On March 14, the World Meteorological Organization (WMO) issued a dire “red alert,” confirming 2023 as the hottest year ever recorded. The report highlighted unprecedented surface and ocean temperatures, melting glaciers, and rising sea levels. 

The growing momentum of climate action commitments in recent years reflects a shared determination to create a healthier and more resilient global future, targeting net zero emissions by 2050. However, signs are emerging that the move away from oil and gas will be much tougher than expected. Actual demand for oil and gas surpasses projections of peak consumption, casting doubt on the feasibility of a rapid transition away from hydrocarbons. 

Speaking at the CERAWeek energy conference in Houston in March, Saudi Aramco CEO Amin Nasser stated that it was time to “abandon the fantasy of phasing out oil and gas” and that the world needed instead to invest in fossil fuels to meet demand at a time when the clean energy transition was “visibly failing on most fronts.” The Gulf Arab states plan to continue producing oil and gas despite the COP28 decision to transition away from fossil fuels. They are not alone.

The first-ever “global stocktake” (GST) of the Paris Agreement points out the shortfall in climate action thus far, indicating effective strategies that should be expanded. The active participation of the oil and gas sector, with its engineering prowess, project management acumen, and financial backing, is crucial for propelling the energy transition forward. It is now more imperative and urgent than ever to seek avenues for collaboration with fossil fuel nations and companies to elevate their climate ambitions and translate their climate pledges into tangible results. 

“Phaseout” vs. “Phasedown” and the COP28 compromise

The debate about whether fossil fuels should be phased out or phased down has been a focal point of several Conference of the Parties (COP) climate meetings. Advocates for a phaseout propose a rapid and steep reduction in both production and consumption, leading to the cessation of burning fossil fuels for energy generation. Proponents of a phasedown call for setting objectives and timelines designed to progressively decrease dependence on fossil fuels while concurrently advocating for the uptake of cleaner, sustainable energy options.

COP26, held in Glasgow in November 2021, was a landmark event as the decision text of the climate talks for the first time acknowledged the role of fossil fuels in driving climate change and called explicitly for a “phasedown in unabated coal power” — though without mentioning oil and gas. However, at COP27 in Sharm El-Sheikh, negotiations for a comprehensive agreement to phase down all fossil fuels faltered, primarily due to objections from oil and gas-producing nations, which advocated for adopting carbon capture technology as an alternative approach.

The phasedown vs phaseout debate intensified in the leadup to the December 2023 convening of COP28 in Dubai. Ahead of the conference, the International Energy Agency (IEA) issued a report urging the oil and gas industry to massively expand investments in green initiatives while emphasizing that CCUS (carbon capture utilization and storage) cannot serve as a magic solution for the sector. In a letter dated Dec. 6, Organization of the Petroleum Exporting Countries (OPEC) Secretary General Haitham Al Ghais warned the oil cartel’s members and allies with “utmost urgency” that inclusion of the phrase “phase out” in the final COP28 declaration would represent pressure against fossil fuels reaching “a tipping point with irreversible consequences.” 

The UN’s COP28 conference in Dubai concluded a day later than scheduled after intense overnight negotiations regarding whether the outcome would endorse a “phase down” or “phase out” of fossil fuels. The final text of the climate meeting — less ambitious than many had hoped — called for a “transitioning away from fossil fuels,” to achieve net zero greenhouse gas emissions by 2050. It also called for tripling global renewable energy generation capacity and doubling energy efficiency improvements by 2030. While the final agreement may thus have signaled “the beginning of the end” of the fossil fuel era, it stopped short of calling for a phaseout of oil, gas, and coal. 

Energy kingdoms and the energy transition

Media reporting on the COP 28 negotiations identified Saudi Arabia as “the biggest obstacle” to a global agreement to phase out fossil fuels. However, the kingdom was not the only vocal opponent opposing the inclusion of phaseout language in the final text. During a live online event in the lead-up to COP28, Sultan Al-Jaber, president of the climate conference and the CEO of Abu Dhabi National Oil Company (Adnoc), stated that phaseout of fossil fuels would not allow sustainable development “unless you want to take the world back into caves.” 

It is both revelatory and unsurprising that the Saudi delegation led the opposition from other oil-producing countries and OPEC itself to language that would target fossil fuels in any COP28 deal. Saudi Arabia and the other five Gulf Cooperation Council (GCC) nations have emerged as key stakeholders and influential participants in the intensifying fossil fuel debate. 

Given their status as significant oil and gas producers and exporters, not to mention featuring prominently as some of the highest per capita emitters of CO2, the Gulf Arab states occupy pivotal positions within global energy markets and the evolving energy landscape.

