Fiscal Futures: Are National Oil Companies Champions or Obstacles for Energy Transition?

This post is part of the Fiscal Futures blog series exploring some of the biggest issues that fiscal accountability enthusiasts are likely to encounter over the next 10 to 15 years. Learn more about the Fiscal Futures project and download resources here.

National oil companies (NOCs) collectively own at least $3 trillion of oil and gas assets on behalf of their citizens. That means they control about double the wealth of all multilateral development banks, and about as much as all U.S. billionaires. In spite of their importance, NOCs remain under-scrutinized.

The opacity of these companies has long posed fiscal governance risks to the people of oil-rich states, even during boom times. With the global imperative to transition away from fossil fuels, the need to shine a light on them grows even more important, for two reasons. First, governments are increasingly calling on NOCs to shepherd renewable energy investments, meaning that the companies’ governance may be critical to the prospects of in-country energy transition. Second, as global fossil fuel markets experience new volatility sparked by climate change, the long-term fiscal risks around large NOC expenditures on fossil fuel exploration and production are growing.

Massive fiscal players

Large shares of national wealth have accumulated in national oil companies. The Natural Resource Governance Institute’s new National Oil Company Database reveals that there are at least 19 NOCs with assets in excess of $50 billion. In some cases, two out of every 100 dollars of a country’s total wealth, including its natural and human resource wealth, is controlled by the NOC.


NOCs are also among the biggest collectors of fiscal revenue in many countries. The database shows there are at least 25 NOC-dependent countries, where the company, on its own, collects revenues equivalent to 20 percent or more of total government revenue. And while NOCs transfer a lot to their governments, they spend even more. At the height of the oil boom in 2013, the median NOC in our database paid 23 percent of its gross revenues to the state in taxes, royalties, dividends and other transfers. NOCs spend the rest.

NOCs as drivers of renewables?

Examining whether this money is well spent and how much lands in governments’ coffers has become ever more important as the rise of renewable energy offers both opportunities and challenges. Some NOCs have engaged their public relations machines. Saudi Aramco, the world’s largest oil producer, proclaims itself to be “a pioneer investor in renewable energy” and lies at the center of the commitment to diversify the kingdom’s energy matrix in the much-touted Vision 2030. Colombia’s Ecopetrol has announced investments in solar projects “aligned with the company’s goal of having a more diversified and cleaner energy matrix.” The Nigerian National Petroleum Corporation has a renewable energy division tasked with becoming a “leading player” driving toward a low-carbon economy.

Some of these NOCs could indeed be pioneers in their countries’ energy transition. In many places, NOCs employ the best-educated, most highly-skilled engineers, economists, and financial analysts in their countries. These companies often have better access to capital than other businesses, and bring experience managing complicated projects with highly sophisticated international partners. And they are already integrated into the complex set of systems and institutions that supply fuel and power. NOCs are regularly tasked by their governments with executing mission-critical tasks across the economy, so in one sense they may seem a natural fit to drive an expansion of wind, solar, and other renewable energies.

But is it realistic to expect national oil companies earning billions of dollars from fossil fuels to transform into champions of renewable energy? Progress so far has disappointed analysts. For example, by early 2018 Saudi Arabia’s largest operating solar farm covered a single parking lot, powering a nearby office block, while major investments have been delayed. Bloomberg reports that “virtually no construction has begun.” Other news from Saudi Aramco may provide a partial explanation: in its efforts to woo bond investors, the oil giant released a trove of financial data that revealed it to be the most profitable company in the world, and underscored the dominant role it plays in the kingdom’s economy. And lest there be any confusion, these profits weren’t from wind farms.

NOCs sit at the epicenter of the political economy of fossil fuels, with all of its associated challenges. Selling oil and gas is the dominant mode by which these companies make money. NRGI’s NOC database, with information on more than 70 NOCs worldwide, illustrates this point: in 2015, the median NOC in our sample relied on oil and gas sales for 96 percent of its total revenues. The incentives of NOC leaders have always been oriented around maximizing value from fossil fuels, and their staff are trained to master the oil and gas industries.

Managers in NOCs, and their governments, are accustomed to high profit margins from exporting oil and gas. These profits are likely to be far more appealing for many NOCs than the tighter margins from selling wind and solar energy, and the complexities of selling electricity to domestic and regional markets with weak infrastructure, regulation, and customer bases. It may prove difficult to attract sustained attention (and capital) for renewable energy within a company used to the large margins of oil.

Abundant oil money is not only attractive but can also be corruptive. NOCs in many countries have been deeply implicated in – and in some cases have directed – scandalous activities that have diverted public resource into the hands of a well-connected elite. By empowering these companies to lead their countries’ renewable energy industries, some governments risk replicating some of the governance challenges of fossil fuels. And pivoting to new industries may require a nimble approach that has traditionally been difficult for most (though not all) NOCs.

Asset stranding risks and NOC spending

In the past, the logic behind large-scale expenditure by NOCs was straightforward for NOC managers: sacrifice some part of potential development spending by the government in order for NOCs to build skills, accumulate assets, and capture a bigger share of the country’s oil and gas revenues in the future.

But things may have changed. Investing in renewable energy projects may be a viable answer for some NOCs, but in other cases these ventures could be a waste of public money. Unless heavily scrutinized, NOCs may continue to do what they do best: consolidate large portions of national wealth in the oil industry. And as the world evolves, NOC spending on exploration and development of oil projects becomes ever riskier. Such a concentration of wealth has always alarmed economists who don’t like to see countries put all their eggs in the one basket. But the prospects of a declining fossil fuel industry make diversification even more important, lest oil-rich countries become “stranded nations” without a viable alternative to fossil fuel dependence. For oil-rich tropical developing countries, which sit at the forefront of the worst effects of climate change, the final effect could be a double-whammy of environmental and economic degradation.

In this context, we must look differently at the opportunity cost of investments by NOCs in new fossil fuel projects. It has never been certain that a dollar spent on oil by an NOC today would generate greater returns for a country than a dollar spent on a country’s ports, schools, and hospitals. Now, with the prospects of a declining fossil fuel industry, this uncertainty is even greater. Whether NOCs are planning on investing national wealth in the oil sector, or experimenting with renewable energy projects, public scrutiny is essential.

Unfortunately, NOCs are among the most difficult public institutions to scrutinize. Sixty-two percent of the NOCs researched in the 2017 Resource Governance Index exhibited “weak,” “poor,” or “failing” performance on public transparency. The National Oil Company Database reinforces these findings about the disclosure deficits of NOCs. For the most data-rich year in the database (2015), only 20 of the 71 NOCs we studied published sufficient information for us to be able to fill all ten of the database’s “key indicators.” Reporting on what NOCs are spending money on stands out as a particular weakness.

Policy implications

So, what can citizens and governments do? First, stronger rules and oversight on how these companies spend citizens’ money are essential. And given how large a share of public wealth NOCs hold and the risks that a possible energy transition pose to such wealth, governments should ground decisions about how much NOCs are allowed to spend and how much they must transfer to the treasury government in rigorous forecasting of the global energy market.

Second, to ensure these rules are followed, citizens and governments should ask for better reports from NOCs. Separating public relations from reality in NOC pronouncements about renewables investment requires consistent reporting on how these companies are investing what is, at the end of the day, public money.

Patrick Heller is an advisor at the Natural Resource Governance Institute and senior visiting fellow at the Center for Law, Energy & Environment, University of California – Berkeley. David Manley is a senior economic analyst at the Natural Resource Governance Institute. For additional insights into NOCs, see another of the authors’ blogs at

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