National Oil Companies, Climate Commitments, and Methane

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A short, spoken-word summary from CSIS’s Ben Cahill on his brief with Kjersti Swanson, “National Oil Companies, Climate Commitments, and Methane.”

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The Issue

Reducing methane emissions from the oil and gas industry is one of the most immediate and effective ways to slow the pace of global warming, and national oil companies (NOCs) must be part of this effort. These companies are some of the world’s largest oil and gas producers, but their climate commitments and methane reduction targets have lagged those of publicly listed companies. NOCs have diverse roles and responsibilities and follow directives from governments. Still, there are opportunities for investors and other stakeholders to encourage NOCs to cut methane emissions from flaring, venting, and fugitive emissions. This brief introduces some principles for NOC engagement on climate strategies and methane reductions.

Introduction

National oil companies (NOCs) produce about half of the world’s oil and gas and play a critical role in the global economy, but they remain poorly understood. These companies have important and varied responsibilities, including generating revenue, safeguarding state resources, and ensuring energy security. Although they share some common demands, NOCs are not monolithic. Some are among the oil and gas industry’s most prosperous and technologically advanced companies. Others are struggling to attract investment and retain partners—leaving them ill-prepared for the long-term shift away from fossil fuels.

National oil companies play a unique role in the global energy system, and charting the long-term shift away from fossil fuels means grappling with the role of these companies and with oil- and gas-dependent states more broadly. Because NOCs are state institutions that are answerable to governments, each company’s relationship with its host government shapes its climate and sustainability priorities.

This brief provides historical context and a framework for understanding national oil companies and their climate commitments. It focuses on the relationship between governments and NOCs, the role of NOCs in national economies and state economic strategy, and emerging NOC pathways in the energy transition.

Through this analytical framework of NOC-state relations, the brief assesses the drivers for these companies’ climate strategies. It summarizes their emissions pledges and discusses challenges for various NOCs as well as areas of progress. In particular, these companies have an important role to play in global methane reductions given the scale of their oil and gas production. They are less susceptible to investor and shareholder pressure, although there are exceptions to this rule and opportunities for investors on the debt and equity side to influence NOC targets and strategies.

Why NOCs Exist: Roles and Responsibilities

National oil companies attracted growing attention in the run-up to the 2023 UN Climate Change Conference (COP28). The United Arab Emirates (UAE) is hosting COP28, and Abu Dhabi National Oil Company (ADNOC) CEO Sultan al-Jaber is serving as the conference president. Both the venue and the presidency have proved controversial. Critics argue that the CEO of a major oil company has no business running the world’s flagship climate negotiations. Skeptics believe Sultan al-Jaber has a fundamental conflict of interest since he leads a company that will continue to produce and export oil and gas for decades to come. In areas that have proven controversial at past climate summits—from the role of carbon capture and storage to carbon offsets to the timeline for phasing out fossil fuels or “unabated” fossil fuels—there were concerns that the COP president’s background would sway the proceedings.

On the other hand, supporters of Sultan al-Jaber’s COP presidency insisted that oil- and gas-producing states should be part of the solution given the nature of today’s energy system as well as the need to reconcile perspectives from Organization for Economic Cooperation and Development (OECD) countries and the Global South. These voices argue that enlisting petrostates and NOCs in global climate commitments will be important since they constitute such a large share of global energy production.

This debate shows the complexity of issues involving national oil companies. Rapid progress toward cutting emissions and meeting net-zero targets by mid-century means a steep reduction in oil and gas production—but these companies will remain among the most advantaged and enduring producers even as oil demand declines. So, what voice should NOCs have in climate policy, including on methane reductions? And can they be credible actors in the energy transition? To address these questions, it is important to understand the role of NOCs in national economies and political systems.

National oil companies have existed for many decades, and the reasons for their genesis vary by country. The first NOC was created in Argentina a century ago, with Yacimientos Petrolíferos Fiscales (YPF) established to ensure national control over a strategic resource. Mexico nationalized its oil and gas industry in 1938, creating Petróleos Mexicanos (PEMEX) as steward of its national hydrocarbons. NOCs asserted themselves in the global oil system in the 1960s and especially the 1970s, following the 1960 formation of the Organization of the Petroleum Exporting Countries (OPEC). In this tumultuous period, countries wrested greater control of their oil and gas resources from the “seven sisters”—the integrated oil companies that until that point had dominated global supply chains in production, transportation, refining, and distribution. State oil companies were either established or greatly empowered across the Middle East, Eurasia, Latin America, and sub-Saharan Africa.

