters of all methane
emissions from oil and gas, according to the IEA. The vast majority of
those methane emissions are attributable to just 15 countries,
including Russia, Saudi Arabia and Iraq.
Pressure driving supermajors to shrink isn’t coming solely from
climate activists. The IEA drew widespread attention last month when
it released its first report laying out a roadmap for a global
net-zero economy by 2050. In that scenario, demand for fossil fuels
plummets and investment in new oil and gas fields needs to stop.
Methane emissions from fossil fuel, meanwhile, would fall 75% by 2030.
In the near-term, the majors have "ample spare capacity," Bordoff
said in an email interview. "But if investment by the majors remains
depressed and oil demand continues on its current trajectory, markets
will tighten." As oil prices rise, he sees state-owned or smaller,
private players stepping in to fill the gap. "A shift in production to
major nationally owned companies — such as in Latin America or the
Gulf or Russia — carries geopolitical supply risks," Bordoff said,
"while smaller independents have often demonstrated poorer safety and
Divestments and reduced spending on exploration means oil majors
will simply run out of proved reserves — the quantity of hydrocarbons
that they can produce — within 15 years, Rystad said in a recent
report, "unless the group makes more commercial discoveries, and
Even Exxon, which hasn’t set a net-zero target, has severely
curtailed its ambitious growth plans to save money and reduce debt.
The company is keeping production at the lowest level in two decades
through 2025, a drop of 25%
compared to pre-pandemic estimates. Exxon's asset sales are
"financial transactions, not an effort to reduce emissions from our
portfolio," the company said in a statement. "Our business plans call
for reduced emissions intensity, which emphasizes improved operational
efficiencies and emissions performance, rather than the divestment of
Fossil Fuel Rolls on as Exxon and the Oil Majors Retreat
Fossil Fuel Rolls on as Exxon and the Oil Majors Retreat
Fossil Fuel Rolls on as Exxon and the Oil Majors Retreat
Chevron has also backed away from new megaprojects in favor of more
flexible U.S. shale. Both companies forecast flat output this year
compared to last. BP will cut its oil and gas production by 40% by the
end of this decade, while Shell sees a gradual decline in oil output
of around 1% to 2% each year.
As a group, the majors are holding spending at 2% lower than last
year, the IEA reported last week, despite overall capital expenditures
on exploration and production rising 8% in 2021. Spending on new oil
and gas fields "has traditionally been well above the levels from
their peers in the Middle East, Russia and China," the IEA said. "This
is no longer the case."
But global demand isn’t falling as rapidly, at least according to
current projections. In fact, it’s expected to rise over the next 15
years based on recent estimates from clean-energy researchers at
BloombergNEF. That leaves about 55 million barrels of oil a day of new
supply needed by 2050, BloombergNEF says, equivalent to global demand
in the middle of the 1980s.
Upstream Oil Investment Required
Significant new production will be needed even if demand eventually
State-owned oil companies see this as an opportunity. "A lot of oil
and gas host governments and NOCs believe that the industry is
underinvesting in exploration and production, and some believe they
can step up and fill the gap," said Ben Cahill, a senior fellow in the
Energy Security and Climate Change Program at the Center for Strategic
and International Studies.
Not all will be able to do so. Cahill said companies like Pemex,
Venezuela’s PDVSA and Algeria’s Sonatrach will struggle just to
maintain their output. But that leaves giants like Aramco, Russia’s
Rosneft and Qatar Petroleum in a position to double down on their core
Iraq’s oil ministry said in a statement it’s committed to
attracting new investments with international oil companies. This year
Iraq has been discussing a $7 billion energy deal with Total, for
example, even as Exxon has sought to shed its stake in an oil field.
"Everyone knows that many international companies have changed their
strategies," said Asim Jihad, an oil ministry spokesman. "Iraq
respects the will of the companies operating in Iraq."
