When Exxon Mobil Corp. decided to get out of a big oil field in Iraq, the government took on the unusual role of salesman. Iraqi officials pitched West Qurna-1 to likely buyers from among Exxon’s supermajor peers, including arch-rival Chevron Corp. There weren’t any takers.
That left Iraq with narrowed options: sell to one of China’s state-backed oil majors, or else buy back Exxon’s stake itself. The sale process remains unresolved but either outcome would stand as a powerful indicator of what’s become of the global oil market. With supermajors from the U.S. and Europe in retreat around the world, national oil champions are set to fill the void.
The supermajors — a group that, in addition to Exxon and Chevron, includes BP Plc, Royal Dutch Shell Plc, TotalEnergies SE, and Eni SpA — are shrinking even while fossil-fuel demand holds strong. These companies are under growing pressure to pay down debt while cutting greenhouse gas and, for some, transitioning to renewable energy. Recent weeks saw Exxon and Chevron rebuked by their own shareholders over climate concerns, while Shell lost a lawsuit in the Hague over the pace of its shift away from oil and gas.
National oil companies, or NOCs, are largely shielded from those pressures. When the owners are governments, not shareholders, there aren’t dissident board members like those now sitting inside Exxon. That means state oil producers like those who populate OPEC+ can be the buyers of last resort for fossil-fuel projects cast off by the shrinking supermajors.
State companies can also gobble market share by simply producing oil that their private-sector rivals won’t. Saudi Aramco and Abu Dhabi National Oil Co. are spending billions to boost their respective output capacities by a million barrels per day each, and Qatar Petroleum is spending more than $30 billion to increase its liquefied natural gas exports by more than 50%. (Aramco and Abu Dhabi National Oil declined to comment.)
Taken together, NOCs make up just over half of today’s worldwide oil supply. By 2050, Rystad Energy sees that share growing to 65%.
It’s an unmistakable trend that’s drawing heightened attention to some of the largest and most secretive entities in the world. Many government leaders are seeking to lower planet-warming emissions, with nine of the 10 biggest economies staked to net-zero goals. At the same time, these opaque government-sponsored oil producers — insulated in most cases from both investors and environmentalists, and under little obligation to disclose climate data — are taking over the job of filling the millions of barrels consumed each day.
“We hear government officials and NOC officials say, ‘We look at the divestment of international oil companies from some projects as an opportunity for us to grow,’” said Patrick Heller, an adviser at the Natural Resource Governance Institute. “And I do think that’s potentially really risky.”
Some observers worry that campaigns by activists to have oil majors divest from fossil fuels could end up accelerating a shift to government owners who operate with less transparency and, occasionally, worse environmental records. Jason Bordoff, director of the Center on Global Energy Policy at Columbia University’s School of International and Public Affairs, argued in a recent essay that such efforts could result in “unintended consequences” without the necessary drop in demand.
For all the focus on companies like Exxon and Shell, the majors recently accounted for only 15% of the world’s supply of oil, according to the International Energy Agency. Some of them are set to see their production drop, too, in part due to selling off chunks of their existing businesses.
BP has spent the past two years pursuing divestment deals partly to help meet its net-zero goal, and next it plans to sell a stake in an Omani gas block to Thailand’s national energy firm for $2.6 billion. Shell, with its own pledge to zero-out emissions, recently said it would hand back leases to the Tunisian government instead of producing more oil from them. Such deals reach beyond oil and gas extraction: Mexico’s Pemex is set to buy a Texas refinery from Shell. (Pemex declined to comment.)
There’s some cause for optimism. Countries with the most prolific state-backed oil companies have signed on to the Paris Agreement, with some taking their commitment a step further and participating in voluntary coalitions aimed at reducing emissions. The Oil and Gas Climate Initiative counts five national oil companies, including Aramco and China National Petroleum Corp., among its members. That organization requires a target to reduce the average methane emissions per barrel of oil produced by 2025, although this doesn’t ensure that absolute emissions will fall.
To some degree, this is a phenomenon that Exxon has been warning against for years. As BP and Shell have sold off assets in a pivot to renewables, Exxon has said such moves only work to move production — and emissions — elsewhere. Exxon CEO Darren Woods drew criticism from climate activists last year for labeling rivals’ asset sales to lower emissions nothing more than a “beauty competition.” His wider point underscores the long path ahead for the world as it grapples with climate change.
“This is not a company challenge, this is a global challenge,” Woods said in March 2020. “This idea of moving things in and out of the portfolio from one company to the other actually isn't getting us any closer to a solution.”
But Mark van Baal, founder of Follow This, said that by pressuring the majors it’s still possible to drive an overall reduction in emissions—even without directly challenging the NOCs. State-owned entities will follow if majors push ahead on investment in renewable energy, he said, lowering the costs for everyone. “We need the most innovative oil and gas companies to change and put their full weight behind renewables to speed up the energy transition,” van Baal said. “Others will follow.”
by Rachel Adams-Heard,Laura Hurst, and Kevin Crowley