RIYADH: National oil companies in Gulf Cooperation Council countries could absorb the additional investments needed to transition toward net-zero while maintaining robust credit metrics, said S&P Global.
In its latest report, the credit rating agency noted that NOCs in the GCC face similar energy transition risks as their global counterparts, but their strong financial positions will help mitigate these impacts.
Rawan Oueidat, credit analyst at S&P Global Ratings, said: “We expect that GCC NOCs will have sufficient financial buffers and competitive advantages to absorb the incremental investments that are necessary to catch up with global peers and that they can preserve their credit ratios over the next five years.”
He added: “GCC NOCs’ average low-carbon investments would have to total $15 billion-$25 billion annually at least until 2026 to keep up with those of global listed peers. Even after factoring in these investments, the overall effect on NOCs’ debt to EBITDA (earnings before interest, taxes, depreciation, and amortization) would be below 2.0x on average.”
According to the report, these firms can fund most of their net zero projects without having to revert to external financing sources.
S&P Global added that both banks and capital markets will play a role in funding the regional countries’ energy transition.
“Given the size of the GCC banking systems and their capitalization, we expect they will have the capacity to cater for the funding needs of the NOCs’ low-carbon investments over the next few years if necessary,” stated the agency.
It added: “However, we observe that NOCs, which are generally among the largest and internally-focused corporates in the GCC countries, are typically financed outside the local banking systems.”
The report highlighted that while firms in the region benefit from strong balance sheets, they will need to carefully consider investment requirements in relation to dividend distributions.
It further noted that the majority of NOCs in the GCC have already established net-zero targets, with Saudi Aramco aiming to achieve this by 2050 and Abu Dhabi National Oil Co. targeting a goal by 2045.
S&P Global further noted that environmental, social, and governance disclosures among oil firms in the region have increased, particularly in disclosing scope 2 emissions, but still lag behind their global counterparts.
However, the report highlighted that most NOCs in the GCC have not yet disclosed scope 3 emissions.
Scope 2 refers to emissions released into the atmosphere from the use of purchased energy.
On the other hand, scope 3 encompasses indirect emissions in a company’s value chain, and it is generally considered complex and challenging to report.