Oil Producers Deliver Reality Check At COP27 Climate Summit

The COP27 climate conference in Egypt has been tough sledding for climate activists. Energy security concerns and shortages in traditional fossil fuels – which still power the vast majority of the global economy – are rightfully stealing the show.

You know it’s bad when the EU’s climate chief becomes the voice of reason on energy security.

“If we can’t get our citizens and industries through the winter, there will not be a climate policy left,” Franz Timmerman said before his journey to the resort town of Sharm el-Sheikh for the annual U.N. climate confab.

Today’s energy crisis, amplified by Russia’s invasion of Ukraine in February, has raised much-needed questions about the pace of the energy transition and illustrated how far away the world is from getting off fossil fuels.

European leaders stand accused of walking back on their green ambitions for seeking out oil and LNG imports and reopening or extending the lives of coal plants as they try to cope with the sudden loss of Russian supplies.

The rebukes are coming from all sides. Environmental groups and climate activists want to see a fast phasing out of fossil fuels, while those to the right feel vindicated in their opposition to the swift path of transition that Europe chose.

The truth is that the EU has accelerated its decarbonization benchmarks since the Ukraine war started. But this doesn’t change the fact that Europe can’t fully replace Russian pipeline gas with wind and solar power.

“You cannot overnight replace that with renewables – it takes time,” Timmermans said. So it is clear that because of these two reasons, we will have to look for alternative sources of fossil fuels in this interim period.”

That encapsulates the energy transition dilemma in a nutshell. More fossil fuels will be needed to power the global economy for years to come, as it will take the energy transition decades to unfold.

But even with the evidence staring them in the face in Europe, some Western leaders and climate activists still can’t accept this.

U.S. President Joe Biden has been one of the worst offenders. “No more drilling,” Biden said at a political rally for Gov. Kathy Hochul (D-NY) last Sunday. “There is no more drilling. I haven’t formed any new drilling.”

The President boasts of his efforts to block new oil and gas drilling on federal lands even as he seeks more supply to lower oil prices and helps Europe get through the winter. It’s hypocrisy at the highest level.

The good news is that, unlike past COP gatherings, this one includes representatives from oil and gas producers to balance the conversation.

Producers emphasize that the climate discussion should be about eliminating the emissions that cause global warming, not about fossil fuels.

The industry can decarbonize fossil fuels by scaling up technologies like carbon capture and storage (CCS) and hydrogen or using nature-based offsets.

That would dramatically reduce the oil and gas industry’s carbon footprint as the world gradually transitions to low-carbon alternatives, including renewables and electric vehicles. It’s a sensible path forward that avoids the abrupt transition that has put Europe’s economy on the brink.

Say what you will about the regimes of Saudi Arabia, the world’s largest oil exporter, and China, its largest oil importer. Their authoritarian governments and poor track records on human rights are undeniable.

But these two nations also have important insights into the future of global energy markets. And both are reportedly pushing back on efforts at COP27 for a “work program” that would push for faster emissions cuts in the years to 2030. That’s probably because oil and gas demand is expected to grow through 2030 while chronic underinvestment in new oil and gas supplies persists.

Put simply, the world’s largest oil exporter and importer see a dangerous imbalance building.

Oil prices are already near $100 a barrel despite the global economy being on the cusp of recession. Natural gas prices are even higher in barrel equivalent terms in most regions worldwide.

The current climate debate requires a more balanced view of the energy transition. Let’s hope that COP27 in Egypt, a major natural gas producer with aspirations to supply Europe in coming years, proves to be the summit that provides this reality check.