Powering a just energy transition — why natural gas is key

Nearly 200 nations reached a historic decision at the COP28 UAE summit late last year to start transitioning the world’s energy systems away from fossil fuels. It was the first time ever that such a landmark agreement was reached at the annual United Nations climate gathering, which saw more than 80,000 delegates descend on Dubai.

READ MORE: Here are 5 key takeaways from the COP28 climate summit

The ball has now been set in motion as countries have agreed to treble their usage of renewables by the end of this decade, while further trebling nuclear energy by the middle of the century. But while there is no doubt that an energy transition is needed to keep higher global temperatures at bay, the reality is that fossil fuels still have a critical role to play in helping us get to the next energy stage.

And Majid Jafar, who is the CEO of Sharjah-headquartered oil and natural gas company, Crescent Petroleum, expanded this point succinctly in an exclusive interview with Gulf Business.

“We need to decarbonise without unplugging the modern energy system, because a lot of the developing world will still need it. We live in a world where one billion people in the OECD — the rich, mainly Western world if you like — uses more energy, and is responsible for more of the historical emissions than the other remaining seven billion people,” Jafar told Gulf Business.

“Those in developing countries still need energy access, and they have needs for health and education and clean water. All of these things rely on energy. Did you know that 80 per cent of the world still hasn’t been on a plane? Therefore, people in those countries need their energy requirements to be met,” said Jafar.

He goes on to further explain how everything that we’re going to need for the energy transition itself — from solar panels to wind turbines and even the components of electric cars — are all made from oil products. Meanwhile, natural gas will still be needed to back-up intermittent renewables and replace higher emitting fuels, as well as fertilisers in food systems. A key question that the world then faces is how to drive up rates of prosperity across the globe while decarbonising at the same time.

Jafar explains that one way to achieve this is by shifting to cleaner fossil fuels, such as natural gas.

“Renewables are great, and the costs have come down. But the reality is that there are limits to how much further the costs can come down, and, also, you can’t store that energy easily. When the sun isn’t shining, or the wind isn’t blowing, you need something to back it up. And here natural gas is a perfect transition fuel, because it is — by far — much cleaner than coal with half the CO2 emissions, and none of the polluting nitrogen oxide (NOx) and sulphur oxide (SOx) and other particulates that you have with coal fi red generation,” Jafar told Gulf Business.

“We see that with the UAE energy strategy for 2050, the country aims to have 40 per cent of renewables backed up by about 40 per cent natural gas — and then the rest made up with nuclear and other cleaner sources. Natural gas has a fundamental role to play, and the Middle East’s role in that is growing. Our region has about half the world’s oil and gas reserves, but only about a third of the world’s oil production, and only a sixth of the world’s gas production. There’s still a lot more room for us to grow. Plus, our region’s natural gas is oten the lowest carbon and the lowest cost globally,” Jafar adds.

Natural gas: From zero to hero

Interestingly, the use-case for natural gas in our world wasn’t always that strong and as high in demand as it is today.

Even Crescent Petroleum itself primarily started life as an oil producer, only to shift later to more predominantly focusing on natural gas. After Crescent Petroleum was incorporated in 1969, it started operations in 1971 — the same year that the United Arab Emirates was formed.

“We started in Sharjah as an oil producer, with the Mubarak field, which was the main shore oil production facility that we operated for 40 years. We took that to peak production of 60,000 barrels a day. Over the last five decades, we’ve had operations in different countries in the region, including Egypt, Pakistan and Yemen. Today, Iraq is a big focus for us too. And what we produce has also evolved and changed — much like the overall energy transition. We used to produce oil, and today we’re actually producing much more natural gas. About 85 per cent of our production is natural gas, and that’s the trend that you see within the energy space globally as well,” Jafar told Gulf Business.

As Crescent Petroleum has shifted its focus, it’s seen the shift of attitudes in the local industry too.

“In the 1980s, and 1990s, at least in this region, natural gas was seen as an unwanted byproduct. When engineers drilled a well, there was a saying that it would be bad news if they didn’t fi nd oil but good news if they didn’t find gas. This was because gas was something that you had to deal with somehow, and at that time there wasn’t even the market for it. Sadly, we saw a lot of flaring of natural gas happening at that time.

“But I think that’s all that’s changed now, and the fundamental role for gas to fuel power generation, as well as industrial development, is very much recognised now,” said Jafar.

Breaking the coal addiction

While the world is becoming far more receptive to natural gas, the challenging reality is that many countries that should shift away from, say, coal-powered plants to gas-powered plants are not always necessarily doing so as quickly or as widespread as they should.

For example, China has the world’s most number of coal-powered electricity plants, with an estimated 1,142 operational on the mainland, according to Statista.

