Transition plans for national oil companies are a critical component of decarbonizing the oil and gas sector

National oil companies (NOCs), such as Equinor and Gazprom, are oil and gas companies that are fully or majority state-owned. These political and economic giants account for half of oil and gas production worldwide, 40% of investments in the sector and two thirds of the planet’s hydrocarbon reserves. Reducing carbon pollution from NOCs will be an essential component to meeting climate goals.

A key step in decarbonizing NOCs is through low-carbon transition plans. In these transition plans, NOCs prepare a decarbonization pathway to meet climate goals and keep global warming under 1.5°C, such as by reducing operational emissions, stopping the expansion of new oil and gas development, and supporting renewable energy. International tools, like the Assessing low-Carbon Transition (ACT) methodology, rates the credibility of these transition plans. Currently, the vast majority of NOCs have not implemented credible transition plans. 

Additionally, despite slight improvements in terms of developing low-carbon business models and setting emission reduction targets, the overall climate performance of NOCs worsened in 2023 compared to 2021. This puts financial actors, like banks, investors, and governments, at risk. Declining demand, increasing regulations, physical risks, and other climate related impacts can lead to declining revenues and fossil fuel resources and infrastructure losing value or becoming unusable (i.e. asset stranding). This could have far-reaching impacts on the ability of governments to generate public revenues, employment and social services. 

Financial actors need to work together to hold NOCs accountable and they have more influence than they may realize. Many NOCs are listed on international stock and debt markets, which allows direct avenues for banks and investors to influence them. Banks and sovereign lenders can also use indirect mechanisms to hold NOCs accountable, including adding climate conditions to financing and increasing borrowing rates due to climate risks. 

Going forward, transition plans and climate disclosures will be a critical means to increasing NOC transparency and accountability. Growing regulations for these policies and an inevitable peak and decline in fossil fuels means that NOCs will have to meet the demand for transition plans in some way. Implementing these plans will unlock financial opportunities for NOCs, including access to transition finance and new markets, while reducing the risk of asset stranding and declining revenues for NOC-owning governments and other financial actors.