State-owned oil enterprises in BRICS countries and their green innovation efforts
By Amy Myers Jaffe, Zdenka Myslikova, and Jareer Elass
In the final hours of global climate talks at Sharm El-Sheik, Egypt, 80 developed and developing nations backed a call for the final agreement to include language affirming the wind down of fossil fuel use. The suggested text was opposed by major oil and gas producers, notably Saudi Arabia, which argued that carbon capture and storage (CCS) is a viable emissions reduction solution that can eliminate emissions from continued oil and gas production and consumption. Saudi Arabia took the occasion of the twenty-seventh Conference of the Parties (COP27) to unveil its plans to host the world’s largest CCS hub, led by its state-owned oil and gas firm Saudi Aramco, in what it termed “the circular carbon economy.”
The fight over CCS centers on the viability of the widespread adoption of the technology and the sincerity of oil and gas producers to embrace carbon capture. Evidence from Climate Policy Lab’s recently released study on state-owned oil and gas enterprises (SOEs) in BRICS countries and Saudi Aramco reveals only limited effort and success on carbon sequestration technology among these large state companies. Rather, CPL’s research suggests that while these key oil and gas SOEs are being asked by their governments to participate in low carbon energy and energy innovation, to date, only a small proportion of research and development (R&D) effort has been dedicated to clean energy and carbon sequestration. Rather, the firms remain focused on innovation efforts in oil and gas drilling.
Figure 1: Proportion of green to total patent applications (%) by selected SOEs (2005-2020)
That is in contrast to the large international oil companies (IOCs) like Shell and BP for whom a larger proportion of patents – 40 to 60 percent – has pivoted green.
Figure 2: Share of green patents in total patent applications for selected Big Oil companies (2005-2020)
We used patent applications as a proxy for clean energy innovation effort and technology prioritization, and we used the IPC Green inventory to identify green technologies. We found that, for example, Aramco applied for 2531 patents in 2020 and 589 applications were classified as green. Some 61 of the green patents were in the CCS technology category. PetroChina applied for 11 patents in the CCS category, out of 114 green patents. For Gazprom and Petrobras, it was only 2 out of 13 and 15 respectively.
Saudi Arabia has made credible inroads into carbon capture with Saudi Aramco launching a pilot CCUS enhanced oil recovery project at its giant onshore Ghawar oilfield in 2015 from the Hawiyah gas plant, which involves piping the captured CO2 85 kms to pump into the Uthmaniyah oil reservoir. The project has captured as much as 800,000 tons of CO2 from Hawiyah since its start. This amount is equivalent to CO2 emissions produced by over 150,000 average U.S. passenger vehicles per year.
In an effort to further expand the kingdom’s CCS capacity, Saudi Aramco CEO Amin Nasser chose the opportunity of COP 27 to announce the signing of a joint development deal to build a substantial CCS hub in Jubail in the Eastern Province that could store as much as 9 million tonnes of CO2 by 2027, with the Saudi national oil company prepared to contribute around 6 million tonnes of that volume.
As publicly committed as Saudi Arabia is to slashing its own emissions and meeting its net-zero target by 2060, the kingdom remains defiant about its plans to continue producing and exporting crude oil -- claiming that the current and future lack of hydrocarbon investments is the greatest threat to the global community -- and has worked to thwart calls for a speedy phaseout of fossil fuels. At COP 27, Saudi Arabia led a successful campaign to shut down efforts to include language encompassing the phaseout of all fossil fuels in the COP final cover text. Saudi Arabia’s lead negotiator Albara Tawfiq told the plenary that the UN climate convention “needs to address emissions and not the origins of the emissions”. The kingdom’s stance was that “low-emission strategies such as carbon capture and storage” as a way to reduce emissions instead should be included in the cover text.
Inasmuch as the Gulf producer is looking towards developing cleaner energy solutions at home to curtail the country’s own reliance on oil consumption, to diversify its domestic economy and free up more crude volumes for export, Saudi Arabia is determined to pursue a “last man standing” strategy – a low-cost top crude exporter with still sizable oil reserves and a larger marketshare as global oil and gas demand begins fading.
In sharp contrast to Saudi Arabia, Russia’s commitment to developing CCS lags far behind that of Saudi Arabia. Our research shows that by the 2010s, Gazprom began investing in CCS, with about a third of the company’s green patents filed in 2016 falling into this category. Yet, in 2020, just 2 of the 13 green patents for which Gazprom applied were linked to CCS technology. And, it was only last year that Gazprom announced its first pilot CCS project located at the Orenburg oil and condensate field near the Russia-Kazakhstan border that would seek to ultimately capture and store as much as 1 million tonnes of CO2.
Since BRICS countries and other large developing economies like Indonesia and Vietnam are poised to replace industrialized economies as the world’s largest greenhouse gas emitters, reforming their state oil and gas firms to embrace clean energy is imperative to achieve global emissions reductions to avoid the worst consequences of climate change. These state enterprises are a major force in energy markets, including in national innovation systems. Their approach to decarbonization of their future business is critical to energy transition and climate policy implementation, as the deliberations at COP27 highlighted. Our study finds that governments are sending their state enterprises mixed messages. The priority for SOE oil and gas firms remains to ensure the security of oil and gas supply at home and to increase oil and gas revenues is a barrier to change. This leaves the firms at high risk.
As the clean energy transition gains pace, lower oil and gas revenues could leave the SOE firms with less income to use to pivot to green R&D and less ability to enable workforce reskilling and development to promote a just transition. Experience from the automotive and other sectors shows that strong government financial incentives to innovate can lead to more successful outcomes. In our CPL study, we recommend that national governments mandate a minimum level of green R&D spending for their oil and gas SOEs and decouple that effort from net incomes trends. PetroChina has been closest to follow this strategy – it has maintained its R&D investment in the past five years even if its net income decreased over the same time period.
Figure 3: R&D investment and net income (detrended) for PetroChina
To conclude, SOEs are key stakeholders in the decarbonization process, and our study shows that they remain focused on oil and gas drilling in their innovation efforts. Their pathway to meet ambitious national and global climate goals remains unclear. It is hard to imagine clean transition of these SOEs if the governments do not incentivize national strategies to decrease dependence on fossil fuels for government revenues and national energy use. ∎
Amy Myers Jaffe is a non-resident Senior Fellow at Climate Policy Lab
Zdenka Myslikova is a post-doctoral fellow at Climate Policy Lab
Jareer Elass is an editor at Tufts University