There were political and economic drivers for this wave of nationalizations. First, the creation of OPEC, the nationalization of resources in numerous countries, and the rise of NOCs reflected deeper political undercurrents in the postcolonial era. Political leaders made gaining control of national economic resources—including oil, gas, minerals, and other natural resources—a rallying cry. In many cases, they had justifiable complaints about the paltry share of resource revenue accruing to states and citizens in the “seven sisters” era. Second, following the 1973 price increase and Arab oil embargo and the associated oil shock, the value of national oil and gas resources skyrocketed. NOCs played an instrumental role in helping states exercise oversight of those resources to control the pace and means of production. In this key period of development, many states saw NOCs as a symbol of economic sovereignty and as tools to achieve their economic and political objectives. Fifty years later, these goals for NOCs still resonate.

Today, NOCs still have many responsibilities that transcend revenue generation.

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Figure 1: NOC Responsibilities and Demands

In the realm of economics, companies such as Saudi Aramco, ADNOC, Sonatrach (Algeria), and Sonangol (Angola) are cornerstones of national economies. Petroleum accounts for more than half of government revenue in these countries, so from the perspective of their home governments, NOCs are “too big to fail.” Even in states with more diversified economies, such companies are critical sources of revenue and hard currency. Most oil- and gas-producing states—even those with NOCs—allow private investment in upstream oil and gas production, often in partnership with state companies, so NOCs do not account for the entire revenue pie. But Saudi Aramco, for example, maintains a monopoly on upstream production, and its oil revenues have provided two-thirds of government income in recent years.

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Figure 2: Government Dependence on Hydrocarbons as Percent of Government Revenue, 2022

Governments also depend on NOCs to deliver the energy required to support economic growth. In fast-growing, industrializing economies, this is a significant challenge. Consider how the demands of China’s three large NOCs evolved during the 2000s—a decade in which the economy grew at an average rate of 10 percent per year and China’s oil demand rose by 75 percent. The NOCs were not expected to satisfy this demand through their own production, but China’s rise required its NOCs to greatly expand domestic refining capacity and to venture abroad in search of new resources.

In terms of energy security, most NOCs have a mandate to safeguard national oil and gas resources and ensure they are produced safely and on a timeline that suits government priorities. Such companies embody the goal of asserting national control over a critical economic resource, rather than leaving the industry in the hands of private companies that may have conflicting priorities. NOCs are also tasked with satisfying national energy demand and are often expected to provide subsidized fuels to the local population. A review of NOC subsidy burdens is beyond the scope of this paper, but there is an extensive literature on the role of NOCs in providing subsidized energy and the economic burden this creates in terms of operational losses and foregone revenue. Some countries, such as India and Egypt, use complicated transfer systems to compensate NOCs for selling fuels at subsidized rates.

NOCs are also subject to the demands of politics and geopolitics. Because these companies have engineering and project management expertise, governments utilize them to build state capacity. In their home markets, these companies are occasionally tasked with investing in politically significant projects that pull them away from their core mandate as oil and gas producers. In terms of international engagement, NOCs are frequently the best-known companies of their respective states and act as emissaries. Their joint ventures at home and abroad solidify trade and investment links between countries, and geopolitical considerations frequently shape NOC partnerships. For example, the UAE has sought to attract new partners in upstream oil and gas from China, South Korea, and South Asia to counterbalance the traditional role of the Western “supermajors.”

The economic stakes of NOC transition plans are extremely high. Declining NOC revenue—whether because of falling domestic production, lower prices, or uncompetitive assets and resources—poses a special threat to countries with high oil and gas dependence. These risks can lead to diverging responses. States fearful of losing oil income may be more tempted to protect their revenue stream for as long as possible, thereby forcing NOCs to stick with their traditional business. On the other hand, concerns about the longer-term future can alter NOC mandates and create pressure to diversify their business models. Both responses are visible today in various countries, as discussed in the following section.

