The first week of the Cop 27 UN climate conference in Sharm el-Sheikh has delivered some mixed messages for the oil and gas sector. Depending on who you listen to, oil and gas should be phased out, bolster energy security, contribute to pay for a loss and damage fund, and help finance the energy transition in developing countries.
At last year's summit in the UK, fossil fuels were for the first time directly targeted in a Cop text. The Glasgow Climate Pact, agreed at the end of Cop 26, urged countries to phase out inefficient fossil fuel subsidies. Even though the text was watered down at the last minute, and the commitments lack definitions and plans to make countries accountable, it set a new precedent, and the role of natural gas in the transition started to look more uncertain. Fast forward a year, to an energy supply crisis worsened by Russia's war in Ukraine, oil and gas remain very much centre stage, albeit viewed across a growing divide.
At the opening ceremony, UN secretary-general Antonio Guterres said the war in Ukraine has "exposed the profound risks of our fossil fuel addiction" and called for an end to dependence on fossil fuels and the building of coal plants. UAE president Mohammed bin Zayed al-Nahyan, whose country hosts next year's Cop 28, followed up by insisting the UAE will continue to supply oil and gas for as long as the world needs it.
Meanwhile, activist group Kick Big Polluters has complained that more than 600 fossil fuel lobbyists are attending the climate conference this year. "Fossil fuel lobbyists are working openly through a number of country delegations, pushing back against calls to curtail the fossil fuel industry," it said.
Dash for gas
The scramble for gas supplies in Europe has bolstered calls for increased investments. But research organisations Climate Analytics and the NewClimate Institute told the conference that a global expansion of LNG capacity driven by efforts to "shore up energy security" poses a threat to the Paris agreement's 1.5°C global warming limit.
The energy and cost of living crises have given resonance to Africa's call to develop its oil and gas reserves. Senegal's president Macky Sall told the conference that African countries are in favour of reducing greenhouse emissions, but cannot accept their "vital interests" being ignored. Uganda's energy minister Ruth Nankabriwa told Argus that Africa should not be told to sit on its natural resources, and that Cop 27 had to see "reality at play".
Like last year, some African countries will ask for financial support to develop gas as part of their energy transition, and with Europe scrambling to replace Russian gas, their calls could gain traction. Germany has signalled it is interested in working with Senegal to develop its gas resources, even though Berlin joined the pledge last year to stop international public financing for unabated fossil fuel projects. And IEA executive director Fatih Birol said African countries should develop and export their natural gas reserves to help with their industrialisation, but in a sustainable way.
Paying for the transition
Developing countries cannot be blamed for wanting to develop their resources, according to the prime minister of Barbados Mia Amor Mottley. "If countries that want to finance their way to net zero and want to do the right thing can't get the critical supplies, will they not have to rely again on natural gas as that clean bridge," she said. Barbados, which agreed to explore for oil and gas along its maritime border in 2020, subscribes to the view that net zero emissions does not equal zero fossil fuels, because it is a way for developing countries to finance their transition.
The difference in borrowing costs between the global north and the global south is behind the lack of progress on the transition to net zero in middle-income and developing countries, Mottley said. Already burdened by debt, developing countries need the space to borrow and finance the transition, and they require a larger proportion of the funding to take the form of grants, rather than concessional or commercial loans, the conference heard.
Mottley thinks nations vulnerable to climate change cannot be made to borrow to pay for the consequences of climate events, a view echoed by many developing countries at Cop 27. Nations on the frontline of climate change disasters have called on oil and gas companies to take part in discussions on loss and damage, and contribute some of their record profits to help pay for the consequences of extreme events caused by climate change. Loss and damage refers to unavoidable, permanent and destructive climate change that often affects the least-emitting countries.
The boost to energy company balance sheets from high oil and gas prices has not gone unnoticed at Cop 27. Mottley thinks discussions on loss and damage should not be only done at government level. "There are a number of non-state actors who are causing the problems and benefiting from it and we have a very simple principle, those who cause the problems should help with the problems," she said. These discussions should take place outside of the Cop process, she said, adding that oil and gas companies "and those who facilitate them" — including banks and insurance companies — need to be brought together before Cop 28.
Antigua and Barbuda's prime minister Gaston Browne agrees that oil and gas firms have a responsibility to foot some of the bill. "In the first half of this year, six fossil fuels companies... made more than enough money to cover the cost of major damages in developing countries with nearly $70bn in profits," he said. It is "about time" that these companies pay a global carbon tax on their profits, to fund loss and damage, he added. "While they are profiting the planet is burning."
