Energy Transition Biggest Challenge for Asian NOCs: WoodMac

Asian national oil companies (NOCs) must respond to the topic of energy transition which is now the single most important challenge facing them, Wood Mackenzie Asia Pacific vice-chair Gavin Thompson said in a note published January 28.

“From Tokyo to Jakarta, the energy transition is the hot topic, with management fully aware that they must respond to what is now the single most important challenge facing their companies. By and large, the Asian NOCs understand that doing nothing is no longer an option,” he said – using similar language to Fatih Birol, as he launched the International Energy Agency's report on the same topic January 21.

According to Thompson, all oil and gas companies are in a state of flux. Driven by the energy transition, upstream supply must now be low cost, low risk and, increasingly, lower carbon, he said. “Lenders and shareholders seek clear strategies on emissions reduction, while still expecting the returns that attracted them to oil and gas companies in the first place.”

He believes that with few exceptions, Asian NOCs are struggling with their response. There have been some organisational changes to incorporate new energies businesses and a modest investment in renewables is underway, but many have yet to formulate a coherent strategy towards climate change risk, let alone communicate it well.

“This is a pity, as some Asian NOCs are actually well positioned in terms of carbon intensity within their portfolios, while others have laid foundations for change,” he said.

Thompson said that the remit of Asia's NOCs will not radically shift away from the development of national oil and gas resources. “But this does mean that companies must now work to emulate industry best-practice; reducing carbon intensity, investing in cleaner energy and increasing transparency and disclosure,” he added.

Government policy will be the key driver for change in Asia. As recent action on winter air quality in northeastern Asia has highlighted, governments can move fast in this part of the world, he said, adding some NOCs – notably Thai PTTEP and Malaysian Petronas – have already pegged some of their emissions reduction targets to national goals.

“European oil and gas companies may have largely been spurred into action by investors, but in Asia, it is unlikely equity markets, for example, will play an equal role in strategic change. Public listings are relatively small, and some NOCs are not listed at all. But as companies look to refinance debt or seek project financing over the next few years, lenders will increasingly scrutinise their 'green' credentials,” he said.