The resource governance mandate for NOCs cannot be ignored. Advocates of rapid energy transitions suggest that these companies should leave large volumes of reserves and resources in the ground to avoid risky bets on long-duration projects with high capital costs. These are important concerns that reflect the limits of the global carbon budget, but calls for NOCs to ramp down production conflict with their core mandates. It is notable, for example, that aside from PetroChina and Colombia’s Ecopetrol, few of these companies have made a commitment to reduce “Scope 3” emissions associated with the products they sell. It is hard to reconcile Scope 3 pledges with core NOC requirements to produce national resources and ensure energy security.

This does not imply that NOCs should ignore the energy transition or continue with business as usual, especially in the face of evidence that global demand for oil and even natural gas could plateau within the decade. Rather, the implication is that these companies’ climate commitments will be most effective if they are aligned with their responsibilities in energy security and resource governance, rather than conflicting with those tasks.

Investor Influence

Although NOCs are, by definition, state-owned enterprises, many are publicly listed as well, and the varieties of shareholding influence their climate strategies. There are several important distinctions regarding ownership. While many publicly traded NOCs have issued shares on international stock exchanges, others have only domestic investors. Issuing shares internationally allows NOCs to access capital, but not all of them are prepared to meet the associated reporting requirements and disclosures. In some cases, these companies may decide not to list in the United States or Europe to avoid litigation risks. NOCs with solely domestic listings include Saudi Aramco and Kazakhstan’s Kazmunaigas. Governments can also retain a controlling interest in NOCs even with a minority of shares, giving them a strong degree of control over corporate direction. These restricted shares can be held directly by the government or by close affiliates such as state development banks, as in the case of Brazil’s Petrobras.

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Table 1: State Shares of Listed NOCs

A key question is how much investors, compared with governments, can shape NOC climate commitments. Publicly listed NOCs grant some degree of influence to minority shareholders such as institutional investors. The degree of external influence over these companies’ strategies is highly variable, but in general it is limited compared to their principal shareholder: the government. However, channels of investor influence over NOC climate commitments and methane reduction strategies are potentially considerable and have been little utilized to date. The role and influence of these stakeholders in spurring NOC climate and methane commitments is discussed in the final section of this paper.

NOC Evolution

For decades, the long-term shift away from fossil fuels seemed too far over the horizon to trouble NOCs or alter their corporate strategies, especially because most were confident that they would retain their advantage. That time has passed. Even the companies with the world’s largest petroleum resources are reassessing threats to oil demand and considering ways to diversify their business. NOCs are diverse, running the gamut from nascent firms with minimal operating experience to some of the world’s most sophisticated operators. But the shift away from fossil fuels is leading to even more fragmentation. Some state oil companies have the tools to adjust, while others are already being left behind.

National oil companies are starting to follow different energy transition pathways, as shown in Table 1. Their strategies depend on factors such as resource endowment, financial resources and access to capital, the competitiveness and carbon footprint of their national resources, and their ability to retain and generate partnerships. These choices are also linked with government climate goals. Below is a typology of NOC strategies in the energy transition that describes how the changes in their mandates and expectations will lead to different outcomes and roles.

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Table 2: The Energy Transition Is Changing NOC Missions

Advanced economies are pushing late-stage NOCs toward a serious evolution. NOCs of this type are rare because most of the advanced, diversified economies described in Table 1 have fully privatized energy sectors. Norway’s Equinor is the best example. These companies are several steps ahead in the transition since they have larger international footprints, are well capitalized, and have relatively more freedom to set their own transition strategies. Late-stage NOCs enjoy strong balance sheets and good access to capital, and they have the engineering and project management acumen to help diversify into new business areas such as offshore wind power, solar energy, hydrogen, and energy storage. The transition challenges for such companies include the risk of bad bets on emerging technologies, the lack of incumbent or first-mover advantage in renewable energy, and lower returns in most segments compared with domestic oil and gas production.

