NOCs could tolerate carbon tax of $400/mt: Woodmac

London, (Quantum Commodity Intelligence) - Many traditional national oil companies could tolerate extremely high carbon taxes due to high cash flow and lower emissions intensity, according to a study by consultants Woodmac.

The Edinburgh-based analysts said that NOCs with higher LNG production stood to lose the most when it came to a roll-out of a carbon tax, such as Malaysia's Petronas, Indonesia's Pertamina and Qatar Petroleum.

While others with a greater share of conventional energy reserves, such as Saudi Aramco and Russia's Rosneft and Gazprom, could fare far better.

"We calculate over $40 billon of value would be at risk for each of the top two NOC emitters if a $40/mt carbon tax was applied on scope 1 and 2 upstream emissions (ignoring possible tax effects if carbon pricing was applied on a pre-tax basis)," the report said.

"Generally lower emissions intensity and high free cashflow means many NOCs could tolerate extremely high carbon taxes. Of the 11 NOCs analysed, the average carbon tax for upstream company cashflows to break even at a 10% discount rate is over $400/mt," it said.

The threat of a carbon tax appears low for many national oil companies, the consultants said, as national governments are unlikely to pass policy that would cripple assets that often contribute the most to GDP.

However, pressure is growing on companies and governments to take action with the deadline to ratchet up emission reduction targets under the Paris Agreement looming.

Glasgow

Later this year, more than 190 nations will meet in Glasgow to discuss how to take on deeper emission reduction targets to cap global warming at 1.5-2C over industrial levels.

The talks will also focus on the role of pricing tools, particularly the role that markets can play internationally.

Such a move to promote carbon pricing and other policy measures to prevent carbon leakage, including carbon border adjustment mechanisms that charge CO2 emissions to goods from countries that have no carbon price in place, will see NOCs come under pressure to set goals.

However, Woodmac said that only a handful have done so and growth plans by others mean that it may be challenging to set ambitious goals.

"The NOCs are behind the curve when it comes to emissions reduction targets, with only three having set net zero ambitions: PetroChina, PETRONAS and Sinopec," it said.

"Many have less ambitious, short-term targets and a handful, including Saudi Aramco and Gazprom, are yet to set any corporate targets. Several NOCs have ambitious production growth targets which will make any absolute emissions reductions challenging."

Other oil majors have all set targets to reduce scope 1 and scope 2 emissions.

Scope 1 covers direct emissions while scope 2 covers indirect emissions from the generation of purchased electricity, steam, heating and cooling consumed by the reporting company.