CERAWeek: NOCs Balance Financial Realities, Energy Transition

By default, no two national oil companies (NOCs) are alike, but some are finding themselves adapting to increasingly similar difficulties — in particular securing funding to serve the needs of their countries. 

Korea National Oil Corp. (KNOC) is venturing out into deepwater seeking the domestic hydrocarbons South Korea needs, and though China National Petroleum Corp. (CNPC) is the largest oil producer in China, it is still on the lookout for more resources to meet domestic demand. In contrast, Kuwait Petroleum Corp. (KPC) finds itself with plenty of resources and is ahead of the curve on decreasing emissions, experts said during a March 19 CERAWeek by S&P Global session on how such companies are adapting in a changing energy world.

Despite NOCs being differentiated by whether they’re hydrocarbon rich or more on the lookout for resources, their role is the same: “Steward the oil and gas reserves of the nation and provide the security, affordability and the sustainability that the world needs,” John Downie, global energy industry sector lead at Accenture said.

However, he said, it’s become harder for the oil and gas industry to finance its needs. 

“I don't think that is irreversible. I don't think that is a problem that is going to … bankrupt the industry in any way whatsoever,” he said. 

But, he said, the industry needs to appropriately address the energy trilemma — sustainability, security and affordability —while making the necessary energy transition commitments, which will cost an estimated $13.5 trillion by 2050.

“NOCs today produce over 50% of the oil and gas in the world, and they hold more than that in the reserves. So the NOCs play a hugely, hugely important part in terms of the system of today, in the system of tomorrow,” Downie said.

But the have and have nots of the NOC world are not all equal.

KNOC CEO Dong Sub Kim said his NOC is not at all similar to KPC, which “can produce oil and gas more than they can spend. Whereas KNOC, we have nothing. We have almost zero to produce, so we don't have any much to say about the domestic production.”

KNOC is present in 16 countries to secure the oil and gas it needs to secure for the country. It has also made a promising domestic offshore start, he said.

“We've been doing the exploration in the domestic, especially the shallow waters, now getting into the deepwater, and we did a 3D analysis. The initial sign was quite promising, although it may not be as big as Guyana. But, we are hoping for a big one in the deepwater,” he said.

Transformational times

Part of KNOC’s strategy is a digital transformation using AI to optimize operations.

Kim said the use of AI cuts down on the time spent on geoscience interpretation, saves money and cuts down on CO2 emissions. “We should utilize these new technologies in data. To me it doesn't require a huge investment. It requires talent and software,” he said.

Downie said digital technology will be foundational for the energy industry.

“Whether it's about transforming the existing hydrocarbon business that we have or in leading on the energy transition, the exploitation of those technologies will mean that that $13.5 trillion [in energy transition capital commitments] doesn't become $14 trillion, $15 trillion or more because that's where we will drive efficiency and effectiveness in our capital projects. That's where we'll drive efficiency and effectiveness in our operations,” he said.

Ruquan Lu, president of the CNPC Economics & Technology Research Institute, said one of CNPC’s strategies is transforming its assets to maintain profitability and deliver the country’s needed energy.

“We try to transfer some traditional oil and gas fields to, let's say, [a] geothermal field. Transfer the traditional oil and gas field to, let's say, a CCS field, and transfer traditional oil and gas field to a hydrogen station, and also PV and solar,” he said.

CNPC converted a depleted oil field by embedding geothermal tech, and that field has produced 20,000 cu. m. of geothermal, he said.

CNPC is seeking more difficult oil and gas now that the country’s “easy” to access oil has been produced, he said.

“China's outside dependency for crude oil is as high as 70%, and the natural gas as high as 45%,” Lu said.

As such, CNPC’s main exploration efforts are focused on two areas. First, it is going deeper and deeper, recently drilling vertically beyond 10,000 m, he said. Second, CNPC has “a dream of a shale revolution” domestically, he said.

Growth and reduction

While CNPC and KNOC are scrambling to find oil and gas reserves, KPC has healthy reserves and aims to grow its current domestic output of 3 MMbbl/d by 1 MMbbl/d by 2035, Bader E. Al-Attar, KPC’s managing director of planning and finance, said.

“The resource is huge enough, thank God, to support this growth in the upstream. And along with that we have gone not just onshore, we have recently gone offshore.”

A second offshore well drilled by KPC makes prospects look positive. “We hope the portfolio is big enough, and we haven't even gone to look at the unconventional sides of the resource yet,” he said.

Kuwait’s NOC has “always had a growth strategy” for hydrocarbons delivery, he said, and that calls for investing about $300 billion by 2040. To meet energy transition initiatives, KPC will need to invest an additional $110 billion by 2050, he added.

KPC’s focus on emissions reduction enabled it to drop gas flaring from 17% in 2007 to less than 1% this year, he said. The company is committed to reaching net zero emissions by 2050, while the country as a whole is committed to net zero by 2060, he said.

KPC has asked its eight subsidiaries to create initiatives to abate Scope 1 and 2 emissions by 2050. He said 25% of that will be accomplished by renewables offsets, while 45% is planned to be offset by carbon capture, utilization and sequestration .

A field in West Kuwait, which has been on production since 1959, will help. KPC will use CO2 injection for EOR.

“We have injected into it rich gas so far, which is equal in technical terms to the CO2, but we are ready now to inject some volumes of CO2 in portions before we go to the full scale,” Al-Attar said.

He said the challenge is the huge amount of capital requirement for the project.

“We're looking to ways of reducing that, but it's going to take CO2 from our downstream operations into the upstream operations so that it be injected either for EOR in this case or even for storage in other areas [that] there are other plans in terms of energy efficiency,” he said.