Among developing economies, the key question is how national economic goals and political priorities will shape energy and climate objectives. This broad category of countries includes some of the world’s largest oil and gas exporters, as well as others with mature-to-declining oil and gas output. The group encompasses countries that aim to diversify their economies and reduce dependence on hydrocarbons. This is especially true in countries like the UAE that have shifted to a “produce now” mentality rather than the conservative approach to resource development that guided oil sector governance for decades. Diversified players are disparate NOCs found in fast-developing economies and generally have strong financial resources and good access to debt and equity markets. These NOCs face pressure to decarbonize their operations and invest in lower-carbon energy, whether to meet government demands to align with climate goals or to meet customer demands. They include companies with some of the most ambitious transition plans and the greatest envisioned shift in business models. Diversified players can be divided by resource size. NOCs with large domestic oil and gas resources, such as Saudi Aramco, ADNOC, and Qatar Energy, are retaining their focus on the core business—which often underpins state economic diversification plans—while expanding into lower-carbon energy. The second subset includes companies with smaller reserves, such as Malaysia’s PETRONAS, Colombia’s Ecopetrol, and Thailand’s PTT. Diversified players generally have large-scale, less carbon-intensive assets. In certain areas, diversified players are the most technologically astute NOCs, but the transition creates significant challenges for them. The margins and rents in renewable energy cannot compete with those from oil and gas output (at least domestically). And these companies are generally inexperienced in sectors such as wind and solar energy, mobility, and low-carbon businesses, so they face a steep learning curve and human resources challenges. In summary, these companies are relatively well positioned for a transition and have an opportunity to thrive. If climate concerns prompt a serious evolution among NOCs, it will start with this group.

NOCs in rentier states are traditionalists. These countries—in which political and economic systems revolve around the redistribution of resource rents—include major oil and gas resource holders, as well as some smaller oil producers. Traditionalist NOCs plan to stick with their core oil and gas business, or even double down by acquiring assets that may be divested by private companies. In most cases, their host governments have decided—rightly or wrongly—that the transition does not pose a threat, so traditionalist goals are to retain partners and safeguard their status as low-cost producers. Aside from rentier states, some governments want NOCs to continue playing their traditional roles as other state and private companies focus on clean energy. China is the best example. Although the mandates for the big three Chinese NOCs are evolving and they have adopted net-zero targets in line with state goals, they are mainly focusing on areas adjacent to oil and gas such as hydrogen, while other state and private energy companies lead in renewable energy. Traditionalists have several big advantages: they typically have large oil and gas resources, and they usually enjoy financial support via state banks and export credit agencies. But they also face serious and even existential threats. Risks include rapid demand destruction for their oil and gas or a loss of competitiveness for certain asset classes such as heavy oil or Arctic resources. NOCs in this category include China’s CNPC, Sinopec, and China National Offshore Oil Corporation, as well as Russian NOCs and India’s Oil and Natural Gas Corporation (ONGC).

Lastly, struggling states produce struggling NOCs. These states are losing competitiveness, at least in the oil and gas sector, and some of them face economic collapse, war, civil strife, or crippling sanctions. Their NOCs may have large domestic oil and gas resources but typically lack access to the partnerships or capital required to maintain or grow production. The key challenge for these NOCs is the departure of their technical and financial partners, as well as their host governments’ poor recognition of looming threats. They are more concerned with survival and relevance than with developing robust climate strategies. NOCs in this category include Petróleos de Venezuela (PDVSA), the National Iranian Oil Company (NIOC), Sonangol, and Sonatrach.

Although NOCs are heterogeneous, the shift away from fossil fuels will affect all of them. As state institutions, their ability to adapt and evolve depends largely on the signals and requirements of the state.

NOC Climate Commitments and Net-Zero Targets

In terms of climate commitments, NOCs are usually perceived as laggards at best and obstructionists at worst. It is certainly true that these companies trail their international oil company peers in climate-related disclosures and targets. NOCs are more insulated from the investor pressure, shareholder resolutions, and public demands that have compelled the Western supermajors and large independents to set emissions reduction targets. And when host governments fail to set ambitious climate targets, their NOCs generally follow suit.

