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COP27: Gas Bridge Grows Shorter, Hydrogen Moves Forward

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There was a lack of consensus over the future of natural gas with clashing opinions voiced at events and at the sidelines during the first week of the UN’s COP27 climate summit in Egypt.

Gas continues to be viewed as a bridge fuel in the energy transition — but its role could be short-lived and less stable than was once believed. Many attendees of the event warned that the time has run out for any new gas assets to be fully used and monetized before 2050, the year in which agreement is aligning around a net-zero economy. Hydrogen, on the other hand, earned nearly universal support, presenting itself as both an opportunity and a risk for the gas industry.

One of the most vocal supporters for gas at COP27 was TotalEnergies CEO Patrick Pouyanne, who emphasized that the company's growth strategy in gas has been reinforced by Europe’s energy crisis in the wake of Russia’s war in Ukraine. “We don't want to grow any more in oil, but we want to grow in gas, because gas is a transition, it completes the intermittency of renewables,” Pouyanne told a Saudi Arabia-sponsored event. If the industry doesn't invest enough upstream, it will be “accused of causing scarcity and the oil and gas price will go up higher and higher,” he added. Similarly, the President of the United Arab Emirates Sheikh Mohammed bin Zayed al-Nahyan told the formal UN proceedings that his country will continue to be a responsible energy supplier “as long as the world needs oil and gas” and will focus on lowering the sector’s carbon emissions.

Gas Backlash

The movement away from gas continues to find supporters, especially from the financial sector. James Vaccaro, an adviser to the hugely influential Glasgow Financial Alliance for Net Zero, told Energy Intelligence that while the idea of replacing coal with gas offers an improvement on greenhouse emissions, it ultimately locks countries into the fuel for longer as gas and LNG infrastructure — including gas fields, pipelines, LNG terminals and combined-cycle gas turbine (CCGT) plants — have a design life of 25 years or more. “I don't think gas can possibly be argued as a transition fuel anywhere now,” he said. “In most emerging economies, why would you do that when the ultimate solutions are electrification and renewable energy?”

Climate Bonds Initiative head Sean Kidney considered that gas is no longer a bridge fuel, reinforced by the lessons learned in Europe from the energy crisis. Today's electricity and gas price hikes are “driving every importer country in the world to renewables,” he said, noting a huge pipeline of green hydrogen projects building up in India.

For example, Ukraine, which sent a strong delegation to the summit despite the ongoing military conflict in its territory, is already seeking to focus only on emissions-free power sources after the war with Russia ends. The country depends on coal and natural gas, which represents a quarter of the country’s energy mix. “The new energy system of Ukraine will be based on carbon-neutral sources — nuclear energy and renewable energy resources, as a significant part of Ukraine’s post-war rebuilding plan,” Ukrainian energy investor DTEK spokesperson Antonina Antosha told Energy Intelligence. Ukraine is also angling to export green electricity to Europe, she added.

Developing Economies Still Want Gas

Not all regions agree with destroying the opportunities that gas provides them in the energy transition. “Everyone is very clear on the trajectory or direction for oil and coal. With gas, there is still ambiguity. In some regions it might be a bridge fuel," according to Mike Hemsley, deputy director of the Energy Transitions Commission think tank. It's easy to envision a future where gas complements a massive renewable rollout in places with current low energy consumption like sub-Saharan Africa. "A lot of [developing economies] have natural gas, and they feel they should have the right to exploit it," Hemsley said. "It's a regional structure — it's not as clear-cut as the oil conversation."

However, a "mass scale-up" in gas production is unlikely considering the "really worrying" trends in methane emissions. "Methane emissions are really badly tracked. We may be underestimating them by 70%. We are not seeing enough action to reduce them by the oil and gas industry," Hemsley said.

Some progress with methane emissions has been seen during COP27. The US and Canada both advanced their commitments with new methane rules under the Global Methane Pledge, which was launched at last year’s COP26. New draft regulations from the US aim to cut leaks, venting and flaring from both new and existing operations, while Canada's framework aims to cut at least 75% of emissions from the oil and gas sector from 2005 levels by 2030. Another example of movement this year are methane fees in the US Inflation Reduction Act, "which are quite hefty,” Hemsley said.

Spotlight on Hydrogen

The true winner at COP27 is hydrogen, which saw widespread support as a potential replacement for gas in hard-to-decarbonize areas of the economy. Tengku Muhammad Taufik, the CEO of Malaysian state firm Petronas, said at COP27 that the company will likely start producing blue hydrogen, produced from natural gas with carbon capture and storage, rather than the more costly green hydrogen, which is produced using renewable electricity. “We believe eventually green hydrogen will make it, but in the near term, we won't let the perfect be the enemy of the good," he said. Taufik noted the company’s focus on hydrogen is motivated by the interest of its LNG customers, such as Japan and South Korea, which are “evolving and transitioning toward using hydrogen” as they move away from coal-fired power generation.

There's also a case for skipping right ahead to green hydrogen, with support especially strong from Mideast players with access to low-cost renewables. Saudi Arabia-based Acwa Power’s director of global hydrogen Andrea Lovato said the company would like to replicate the lessons learned from its existing green hydrogen plant in the kingdom's futuristic city of Neom and a similar one in Oman. The Neom plant is the world’s largest commercial-scale green hydrogen facility, planning to produce 600 tons per day of hydrogen and 1.2 million tons per year of green ammonia by 2026.

Industrial producers that have typically used gas are likely to turn to green hydrogen over time, CBI's Kidney said. This is especially the case in China and in Europe, where three-quarters of all steel plants are coming up for retrofitting or rebuilding by the end of this decade. “Industry's not going to be putting in gas. That's going to lock us in for 30 years, and we now know gas is way worse than we thought because of the leakage factors,” he said.

Topics:
Low-Carbon Policy, Hydrogen, Flaring, Gas Demand, Gas-Fired Electricity
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