GCC oil firms need $15-25 billion in low-carbon investments by 2026: S&P report

National oil companies (NOCs) in the Gulf Cooperation Council (GCC) countries are able to strategically absorb incremental investments for transitioning towards net zero while maintaining solid credit metrics. Despite challenges, such as global pressure to reduce emissions and adapt to climate change, GCC national oil companies are leveraging their financial resilience and competitive advantages to navigate the evolving energy landscape.

To align with global peers, S&P Global believes that GCC national oil companies must commit an average of $15 billion to $25 billion annually until 2026 towards low-carbon investments. These investments, which mainly focus on renewable energy and green hydrogen solutions, aim to reduce carbon footprints and enhance sustainability. Despite the substantial financial outlay, S&P Global expects the impact on national oil companies’ debt-to-EBITDA ratios to remain below 2.0x on average.

While benefiting from strong balance sheets, GCC national oil companies face the challenge of balancing investment needs with dividend distributions. Financial policy commitments will play a crucial role in determining their external funding requirements and sustainability initiatives.

Sustainability initiatives

GCC national oil companies have accelerated sustainability targets post-COP28, with a focus on reducing emissions and transitioning towards low-carbon operations. While maintaining core operations in oil exploration and production, national oil companies are increasingly investing in renewable energy and green hydrogen solutions to diversify their energy mix.

S&P reveals that GCC national oil companies are as exposed to energy transition risks as their global listed peers. However, their financial positions are stronger and they benefit from operating costs per barrel of less than $10 on average.

Regional progress and challenges

Despite progress, GCC national oil companies’ sustainability disclosures lag behind those of global peers. Moreover, most of them commit to net-zero targets for scope 1 and 2 emissions to help their governments meet national sustainability targets. However, S&P Global reveals that most national oil companies in the region do not have targets for scope 3 emissions which include their carbon footprint and indirect emissions. According to S&P Global Sustainable1, scope 3 emissions constituted about 85-90 percent of the sector’s total emissions globally in 2021.

However, in light of COP28, several national oil companies in the region updated their sustainability strategies. For example, UAE’s ADNOC increased its low-carbon investments until 2030 by more than 50 percent to $23 billion in January 2024. This means low-carbon investments will account for about 15 percent of ADNOC’s total investments over the same period. Similarly, Saudi Aramco’s renewable energy investments will represent about 10 percent of the company’s investments over the near term.

According to the UN Adaptation Gap Report 2023, countries in the MENA region will need to spend about $27 billion annually until 2030, or about 0.7 percent of the region’s GDP, to finance climate adaptation measures.

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GCC companies must clear some hurdles

COP28’s final agreement, the UAE Consensus, calls on countries to transition away from fossil fuels. Moreover, it encourages them to triple renewable energy generation and double energy efficiency globally by 2030. As a result, S&P Global expects GCC national oil companies to focus on three main areas:

• Introducing measures to reduce emissions from traditional operations.
• Increasing renewable energy investments.
• Changing the production mix to increase exposure to natural gas and hydrogen-based solutions, even though the latter are not yet available at scale.