Climate Change & Climate Action Energy Transitions Geopolitics & Energy Security Middle East Oil and Gas The Gulf

Enabling net-zero solutions

December 7, 2023

Partner perspective: Energy companies are essential to global climate solutions

By Mansoor Mohamed Al Hamed

Mansoor Mohamed Al Hamed is CEO of Mubadala Energy. Mubadala Energy is a sponsor of the 2023 Atlantic Council Global Energy Forum. This essay is part of the Global Energy Agenda.

Societies and economies have come to depend upon access to reliable, affordable, secure, and sustainable energy. To provide this access, a complex and intricate system has emerged. 

But energy systems are changing fast, shaped by many factors and diverse actors. Chief among these drivers is the need to transition to a lower-carbon future. This assessment is almost universally accepted. The question requiring consensus, however, is how do the world’s leaders accelerate the transition while ensuring communities do not suffer, and that people maintain access to the energy they need in order to develop and grow. 

As Fatih Birol, head of the International Energy Agency, has said, “No energy company will be unaffected by clean energy transitions. Every part of the industry needs to consider how to respond. Doing nothing is simply not an option.”

How then can the energy sector ensure it contributes to the transition while also ensuring its long-term viability and that it meets the needs of consumers?

Part of the solution

At its core, this question asks: Should today’s oil and gas companies be viewed as part of the problem, or could they be crucial to solving it?

In addressing this question, three considerations provide the boundaries for the debate. 

First, demand for the services that energy provides is increasing due to a growing global population—some of whom remain without access to modern energy—and an expanding global economy. Take Southeast Asia as an example. According to analysts, gas demand is set to increase by 88 percent by 2050, driven by growth in countries such as Indonesia, where the population is expected to rise from 274 million to 325 million by 2045.

Second, the vision of the future must recognize that oil and natural gas play critical roles in today’s energy and economic systems, and that affordable, reliable supplies of liquids and gases (of different types) are necessary to sustain energy access and expand it.

Indeed, gas will be key to the transition and will likely remain an important part of the energy mix for many decades, not least because it produces 50 percent less CO₂ for power generation than coal. Natural gas is also abundant and provides a vital back-up power supply for renewables.  

And last but far from least, setting the terms of oil and gas’s role in the transition is imperative to reduce energy-related emissions in line with international climate targets as set out in the Paris Agreement.

Energy companies are acutely aware of the need to navigate the energy trilemma of affordability, security, and sustainability, while being part of the transition. To achieve these goals, the energy sector has to be part of the solution.

Accelerating the transition in partnership with energy producers

The question the world faces is therefore not whether to transition, but at what pace it can achieve the change while balancing the complex factors and challenges at play.

What is patently true, however, is that without the engagement and focus of the energy sector, together with the scale, capabilities, and capital the industry can deploy, progress will be slower, more expensive, and more difficult. 

How then can global leaders ensure energy companies are empowered to accelerate progress?

Decision makers must remember that energy is a system not a sector. All parties must align on common goals, regulations, and systems to enable an accelerated transition. This is a hugely complex task, but without regulatory frameworks in areas such as carbon credits and the nascent hydrogen market, investments won’t be incentivized. The energy system needs collective action and global frameworks.

Additionally, national governments must set out clear visions that frame how the energy ecosystem must evolve. They must commit to net-zero emissions by 2050 and set interim targets for reducing carbon emissions. Achieving these targets requires significant investments in renewable and nuclear energy projects.

Industry must also play a key role by expanding the technology, innovation, and problem-solving capacity that is essential to finding solutions and accelerating progress. What’s more, the solutions can be a win-win.

As an industry, we cannot shy away from the facts. As of today, 15 percent of global energy-related GHG emissions come from the process of getting oil and gas out of the ground and to consumers. But reducing emissions intensity of oil and gas scope one greenhouse gases is possible through portfolio rebalancing and exploring technologies that support the optimization of the business. 

The world cannot afford for the legacy energy companies to sit on the sidelines, and in the long-term these companies cannot afford it either. 

More can be done, however. For instance, reducing methane leaks to the atmosphere is the single most important way for the industry to bring down emissions. And measures adopted to tackle methane emissions will generate revenues of about $45 billion from the sale of captured methane. 

Oil and gas companies must also invest in low-carbon and renewables business outside their core operations—such investments are currently less than 5 percent of total capital expenditures. Ramping up investment is a critical factor in accelerating change.

The transformation of the energy system will happen with or without the oil and gas sector, but if energy companies are not fully engaged and committed, it will be slower and more expensive. The world cannot afford for the legacy energy companies to sit on the sidelines, and in the long-term these companies cannot afford it either. 

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Image: Aerial view of Oil and gas industry - refinery, Shot from drone of Oil refinery and Petrochemical plant at twilight, Bangkok, Thailand