Yet more NOCs have set net-zero targets than many realize, from Equinor to PTT (see Table 3). Most of these companies aim to reach net-zero emissions by 2050 for Scope 1 and 2 emissions, which refer to direct emissions from company operations and those associated with purchased energy (such as electricity, steam, heating, and cooling), respectively. These Scope 1 and 2 targets for 2050 are generally in line with those of other large oil and gas producers. As noted, Scope 3 commitments regarding emissions related to sales and distribution are rare among NOCs.

The COP28 conference brought an important announcement on NOC climate commitments and methane reductions. Fifty companies, including numerous NOCs, signed a decarbonization charter, which includes a commitment to reach net-zero Scope 1 and 2 emissions and to achieve methane intensity of 0.2 percent and end routine flaring by 2030. Many of these companies, including state firms and Asian utilities and trading houses, made these commitments for the first time, and details and implementation pathways for such companies have not yet been announced.

Oil and Gas Decarbonization Charter

On December 2, the Oil and Gas Decarbonization Charter (OGDC) was announced at COP28. Fifty oil and gas companies agreed to set 2050 net-zero targets for Scope 1 and 2 emissions, including several national oil companies that had not previously made such commitments. The signatories also aim to “zero-out” methane emissions—defined as reaching “near-zero” methane intensity of 0.2 percent—as well as eliminate routine flaring by 2030, and to enhance methane measurement, monitoring, reporting, and independent verification of their greenhouse gas emissions.

A partial list of NOC signatories includes ADNOC, Bapco (Bahrain), Ecopetrol, Egyptian Natural Gas Holding Company (EGAS), Equinor, Kazmunaigas, Libya National Oil Corporation, National Petroleum Corporation of Namibia, Pertamina, Petrobras, PETRONAS, PTTEP (Thailand), Saudi Aramco, Sharjah National Oil Corporation (SNOC), SOCAR (Azerbaijan), Sonangol, Uzbekneftegaz (Ukbekistan), and YPF (Argentina). Signatories also include several companies with mixed state and private ownership, such as Petroleum Development Oman.

Near-term and interim targets are arguably more important than 2050 net-zero goals, but not all interim pledges show equal ambition. Some companies have set targets for absolute emissions reductions. Others aim to lower their emissions intensity (a measure of greenhouse gases produced per unit of energy). In both cases, the baselines matter. Certain NOCs use 2019 as the baseline year from which to measure their emissions reductions, which is reasonable given the Covid-19-related disruptions in the energy system beginning in 2020. Pre-2019 baselines suggest lower ambitions.

One key difference between the NOCs and the Western supermajors is their level of data transparency. Even among some publicly listed companies such as the Chinese NOCs, the quality of disclosures is lower. Wholly state-owned companies provide far less data. There are exceptions such as PETRONAS, which publishes detailed sustainability reporting and has granular near-term emissions reduction targets. But several NOCs with net-zero targets have provided little to no public data. ADNOC has set a 2045 net-zero target, as well as several performance targets on emissions, but has not published a detailed sustainability report in years. To convince the public and investors that they are vigorously pursuing their net-zero targets, NOCs should greatly improve data transparency and the ambition and detail of interim emissions reduction targets.

Case Study: Petrobras Slow to Shift Investment Strategy but Sets Emissions Targets

Brazil’s national oil company, Petrobras, illustrates how government climate strategies can shape NOC directives. The company’s emissions disclosures and climate targets have evolved gradually, but its low-carbon energy priorities have fluctuated in line with political changes in Brazil.

Drivers: Petrobras is a publicly traded company, but the state holds a controlling share. Compared with other Latin American NOCs, it has a sizeable resource base. Ultra-deepwater pre-salt fields now account for more than 75 percent of Petrobras production. The pre-salt production ramp-up has consumed much of the company’s attention for the past decade. Its ventures into lower-carbon energy have been limited, aside from biofuels. When Luis Inácio Lula da Silva returned to the presidency in January 2023, the expectation was that he might orient Petrobras toward lower-carbon energy, but so far there have been no discernible changes. The company’s 2023–2027 strategic plan allocates just 6 percent of capital expenditures to its “low-carbon position,” with very little funding clearly earmarked for clean energy.

