New IEA Report: Hydrocarbons Will Remain at Center of Energy Transition

This year’s newly published World Energy Outlook (WEO) from the International Energy Agency attempts to steer countries away from fossil fuels, but the report’s findings continue to prove the continued need for oil and natural gas to maintain modern living standards and to support emissions reductions goals.

This need for reliable traditional energy was clearly illustrated the very next day after the WEO was released, when IEA reported a boost in consumption of more emission-intensive fuels for power generation amid surging natural gas prices due to the global energy crunch.

Here are the key takeaways from the WEO:

1. The World Will Continue to Depend on Natural Gas Through 2050.

 Continued natural gas consumption for power generation and residential use will play a pivotal role in lowering emissions and supporting the development of renewables. The IEA accounts for the reliable backup power provided by natural gas in its future scenarios, especially paired with carbon capture and storage technologies that help lower emissions and in the creation of hydrogen:

“In emerging market and developing economies, unabated natural gas‐fired generation increases by about one‐third to 2030 in both the APS and NZE. Gas‐fired capacity remains an important part of electricity system flexibility in all scenarios to 2050, though the amount of unabated natural gas‐fired generation varies widely. It continues to rise in the APS, while falling by 95 percent on the path to net zero emissions in 2050.” (emphasis added)

The report acknowledges that the weather-dependent nature of renewable energy supply and seasonal demand can cause significant price volatility for consumers. The inclusion of natural gas in the Announced Policies Scenario and Net Zero Emission Scenario is a promising point for many nations looking to reach their emission goals, increase renewables, and maintain energy affordability and reliability.

2. Sustainable Finance Needs to Invest in Fossil Fuels

Any energy transition requires huge amounts of capital and the idea that the energy sector can be divided into “clean” and “dirty” piles for investments doesn’t survive contact with the reality of an energy transition, as the WEO states:

“It will also be important for the financial community to engage with emissions-intensive companies and countries to develop credible transition pathways and properly account for these contingent and transition investments in sustainable finance taxonomies.”

The investments are divided into different categories to ensure that allocations of investment in certain assets or technologies can adapt to the regional and national needs.

Half of the trillions of dollars in investments fall into the complex middle ground between the STEPS and the NZE scenario.

3. Methane Emissions Reductions Are Easy and Necessary

 In a world that still needs natural gas, addressing methane emissions is one of the easiest methods to ensure the continued supply is less carbon intensive:

“We estimate that almost 45 percent of current oil and gas methane emissions could be avoided at no net cost (based on average natural gas prices from 2017-21) given that the cost of deploying the abatement measures is less than the value of the gas that would be captured.”

Fortunately, methane emission reductions are becoming a key focus of the natural gas industry and initiatives to reduce emissions are being led by the United States. Natural gas production is up and methane emissions are down in the United States thanks to investments to limit leaks along the value chain and reduce venting and flaring.

4. IEA scenarios are difficult to attain.

Despite the WEO acknowledging that a 180° shift in energy consumption is needed to achieve net-zero emissions, the policies laid out assume an orderly, smooth process, rarely observed in the real world would put in danger more than half of the global population that still haven’t met their basic energy needs.

One of the goals laid out in the WEO’s scenarios is a transition that supports social and economic development and improves quality of life. The largest quality of life improvement will be experienced in emerging markets and the developing world, which is expected to dominate the world’s top economies by 2050. These countries account for the majority of projected population growth, and whose emerging middle class and rapidly growing economies will increase global demand for consumer goods and energy. They will require vast amounts of affordable, reliable energy that renewables alone can’t meet:

“Clean electrification cannot answer all the needs of economies undergoing rapid urbanization and industrialization. Transitions in fuels and energy-intensive sectors such as construction materials, chemicals and long-distance transport are particularly important.”

In the IEA’s scenarios, oil and natural gas will sustain emerging markets and developing countries as they work to find the investment necessary for grid flexibility and integrating their growing share of renewable power capacity additions. Modern and reliable energy is inseparable to their livelihoods and wellbeing.

Conclusion: Where Reality and Aspirations Collide

There is clear consensus that the world needs actionable, realistic, long-term solutions to address climate change and reduce CO2 emissions. Fossil fuels continue representing a huge part of global economies, and a rapid, smooth transition, as suggested by the WEO, cannot be achieved without the oil and gas industry.

It was only days ago that IEA Director Fatih Birol demonstrated this point by urging Russia to pump more gas to Europe amidst the unexpected energy crunch that Europe is facing, threatening the continent with power blackouts and lack of winter heating supplies.

So, while Director Birol can announce the publication of the WEO with a statement that “the world’s hugely encouraging clean energy momentum is running up against the stubborn incumbency of fossil fuels in our energy systems,” his organization’s report is subtly saying the quiet part out loud – the energy transition is enabled, ensured and backed up by fossil fuels.

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