Reports indicate that a further 200 coal-powered plants are under development in China. In Africa’s most industrialised nation, South Africa, over 90 per cent of that country’s electricity comes from coal-powered fire stations. This is even as the country’s monopoly power provider, Eskom, grapples with a severe energy crisis where major cities such as Johannesburg can be left without electricity for up to 10 to 12 hours a day.

To explain this, Jafar said our world can do better on what he calls the energy trilemma: affordability, availability, and sustainability.

“For many countries like China, India and South Africa; they have coal readily available, and it’s the cheapest energy source for them. These countries face a challenge where they may need to import natural gas. But countries with natural gas, such as the UK, such as the US have managed to do the coal to gas switch, and it’s led to the fastest drop in emissions.

“It’s how the UK has achieved Victorian era 19th century levels of emissions, and then enabled renewables. And you’ve had a similar situation in the US where that country is down to 1990 levels of emissions or per capita 1965 levels of emissions.

“But if you don’t have your own natural gas, then you’re going to need to import it. And we have two issues facing us here at the moment. Firstly, Western governments and capital markets are dissuading investments in natural gas, even while they continue to acquire and use it themselves. We saw last year with the energy crisis in European countries, where they were even subsidising consumption of energy from gas and calling it ‘energy support’ while buying more gas from international markets to replace Russian supplies. So that’s been driving up the cost of natural gas globally, for countries in Asia, for countries in Africa,” said Jafar.

On the affordability theme, Jafar said that other global dynamics are playing into higher gas prices. These include the US-China trade tensions and the US introducing its Inflation Reduction Act, which has been deemed to implement a lot of subsidies for new energy technologies. In turn, Europe has been worried over whether this is a form of protectionism, resulting in the EU responding with its own subsidies and tariffs, often at the expense of developing countries.

Curbing methane emissions

Apart from high prices and potential supply challenges with natural gas, another key issue for the industry is tackling methane emissions.

Methane — which is the primary component of natural gas — is a potent greenhouse gas that if left unchecked and uncontrolled can have a negative impact on the atmosphere. According to the US Environmental Protection Agency, methane is more than 28 times as potent as carbon dioxide at trapping heat in the atmosphere. Putting this into further context, Jafar said that methane doesn’t last as long in the atmosphere as carbon dioxide, but that its short term impact is still worse. The key is to manage methane emissions better.

Crescent Petroleum itself has just completed a seven year programme of reducing emissions and flaring whereby the company successfully brought down its methane emissions to 0.12 per cent of production. The company has further o set the remainder of its emissions with UN certified carbon credits to achieve carbon neutrality, thereby electively achieving net zero production two years ago. Jafar said the company has since maintained that record.

“As an industry, how we produce methane must be a cleaner process and COP28 recognised this with the decarbonisation accelerator and its concrete pledges on bringing methane emissions down to nearly zero by 2030,” said Jafar. He further said that more than 50 companies, including Crescent Petroleum, have signed this pledge and thereby recognising the key role of gas decarbonising the system, and “enabling not just renewables today, but the hydrogen economy of tomorrow.” Jafar said that methane is also a useful product that, if captured properly, can be utilised in many other industries and applications.

Looking ahead

From its humbling beginnings in Sharjah in the 1970s, Crescent Petroleum today is a major energy powerhouse with a growing reach across the Middle East.

While the UAE is a big focus for the company, opportunities in frontier markets such as Iraq are also opening up new doors for energy in the region.

“From north to south, we now have over eight fields which is more than any other operator in Iraq, and Iraq still has a lot of unfulfilled potential. There are many challenges in operating there. But we’ve been producing in that country now for over fi teen years continuously. And we have an understanding of the needs and the way to operate. The federal government and the prime minister in Iraq have made natural gas a priority, because they still don’t have full electricity,” said Jafar.”

And the rate of expansion in Iraq is substantive.

“We still have some assets in the UAE and Sharjah but Iraq is a major focus, and we are currently producing 500 million cubic feet per day of gas there, as well as 15,000 barrels a day of condensate, which is very light, clear, and clean oil. In Iraq, we are also producing over 1000 tonnes per day of Liquid Petroleum Gas (LPG). We will be increasing that by 50 per cent by next year. So our total investment now, there in Iraq is close to $3bn,” said Jafar.

Apart from this boost in investment in existing operations, Crescent Petroleum in 2023 signed three new blocks with the government of Iraq containing multiple fields in Diyala and Basra, with some discoveries near the Kuwait border. This adds to its already significant number of oil and gas fields in the country, with plans for a further $1bn of investment in the new fields that will add 400 million cubic feet per day of new gas in the first production phase. Overall, Jafar said the Middle East will continue to be a crucial player in the world’s energy mix in the years ahead.

“Our region has half the world’s oil and gas resources with the lowest-cost renewables and the newest technologies being invested in and rolled out at scale here. We see this region as a hub for global energy for decades to come,” he concluded.