Emissions targets: Petrobras aims to reduce greenhouse gas emissions from operated assets by 30 percent by 2030 (from 2015 levels), and to cut methane emissions intensity by 55 percent in the upstream segment by 2025 (from 2015 levels). It intends to maintain the current levels of carbon intensity in exploration and production activities at approximately 15 kilograms of CO2 per barrel of oil equivalent (CO2/boe) from 2025 to 2030 and to cut emissions intensity in the refining sector by 30 percent by 2030. Petrobras has used CO2 injection for enhanced oil recovery, which helps cut greenhouse gas emissions intensity (while raising oil production). It has now signed the Oil and Gas Decarbonization Charter and its associated methane commitments.

Significance: Petrobras is a leading producer and technology leader in Latin America, especially in the deepwater segment. By joining the Oil and Gas Methane Partnership 2.0 (OGMP 2.0) and establishing methane reduction targets, it is setting an important example for other NOCs in the region. However, for now Petrobras has shown little interest in building a more robust business in lower-carbon energy.

Case Study: PETRONAS Net-Zero and Methane Targets

With relatively limited reserves and a mature production base, PETRONAS has more incentives than many NOCs to diversify its business. But it is an unusual example of a wholly state-owned NOC that has set ambitious net-zero and emissions reduction targets in the absence of investor pressure or heavy-handed direction from the state.

Drivers: PETRONAS holds itself to high operational standards and has always seen itself as a leader among Asian oil and gas companies, both NOCs and private firms. Relative to most other NOCs, it has considerable independence to set its corporate strategy. In the same way that it began publishing detailed operational data years ago—not quite to the standard of publicly listed firms, but far better than most of its NOC peers—the company has sought to demonstrate a proactive approach to sustainability data. It is also possible that PETRONAS is positioning itself for a future in which buyer demands will evolve in carbon-constrained markets, for example with buyers requesting better data on the emissions intensity of purchased gas.

Emissions targets: The company aims to cut greenhouse gas emissions in groupwide operations by 25 percent by 2030 and to reach net-zero carbon emissions by 2050. It is targeting a 50 percent reduction in methane emissions for groupwide natural gas value chain operations by 2025. By 2030, it aims for a 70 percent cut in methane emissions at groupwide natural gas value chain operations and a 50 percent reduction in methane emissions from Malaysia’s natural gas value chain operations. It has now signed the Oil and Gas Decarbonization Charter.

Significance: In late 2020, PETRONAS became the first Asian oil and gas company to set a net-zero target. Since then, it has been more proactive than other Asian NOCs in publishing emissions data and setting detailed emissions reduction targets. It has also used its voice as a leading company in the region to convene national oil companies from Southeast Asia through the ASEAN Energy Sector Methane Leadership Program. The group, which was established in October 2021 and meets every six months, focuses on capacity building and cost-effective solutions to cut methane emissions in operations.

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Table 3: NOC Net-Zero Targets

NOCs and Methane Reductions

The importance of reducing methane emissions by oil and gas is well known. Methane is a short-lived climate forcer, so cutting the rate of methane emissions in the near term and reducing its concentration in the atmosphere can help slow the pace of global warming. There is growing recognition that the oil and gas industry presents the best opportunities to make rapid methane reductions. The International Energy Agency (IEA) estimates that based on average global gas prices from 2017 to 2021, around half of methane-abatement solutions in the oil and gas sector could be implemented at no net cost. Momentum has grown since the 2021 creation of the Global Methane Pledge, and methane reductions are now a key part of international climate negotiations. Policymakers in the United States, Europe, and elsewhere have proposed tougher regulations on the upstream and midstream segments of the industry. Investors are pushing companies for robust methane reduction targets and action plans, emphasizing the importance of methane measurement as opposed to modeling of methane emissions, and urging wider commitments covering joint ventures and non-operated assets.

Until recently, NOCs received relatively little attention in discussions of methane emissions. Investors and environmental groups focused on the Western majors and large listed companies, rather than on national oil companies that seemed more immune to external pressure. This is beginning to change, especially as advocates of rapid methane reductions have realized how much NOCs contribute to global oil and gas production and to global methane emissions. In the past year, there has been a growing recognition that climate groups need to engage NOCs on methane reductions and seek to assist those with fewer financial resources and technical expertise.

