The COP charade finally ended in 2023. After decades of talks on energy and emissions without the folks responsible for both being in the room, last November’s COP28 showed what happens when proper discussions are had with the people that matter.

Sultan Ahmed al-Jaber, COP president and CEO of Emirati oil firm Adnoc, managed to get over the line both a strongly worded statement for the fossil fuel industry to transition and avoid the absurdly unrealistic ‘phasing down or out’ language so many were keen to employ. Some have suggested this still marks the beginning of the end of fossil fuels, but in reality it marks the beginning of the end for emissions.

The view coming out of COP28 was that CCUS will need to form a key pillar of efforts to put the world on the path to net zero

This is a subtle but crucial difference in which the hydrocarbons industry is the author of its own energy transition story and where demand is more on an equal footing with supply in terms of responsibility. And now the oil and gas industry is being taken more seriously by policymakers, the energy producers must take their role in emissions more seriously. Much of the scrutiny is centred around this key paragraph in the communique: “transitioning away from fossil fuels in energy systems, in a just, orderly and equitable manner, accelerating action in this critical decade, so as to achieve net zero by 2050 in keeping with the science".

Here are Petroleum Economist’s five key takeaways:

It’s the demand, stupid

With the messaging focusing on transitioning away from rather than phasing down or out, the onus is on demand as much or maybe more so than supply. The oil and gas industry has bemoaned the cost and difficulty of agreements for greener fuels such as hydrogen, and OPEC and Saudi Arabia have been keen to stress the point that oil demand—Covid-led dip aside—keeps on hitting record highs of more than 100m b/d. While consumption keeps rising, OPEC argues it will do the responsible thing and keep pumping more barrels and investing in more projects. Energy security concerns from Russia-Ukraine to Gaza and the Red Sea have been stark reminders that energy sustainability will always be trumped by the immediacy of energy supply. It may seem a little chicken-and-egg as there seems to be the need for clearer signals from reduced demand for fossil fuels to trigger the necessary reduction in output, but it is a delicate and dangerous balance where already reduced investment is risking potentially elevated prices in the future. And at the same time, there is a question over where the incentives are to invest in renewables when questionable demand and poor returns deter ploughing cash into greener options.

Gas is the ultimate transition fuel

The support for the long-term future of gas was hidden in plain sight. The communique noted there was a consensus that “recognises that transitional fuels can play a role in facilitating the energy transition while ensuring energy security".

While gas is not explicitly referenced, the case is quietly made for the shift from dirtier fuels to cleaner ones, the bulk of which will likely come from the switch from coal and wood to gas across much of Asia, Africa and South America. The shift to gas, while a fossil fuel, could make a huge difference to solving the climate issue in regions that have relatively small carbon footprints per capita but which still burn the majority of the fuels with the biggest emissions. It also takes aim at emissions over fossil fuels and is smartly targeted at both security and sustainability.

Any investors unsure of whether to invest in hydrocarbons got a clear answer: if it is a move away from coal then it is a resounding yes. But even at this point, coal-to-gas switching has proven tricky because of how cheap coal remains and how difficult it has been to get buy-in for costly LNG projects when the longevity of the fuel has been in question. If there is less tip-toeing around gas as a long-term option well beyond and well within then net-zero framework, then it can make a huge difference to the transition and be a focal point for the big hydrocarbons players—something the Middle East oil states are already embracing.

CCUS is as valuable a tool as any

CCUS seemed to be a political football—used by the oil and gas industry as a defence to produce fossil fuels in a sustainable way and by policymakers and environmentalists as a stick with which to beat the sector. The very public spat between the IEA and OPEC over the technology’s merits was a case in point. The Paris-based watchdog called on producers to let go of “the illusion that implausibly large amounts of carbon capture” could be the solution to reducing emissions and reaching net-zero targets, while OPEC shot back that the IEA was vilifying producers and downplaying energy security and affordability.

“I commend the COP28 Presidency on a historic worldwide agreement to accelerate efforts to reduce greenhouse gas emissions, recognising the need for a multidimensional approach to the energy transition” McMonigle, IEF

The ill-temper seemed to be blown out of proportion by media commentary that focused on IEA statistics to claim the technology is niche, expensive and unrealistic. IEA data shows 45mt of CO₂ was captured in 2022 compared with total energy-related emissions of 37bt, a capture rate of just 0.1%. Under government policies already announced, the IEA projects volumes will increase to 440mt/yr by 2030 and 3.5bt/yr by 2050. Similar arguments can be made against most renewable technologies, albeit to a lesser extent at this juncture, and CCUS can still be a vital tool in hard-to-abate sectors such as heavy industries. The view coming out of COP28 was that CCUS will need to form a key pillar of efforts to put the world on the path to net zero—and that reaching this target will be virtually impossible without it. Success will depend on infrastructure and government action, especially the development of industrial hubs with shared CO₂ infrastructure, regional storage and ways to boost innovation to reduce costs.

Efficiencies must not be overlooked

A real sense of pragmatism gripped this COP. While pushing the view to triple renewable energy capacity globally, the communique also argued for “doubling the global average annual rate of energy efficiency improvements by 2030”. This had been the lost message in the transition because it tells everyone from internal-combustion-engine car manufacturers to oil producers that, rather than just investing away from fossil fuels, there are also big gains to be made within the industry. It again takes the focus away from berating the hydrocarbons sector and places the emphasis on cutting emissions.

It is no surprise that this was the communication that include a fixed target date as there was broad support given how huge efficiency gains could once again change the conversation. International leaders also agreed on accelerating the production of low-carbon hydrogen—the first time it has been specifically named as a climate mitigation measure and a sign no one part of the transition toolkit should be overlooked or undervalued in curbing climate change.

Do not forget the Global South

The International Energy Forum congratulated the UAE for bringing the UN COP28 climate conference to a successful conclusion with a recognition that each country must chart its own course towards carbon neutrality. “I commend the COP28 Presidency on a historic worldwide agreement to accelerate efforts to reduce greenhouse gas emissions, recognising the need for a multidimensional approach to the energy transition, reflecting different priorities, starting points and policy approaches,” said Joseph McMonigle, secretary-general of the International Energy Forum, after COP28.

The UN also said that it “further recognises the need for deep, rapid and sustained reductions in greenhouse gas emissions in line with 1.5 °C pathways and calls on parties to contribute to the following global efforts in a nationally determined manner”. The Global South still has claims to carbonise before decarbonising, meaning its carbon footprint probably needs to get bigger before it gets smaller, but at the same time there are parts of the Global South that will suffer significantly if the region does not taken action, and therein lies the rub. The conclusion: the Global South needs much more growth in energy—clean and otherwise.

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Author: Paul Hickin, <BR>Editor-in-chief