GCC nations are vigorously pursuing strategies for economic diversification initiatives, mainly funded by oil and gas exports revenue. Given the substantial contribution of hydrocarbon exports to government revenue and with considerable oil and gas reserves at their disposal, Gulf Arab states strive to prolong the use of fossil fuels while also focusing on expanding renewable energy infrastructure and boosting revenue from non-energy economic activities.

To be fair, as awareness of climate issues has grown, there has been a notable increase in attention to climate policy within national energy and environmental agendas across the region, characterized by progressively ambitious pledges. Nonetheless, the transition of Gulf Arab economies towards renewable energy is driven not only by ecological consciousness but the desire to unlock fossil fuel reserves for export, thereby maximizing financial gains. 

The Gulf states are effectively staking their claim as the last-standing fossil fuel exporters, a calculated gamble that carries its share of risks. By 2027, four regional energy giants — Saudi Aramco, Adnoc, Kuwait Petroleum Corp., and Qatar Energy — are poised to increase hydrocarbon production capacity by an additional 21% compared to 2021. As reported by Bloomberg NEF, this could enable them to amass $981 billion in profit collectively.

These plans to expand oil and gas production while advocating scaling up carbon capture and storage (CCS) and carbon dioxide removal (CDR) underscore Gulf countries’ attempts to align the energy transition with their economic aspirations. However, financing these investments, as well as other clean energy options such as energy efficiency, renewable energy, and hydrogen, currently remains heavily reliant on oil and gas revenues. 

The ‘Empire’ strikes back

Yet, from a climate action perspective, Gulf producers are only part of the problem. The absence of commitment to climate goals from the supply side is pervasive. According to a December 2023 report by Net Zero Tracker, only 3% of oil- and gas-producing countries and companies active in oil and gas production have made phase-out pledges. 

The Global Energy Monitor reported that oil and gas producers worldwide sanctioned and discovered reserves equal to all the proven oil reserves in Europe last year. Despite the scientific consensus that new field developments are incompatible with scenarios to cap temperature increases at 1.5°C, they plan to quadruple these sanctions by the decade's end.

In 2023, the United States was the world’s leading exporter of liquefied natural gas (LNG). The Energy Information Agency (EIA) announced in March that the U.S. has outpaced all previous records in crude oil production, with a concurrent surge in crude exports. The U.S. also led new oil and gas projects in 2022 and 2023. Europe, the most ambitious transition champion, is falling behind its transition targets.

The titans of the global energy industry have made it abundantly clear they are not giving up on the fuels that drove their success. While these companies have reluctantly acknowledged climate change, many individuals concerned about global warming are also starting to grapple with the probability that fossil fuels will remain in use for the foreseeable future. 

Assessing the production and transition plans of 25 of the world’s largest oil and gas companies, Carbon Tracker’s Alignment Scorecard reveals that none align with the central goal of the 2015 Paris Climate Agreement to keep global warming “well under” 2 degrees above pre-industrial level.

An analysis produced by the London-based think tank InfluenceMap in September 2022 showed the climate-positive messaging of five supermajors — BP, Chevron, ExxonMobil, Shell, and TotalEnergies — to be sharply at odds with their spending on low-carbon activities. Recent shifts in language notwithstanding, the oil and gas sector has consistently impeded action on climate change for many years, utilizing methods such as lobbying, litigation, and deliberate procrastination despite possessing research findings — often financed by themselves — highlighting the imminent climate crisis.

Overall, the fossil fuel industry has ratcheted back its commitment to decrease oil and gas production, slash their emissions, and grow their green portfolios. Last year, BP, only a few years ago regarded as a pioneer in climate action, scaled back its CO2 emissions target. In March, Shell abandoned its climate target 2035 and weakened its emissions goal 2030. The analysis conducted by Climate Action 100+ utilizing the Net Zero Standard for Oil & Gas (NZS O&G), made public in March 2024, reveals a troubling trend: the current low-carbon transition plans of the top ten European and North American oil and gas companies are glaringly inadequate.

Looming uncertainties

Saudi Arabia and fellow Gulf producers are not the sole opponents of the phaseout of fossil fuels. Therefore, they should not be singled out. However, the reasoning that underpins their argument deserves further scrutiny, as does the primary thrust of their energy transition strategies and those of other major fossil fuel companies. 

Calling for a “reset” of the world’s energy transition strategy, Saudi Aramco CEO Amin Nasser contends that the time has come to abandon the unrealistic goal of phasing out oil and gas and focus on investing in them appropriately based on “realistic” demand forecasts. Simple enough — or not. Projections of long-term future oil demand sharply diverge. 