There is much work to be done, as NOCs account for some of the most pernicious flaring, venting, and fugitive emissions in the world. Among the top 10 gas-flaring countries by volume in 2022, almost all were countries with NOCs. The United States has the dubious position of number six on the list, although it fared much better in terms of flaring intensity given its status as the world’s largest gas producer (see Figure 3). The global average flaring intensity was around 4.7 cubic meters of natural gas flared per barrel of oil produced, although many countries with NOCs performed worse. The IEA estimates that Russia flared a stunning 25.5 billion cubic meters of gas in 2022—more than Poland’s total gas consumption that year. Gas flaring represents a considerable stream of foregone revenue, and flaring reductions as well as leak detection and repair efforts offer the largest methane abatement potential in the oil and gas sector for the least net cost.

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Table 3: NOC Net-Zero Targets

NOCs have made some strides in the past two years toward better methane performance. Table 4 below summarizes NOC membership in several voluntary initiatives and pledges related to methane reductions. Participation in these groups establishes credibility and provides a benchmark for industry performance. It is encouraging that some NOCs have joined the Oil and Gas Methane Partnership 2.0 (OGMP 2.0)—a measurement-based reporting framework under the UN Environment Program that is associated with the International Methane Emissions Observatory. OGMP 2.0 members must report annually on methane emissions from their operated and non-operated assets, define and disclose an emissions-reduction target (either an absolute emissions target or an intensity target), and submit implementation plans. Companies that join OGMP 2.0 join a “community of practice” that includes technical workshops and peer-to-peer exchanges on transitioning to measurement-based methane reporting. Other important NOC signals on methane reductions come from the Oil and Gas Climate Initiative—a grouping of national and international oil companies whose members have set a 2025 methane intensity target of “well below 0.2 percent.” Many more NOCs have joined the World Bank’s Zero Routine Flaring by 2030 Initiative, a pledge to eliminate routine gas flaring from upstream operations. Several NOCs are members of the Methane Guiding Principles, a partnership of companies and international organizations that promotes collaboration and sharing of practical tools and guidance to enable methane reductions. 

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Table 4: NOC Climate and Methane Commitments

NOC methane reduction targets are summarized in Table 5, and reflect the December 2 announcement of the Oil and Gas Decarbonization Charter. Generally, these targets track the Oil and Gas Climate Initiative’s goal of reaching methane intensity well below 0.2 percent, although there are some variations. There is growing convergence toward achieving “near-zero” methane emissions by 2030, although exact targets and pathways over the next decade are not yet clear. It was notable that the Chinese NOCs and Qatar Energy have not yet joined the Oil and Gas Decarbonization Charter, although they have already set separate methane reduction targets and could join this initiative at a later date.

The challenge is to back up these interim targets with investments and corporate commitments to address flaring, venting, and leaks. The playbook is by now fairly well known, although interventions will vary depending on the results of methane measurement at various sites and operating environments. The solution set includes replacing gas-fired pneumatic devices, eliminating non-emergency flaring, and implementing better operating practices in areas such as unloading liquids from natural gas wells or enacting new procedures to avoid pipeline blowdowns.

Wealthier and better-managed NOCs should be able to achieve these targets well before 2030 if there is commitment from top-level management as well as new performance targets throughout the organization. Similarly, although there is limited human capacity at NOCs in terms of methane quantification, measurement, reporting, and verification, strong corporate commitments should allow companies to make significant strides in the near term. This is one area in which membership in voluntary programs such as OGMP 2.0 and the Methane Guiding Principles can have an impact.

External Forces on NOCs

Investors in listed NOCs clearly have an important role to play in driving methane reductions, especially as part of a broader set of financial sector players that influence NOC decisionmaking. Minority shareholders have been successful in requiring these companies to provide better environmental, social, and governance (ESG) data. And external influence is not limited to equity shareholding. A significant number of NOCs issue corporate debt, and bondholders with ESG and net-zero targets are requesting more details on the firms’ disclosures and emissions reduction plans. NOCs are not always pleased with these ESG-related demands, but they are part of a broader movement to demand better governance at state-owned enterprises and thus unlikely to recede.

