From the Editor: Topsy-turvy transition [Gas in Transition]

It began at COP26 in Scotland, this worry about how do we get there. It grew as winter in Europe set in and natural gas prices started to rise. It reached near-panic levels in February last year, when Russia marched into Ukraine and Europe’s most important provider of natural gas was suddenly persona non grata.

Europe has been spared a second consecutive winter of discontent only by unusually-mild temperatures which pushed demand for gas lower, alongside a looming global recession which did the same for most every other commodity.

COP27 did little to advance the energy transition – attention was paid to what, in the wake of Russia’s military aggressions, was now an energy trilemma of sustainability, affordability and reliability, and a growing realisation that none of that was possible without refocusing, at least, on natural gas, the cleanest of the fossil fuels.

Reality dawns in Davos

At the World Economic Forum last month in Davos – second to the COP gatherings as a bully pulpit for those opposed to the oil and gas industry – the world’s elite began to come to the realisation that ASPIRING to a lower carbon future was far removed from actually ATTAINING a lower carbon future.

In fact, one of the prevailing undercurrents at Davos was a concern not about how we might get to net zero, but about how we could possibly even start to get to net zero.

The corporate world knows all about the what and the why of the energy transition; many in that world, however, remain a bit befuddled about the how, a result of jumping on the transition bandwagon without thinking through what that transition, or evolution, would look like or, more perhaps importantly, how it would impact them.

Baker Hughes, in its Energy Transition Pulse, which reports the results of a survey of more than 550 executives from around the world, crystallised those concerns.

“Many companies were basing their emissions-reductions promises on affordable and abundant natural gas, but Russia’s invasion of Ukraine was an unforeseen driving factor that pushed natural gas prices to record highs within a matter of weeks,” the report reads in its opening lines. “By mid-year, it became clear that many government and organisational strategic roadmaps to lower or zero-emissions energy needed to be revisited.”

Topping the concerns of executives is the uncertain near-term future of the global economy. More than 40% of the survey’s respondents said economic uncertainty, alongside rising inflation, remains the greatest barrier to the energy transition.

“Energy markets and policies have changed as a result of Russia’s invasion of Ukraine,” International Energy Agency executive director Fatih Birol warns in the report. “Not just for the time being, but for decades to come.”

Equally troubling? “Oil and gas companies, as part of the larger energy ecosystem, will have to find a way to balance supplying renewed demand with reducing greenhouse gas emissions to as close to zero as possible – a net-zero future.”

Survey respondents said the top three ways they will tackle this challenge are to prepare for operational disruptions from climate change, reskill their workers for a new energy paradigm and continue to invest in lower-carbon energy sources, including natural gas.

Nowhere is the last more visible than in Europe, where countries previously reliant on Russian gas have succeeded, in less than a year, in replacing virtually all of those Russian molecules with supplies from elsewhere. LNG import and regasification terminals have sprung up in record time, and new long-term supply arrangements are being made with virtually every major LNG producer in the world, leading to new plans to add even more liquefaction capacity.

In the US, for example, Baker Hughes points to analyst estimates that suggest LNG export capacity will increase by 84% by the end of 2027. Another example, it says, is Woodside Energy’s plan to add a second train at its Pluto LNG terminal in Western Australia.

“For the global supply and demand balance for both oil and LNG, and increasingly hydrogen, we do expect that the world is going to need all of those products in the time period where those assets will come online,” Woodside CEO Meg O’Neill says in the survey report. “So we do try to make sure we are not caught up in the dark days of 2020 or the heady days of 2022.”

Reversing course?

Nearly half – 47% - of the survey respondents said they weren’t worried that their companies were deprioritising the energy transition in the face of the energy crisis. But 39% are worried their companies may reverse the course on net zero.

“It remains to be seen if net zero can survive changed energy markets,” the survey report says.

Roadmaps to net zero will face major challenges this year, the report finds, led by the ongoing crisis in geopolitics and supply chains, but also by upheaval in energy markets and continuing concerns surrounding the global economic outlook.

“We have to manage this inflation ‘speed bump’ and get more supply onto the marketplace while continuing to drive sustainability over the long term,” Baker Hughes CEO Lorenzo Simonelli says. “Hydrocarbons are going to play a role for decades and it’s crucial we apply the technology that we have today and work together as partners to reduce those emissions.”