The national oil companies (NOCs) of the Gulf monarchies have been found to be at particular credit risk from the energy transition, new research by Moody's said on Monday.
The analysis Oil & Gas - Global: Energy transition Poses Varying Degrees of Credit Risk to National Oil Companies Energy transition exposed the varying degrees of credit risk to the world's largest NOCs at a time when several governments are announcing climate change policies for a less-carbon intensive economy.
Moody’s forecasted that countries in the Gulf Cooperation Council (GCC), comprising the energy-rich Gulf monarchies – Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates will be particularly at risk, as they will be exposed to prolonged low oil prices and as they rely materially on oil export revenues to cover public spending.
The research showed that NOCs in oil-importing countries where consumption is set to keep growing are less exposed to carbon transition risk than oil-exporting countries.
According to Moody's analyst Hui Ting Sim, NOCs play a critical role in the world's energy markets, and dwarf their counterparts in the private sector, in international oil companies, and in terms of global oil and gas production and reserves.
Sim stated that against the backdrop of slowing oil and gas consumption over the next few decades, and with the potential for a more abrupt disruption to demand, the NOCs' sovereign sponsors will increasingly impact credit profiles by either providing support or acting as a drag.
Other low-risk characteristics, according to Moody’s include low production costs, a high proportion of natural gas or liquefied natural gas (LNG) assets, low leverage and social obligations.
The research found that the impact of sovereign support on NOCs' credit profiles depends on its ability and willingness to provide support even when oil consumption is declining, the degree of its reliance on the NOC for its revenue and whether it is rated above or below the NOC's rating.
While some NOCs are changing for business reasons or to align with government climate change policies, the ability of others to make the transition to less carbon-intensive models is constrained by fiscal obligations or social objectives, the research said.
By Nuran Erkul Kaya