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Table 5: NOC Methane Reduction Targets

NOC shareholders have clear opportunities to engage company boards and management on sustainability-related targets and emissions reductions, but the potential influence of bondholders is often overlooked. Rather than facing a single decision point about whether to participate in NOC bond issuance, fixed income managers can engage NOC senior management on an ongoing basis to advocate for methane reduction targets and clear action plans. Fixed income investors can send a strong signal by discussing these priorities with company management, and in some cases by declining to participate in transactions with state companies that lag on sustainability targets. The insurance industry can play a similar role, since it provides essential services to a wide range of NOCs. Financial sector advocacy on methane reductions is likely to increase in the coming years, affecting both wholly state-owned companies and listed NOCs. Government directives matter most, but debt and equity investors as well as the insurance sector can shift corporative directives and build momentum toward NOC methane reductions.

Unfortunately, not all NOCs have the financial resources, pressure from governments, or exposure to investors that would encourage methane reductions. Companies such as PDVSA, Sonatrach, Iraqi state companies, and Turkmenistan’s Turkmengaz are some of the most egregious emitters but offer fewer channels of external influence. Creative solutions will be required to help these companies get a handle on methane emissions. The solutions could entail blended finance from multilateral development banks and private capital, as well as sustainable bonds or other financial instruments specifically designed to support methane abatement projects. Technical support and guidance for NOCs will likewise be important, in terms of not only training on operational changes and best practices but also advice and support on interpreting methane measurement data and quantification.

Conclusions and Guidance for NOC Engagement

NOCs are a broad, diverse group of companies with varied responsibilities. The long-term shift away from fossil fuels represents an existential threat to national oil companies, and their pathways are already beginning to diverge. Resource endowment, government climate goals, investor pressure, and corporate leadership are just some of the factors leading these companies to pursue different energy transition strategies.

NOCs are beginning to set more ambitious net-zero targets, but their climate commitments—including methane reduction goals—are at a very early stage. They will require more support, encouragement, and pressure to make methane cuts a larger priority. Because these companies are heterogeneous, the same engagement strategies cannot be applied across the board. But by understanding the political and economic context for each company and identifying opportunities for partnerships and learning between NOCs, investors and civil society groups can help shift their priorities.

Below are several suggestions for stakeholders in their efforts to push national oil companies to reduce methane emissions.

  1. Be mindful of core NOC missions and state demands. If sustainability targets are seen as conflicting with each company’s responsibilities—for example, government directives to maintain production—climate targets will lose out.
  2. Encourage NOC-to-NOC partnerships. NOCs learn from each other and are often more amenable to advice from other state companies than from Western firms or nongovernmental organizations. In the 2000s—a period in which “peak oil supply” concerns were rampant and NOCs were ascendant—these companies created new avenues for intra-NOC dialogue and joint investment. The energy transition offers additional opportunities for such collaboration, of which there are emerging examples in Southeast Asia and the Gulf states. Investors, environmental groups, and asset managers should encourage technical exchanges and dialogue between NOCs on methane reductions.
  3. Identify regional champions on methane cuts. In the Middle East, Latin America, Southeast Asia, and Africa, actions by leading NOCs can create positive spillover effects. Investors and advocacy groups should support regional champions and leverage their convening power.
  4. Provide help and technical support for lagging NOCs. Multilateral development banks, philanthropies, and advisers should join forces to offer financial assistance to NOCs with significant flaring, venting, and fugitive emissions. This will require unconventional and creative approaches to help de-risk lending.
  5. Focus on NOC capital structure. Investor pressure matters. Even wholly state-owned NOCs still interact with capital markets. Equity shareholders and lenders should identify discrete opportunities with company boards and investor relations teams to advocate more ambitious methane monitoring, measurement, and quantification.

Ben Cahill is a senior fellow with the Energy Security and Climate Change Program at the Center for Strategic and International Studies in Washington, D.C. Kjersti Swanson is a junior research analyst with Energy Intelligence’s Research & Advisory program and a former intern with the CSIS Energy Security and Climate Change Program.

This brief was made possible by Environmental Defense Fund as part of a project on financial sector engagement with national oil companies.

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Ben Cahill
Senior Fellow, Energy Security and Climate Change Program

Kjersti Swanson

Former Intern, Energy Security and Climate Change Program.