National Oil Champions Have Weaker Climate Plans
A higher Bloomberg Intelligence Climate Transition Score indicates
better preparation for a low-carbon future
Source: Bloomberg Intelligence
It’s hard to glean a complete picture of what that will mean for
emissions, in large part because many state-owned companies don’t
disclose greenhouse-gas data. Aramco recently revamped its disclosures
and still doesn’t report data from join ventures or the emissions from
customers burning its fuels. Overall, disclosure from state-owned oil
companies are highly variable and lack the transparency of the majors.
But what little is known indicates there’s low-hanging fruit on
greenhouse gas from NOCs. In some cases it would cost nothing for
petrostates to slash methane emissions, according to a previous IEA
Russia’s Rosneft may find an opportunity to double down on their
core business, along with its giant national oil company peers Aramco
and Qatar Petroleum.
Photographer: Andrey Rudakov/Bloomberg
"NOCs are sort of the biggest keys when it comes to looking at
country-level emissions," said Ratnika Prasad, director of energy
strategy at the Environmental Defense Fund, which recently
commissioned a report by Carbon Limits on methane emissions by
state-owned oil companies. "It’s easy to see how taking action on NOC
emissions, especially methane, will yield pretty quick and more
effective climate results."
Pressuring government-run entities to take action introduces new,
daunting hurdles. After years of campaigning, there’s a playbook of
sorts for forcing change at the Western supermajors. Activist groups
such as Follow This and As You Sow encourage climate-conscious
citizens to buy stock in publicly traded companies like Exxon or
Shell. Then shareholder activists push climate-friendly proxy measures
during annual shareholder meetings.
Strategic pivots by Shell and BP toward low-carbon fuels came after
years of intensifying shareholder pressure, and the same process
appears to be playing out inside Exxon right now. The Texas oil giant
lost an unprecedented battle with an activist investor Engine No. 1 at
its annual meeting this year. With just 0.02% of Exxon’s shares, the
previously unknown group won backing from large institutional
investors and placed three of its own candidates on Exxon’s board.
State-owned entities lack an equivalent mechanism, unless a
significant portion of their shares is listed on a stock exchange. Any
drive to lower emissions is tied to the ambitions of the countries
that own them. "NOCs are at the core of economic life in a lot of oil
producing countries," said Heller. "The health of the NOC is in some
cases seen as synonymous with the health of the economy overall. So
that does contribute to status-quo thinking."
There’s some cause for optimism. Countries with the most prolific
state-backed oil companies have signed on to the Paris Agreement, with
some taking their commitment a step further and participating in
voluntary coalitions aimed at reducing emissions. The Oil and Gas
Climate Initiative counts five national oil companies, including
Aramco and China National Petroleum Corp., among its members. That
organization requires a target to reduce the average methane emissions
per barrel of oil produced by 2025, although this doesn’t ensure that
absolute emissions will fall.
To some degree, this is a phenomenon that Exxon has been warning
against for years. As BP and Shell have sold off assets in a pivot to
renewables, Exxon has said such moves only work to move production —
and emissions —
elsewhere. Exxon CEO Darren Woods drew criticism from climate
activists last year for labeling rivals’ asset sales to lower
emissions nothing more than a "beauty competition." His wider point
underscores the long path ahead for the world as it grapples with
"This is not a company challenge, this is a global challenge,"
Woods said in March 2020. "This idea of moving things in and out of
the portfolio from one company to the other actually isn't getting us
any closer to a solution."
But Mark van Baal, founder of Follow This, said that by pressuring
the majors it’s still possible to drive an overall reduction in
emissions—even without directly challenging the NOCs. State-owned
entities will follow if majors push ahead on investment in renewable
energy, he said, lowering the costs for everyone. "We need the most
innovative oil and gas companies to change and put their full weight
behind renewables to speed up the energy transition," van Baal said.
"Others will follow."
— With assistance by Dave Merril, Gerson Freitas Jr, Eric Roston,
Khalid Al Ansary, and Anthony Di Paola