According to the International Energy Agency (IEA) World Energy Outlook 2023, global fossil fuel demand will peak by 2030. However, the IEA’s forecast is at wide variance from that of OPEC. Diverges sharply from OPEC’s. The latter’s 2023 World Oil Outlook 2045 (WOO) forecasts robust demand for the next two decades, fed by growing markets in developing countries. In line with this forecast, OPEC Secretary General Haitham al-Ghais dismissed the idea that oil demand would peak by the decade's end in a Jan. 17 article, emphasizing that short and mid-term projections do not support such a scenario.

However, it is essential to note that neither organization is entirely impartial. OPEC is invested in promoting robust global demand, potentially leading to an overestimation bias in its predictions. The IEA redefined its mission in 2015 to include advocacy for an “energy transition” alongside its traditional focus on “energy security.” Then, in 2022, the IEA reinforced this shift by expanding its mandate to assist countries in developing net-zero emission energy systems to align with internationally agreed climate objectives.

Issues of bias aside, the complexities and uncertainties around forecasting long-term demand for fossil fuels are perhaps best illustrated by the advent of artificial intelligence (AI). Early stages of AI integration within the energy sector are underway to drive efficiency improvements and accelerate innovation. Yet, the proliferation of AI data centers is driving a sharp rise in electricity consumption — as is the boom in cryptocurrency mining and clean-tech manufacturing — such that even fervent supporters of the transition, such as former U.S. Energy Secretary Ernest Monitz, concede that fulfilling this demand is impossible without the use of hydrocarbons. Hence, it could be argued that the very technologies holding the potential to propel the green transition might also, to some extent, contribute to its delay.

A second, equally contentious line of argument relates to the role of carbon capture, utilization, and storage (CCUS) technology in the energy transition. Fossil fuels companies promote at-scale carbon capture deployment as a viable climate solution. Their energy transition strategies prioritize carbon emission reduction within their operations and through CCUS technology rather than investing in renewables such as solar and wind. However, critics have argued that CCUS is an expensive, problematic technology with a poor track record. A September 2022 report by the Institute for Energy Economics and Financial Analysis (IEEFA) stated that CCUS “has a long history of failure and underperformance.” 

The case for carbon capture does have some, albeit qualified, support outside the fossil fuels industry. The IEA has advocated for the inclusion of CCUS in the portfolio of technology options to support the power transition while emphasizing that obstacles persist in realizing CCUS’ potential to contribute significantly to net-zero emissions. Even so, IEA head Fatih Birol, writing on X (formerly Twitter) while participating in COP28, stressed that banking on a widespread implementation of carbon capture technology to mitigate emissions while continuing business as usual in the oil and gas sector is a “fantasy.”

A third line of argument is encapsulated in the widely reported statement by Saudi Aramco CEO Amin Nasser that the transition to clean energy “is visibly failing on most fronts.” Some of the facts that Nasser marshaled to support this claim are not in dispute. As reported in the Statistical Review of World Energy last year, fossil fuels maintained their dominant position in the global energy mix, accounting for 82% of primary energy consumption, despite record growth rates for renewable energy. The fact that demand for oil keeps rising, delaying the end of the fossil fuel era, is an uncomfortable reality for climate advocates and policymakers. 

However, Nasser’s critique of the energy transition overlooks three critical points. Firstly, there is no assertion of the accelerating pace of climate change. Secondly, there is no recognition of the responsibility that fossil fuel companies bear for the climate crisis. Thirdly, there is no acknowledgment of the increasing momentum behind the shift to clean energy. Global investment in energy transition technologies was $1.8 trillion in 2023 compared to $1.1 trillion for fossil fuels, according to BloombergNEF. Renewable energy deployments continued to increase their growth rate last year.

Conclusion

The agreement reached at COP28 in Dubai last December emphasized the need to transition away from fossil fuels in energy systems. In contrast, the viewpoints expressed three months later at the CERAWeek conference in Houston were largely unsupportive of a rapid energy transition.

The urgent warnings on climate change from the UN, COP28, and climate scientists, coupled with recent investments in clean energy, are not having the desired impact on the fossil fuel industry. Oil and gas companies are pushing back against change. They are forging ahead with fossil fuel production, especially investments in fossil gas, citing ongoing strong demand for their products and concerns about energy security risks.

The conventional energy sector seems overly fixated on maintaining the status quo, neglecting to envision the necessary changes required for a sustainable climate. Conversely, proponents of new energy solutions often overlook the practical constraints of reality, emphasizing their ideal vision for the future. Yet, one thing is clear: Balancing energy security, affordability, and environmental sustainability presents a complex challenge that requires an unparalleled level of collaboration among governments, industries, and other stakeholders to confront the unprecedented “triple planetary crisis” of climate change, nature and biodiversity loss, and pollution.