Whilst the media narrative, in particular around COP27, has been around the need for urgent action when it comes to climate change, it is also essential for the world to recognise the current realities and practical steps required in order to achieve a smart, just and realistic energy transition.

The path towards scaling up clean energies such as solar, wind and hydro is much clearer than it once was, but the pace of change would need to be significantly accelerated to reach the climate goals set. Major investment in infrastructure to enable a more sustained move towards renewables is still needed – indeed investment to the order of over $50 trillion would be needed by 2050 to be in with the chance to commit to an entirely different form of energy generation. In the same vein, whilst the technologies needed to accelerate transition exist, they are not yet fully commercialised and investment is needed here too. There is still a lack of clarity and transparency around true measurement of carbon emissions and there is a huge chasm between developed and developing world solutions to energy transition.

Using gas as a bridge to transition is not a new concept but if the goal is to lower emissions whilst still providing affordable and reliable energy for all, one could argue that natural gas could, and should, be the bridge that can enable transition – cutting emissions in the short to medium term and solving the intermittency issue of renewables until the clean energy markets are more established. 

The Case for Gas

In light of the geopolticial ramifciations of the Russia-Ukraine war and the subsequent energy crisis in Europe, it is perhaps unsurprising that the topic of gas – amongst both importers and exporters – has been front and centre in recent months. As Majid Jafar, the CEO of Crescent Petroleum recently said: “The geopolitical conflicts and energy supply crises impacting world economies have underscored the need for greater resilience in energy supply and the need for a smarter carbon transition policy”.

Over the past 5 years, replacing coal with natural gas has cut global CO2 emissions to the score of one hundred times more than all the electric cars in the world. Gas paired with renewables has allowed the US to achieve the lowest emissions in a generation and cut UK emissions to 19th century levels. Its potential in Asia and Africa is just as promising with the right policy targets and financial incentives.

At COP27 this month, Craig Golinowski, of Carbon Infrastructure Partners, a Canadian private equity fund backing projects related to fossil fuels as well as carbon capture said: “The opportunity for this COP is to have the discussion openly that natural gas, and in particular when combined with carbon capture, is a scalable energy solution allowing us to meet the needs of 8 billion people while still meeting our climate goals. Natural gas is really the only proven way to lower emissions at scale. If we don’t have enough energy, we get more emissions,” Golinowski said, suggesting a theory that a shortage of natural gas automatically involves increasing usage of coal rather than renewable energy sources, as many advocate. Something we have already seen play out in Germany. “I think the binary framing of oil and gas as bad, wind and solar as good is really a disaster,” he added.
Echoing his thoughts, Nazmeera Moola, the chief sustainability officer at the South African investment firm Ninety One said “I think what we see right now, is that we are still going to need gas for some or whole part of this transition – no one’s naive enough to think you can turn off all gas usage tomorrow and we’re going to be fine.”

Financing Gas

Over the last few years, the pressures on upstream disinvestment, accelerated by the pandemic, has forced oil and gas companies to undergo cost cutting, consolidation, and restructuring. Unsurprisingly, the resulting global resource pool for rigs, fleet and talent is now struggling to meet upstream demand and add incremental capacity. The financing challenge is also compounded by current regulation that dis-incentivises investment into in fossil fuels, including gas, and a departure from hydrocarbon investment on behalf of some DFIs, a challenge most felt in developing economies.

In order for gas to play a real transitionary role on the global energy stage, we need to reshape how we define, source and deploy finance into these projects. Given the lack of recent support by many multilaterals/ECAs/international banks for oil & gas financing, more and more companies in the sector have turned to equity and the capital markets as their main sources of funding. But investors and financiers need to change their mindset; they must accept that gas needs to be part of the solution. Banks need to accept that each country has a different starting point and align the carbon transition to practical realities that ensure access to all and greater cooperation is needed between sources of finance and governments, businesses and consumers.

As COP27 draws to a close for 2022 it remains to be seen what real actions will come out of the event but as we move towards COP28 in the UAE, Majid Jafar, CEO of Crescent Petroleum told the Atlantic Council Global Energy Council: “The UAE’s visionary energy policy for 2050 highlights how [a secure Energy Transition] can be achieved by combining natural gas with cleaner sources such as solar power and nuclear energy, in order to maintain energy resilience while reducing carbon emissions.”

It is all of our responsibility to protect the planet for future generations; but let’s commit to doing so practically, smartly and securely.

These topics will be discussed at this year’s World Energy Capital Assembly, taking place in London on the 28th-29th November.

World Energy Capital Assembly

November 28-29, 2022, London

The meeting place for senior energy, finance and investment professionals to make connections and do deals.