National oil companies (NOC) are less prepared for the energy transition than their counterparts in the private sector, which increases their credit risks, Moody’s said Monday.
According to a new report by Moody’s Investors Services, the energy transition poses varying degrees of credit risk to the world’s largest NOCs. Those in oil importing countries, where consumption will keep growing are less exposed to carbon transition risk than those in oil exporting countries, it said.
“Characteristics such as low production costs, a high proportion of natural gas or liquefied natural gas (LNG) assets, low leverage and social obligations also imply lower risk,” the report stated.
Countries in the Gulf region, or other nations that heavily depend on oil export revenues to fund public spending, will be particularly at risk in an environment of prolonged low oil prices. The need for less carbon-intensive operations and products come at a cost to those countries.
“Against the backdrop of slowing oil and gas consumption over the next few decades, with the potential for a more abrupt disruption to demand, the NOCs’ sovereign sponsors will increasingly impact credit profiles by either providing support or acting as a drag,” added Moody’s analyst Hui Ting Sim.
NOCs play a critical role in global energy markets, dwarfing international oil companies (IOCs) in terms of global oil and gas production and reserves.
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