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Gas and the era of energy pragmatism

Western policymakers are prioritising energy security over affordability in the wake of Russia’s invasion of Ukraine. A new era of pragmatism around the role of natural gas and LNG in a diverse energy mix is a welcome change, World Energy Council analysed

Gas and the era of energy pragmatism

Since Russia’s unprovoked invasion of Ukraine, the old adage that «economics trumps politics» has been turned on its head.
The decision by Western leaders to disconnect the Russian economy from existing systems of energy, finance, infrastructure and trade has triggered a once-in-a-generation recalibration of global energy supply.

Economies are scrambling for new energy suppliers as they switch from Russian hydrocarbons in favour of a geopolitically safer energy-sourcing plan.
In Europe, where Russian gas accounts for around 40% of supply, we are seeing a dramatic shift from policy measures that enable affordability to policies that drive energy security.

It is no exaggeration to describe this as the dawn of a new era – one of energy pragmatism, in which policymakers must take a much more nuanced view of the role of hydrocarbons in the future energy mix.

From natural gas, nuclear power, and renewables, to energy efficiency savings and in many instances the use of coal, we are seeing leaders from both politics and industry making 180-degree turns in response to recent geopolitical decisions.

Leaders now recognise they must find new sources of gas to meet current supply needs.
In the short-term, this surely means a more maximalist approach to account for what may become a permanent shift in demand.

There are clear capacity gaps along the global gas value chain, made apparent by both the 2021 supply crunch and the crisis in Ukraine, which will need to be met by boosting production.
Restrictions on new exploration and production, which became the norm in recent years, will surely be lifted.

The narrative surrounding energy transition has also changed.
The supply crisis has supercharged the existing focus on renewables and carbon neutrality as a pathway to long-term energy security.
An accelerated effort to develop hydrogen technologies, as one of the most promising renewable fuels in the future energy mix, will be one of the main corollaries.

But tight supply and a challenging investment environment highlight how fragile our global energy system has become.
The world now recognises that a successful transition will mean countries accessing a diverse range of energy sources.
The old binary that paints hydrocarbons as a hindrance, and renewables as the only option for the future, must be put to bed.

It is in this new landscape that natural gas, LNG, hydrogen, and low-carbon solutions all have a central role to play in achieving carbon neutrality by mid-century and ensuring energy security.

As we approach COP27, set for Egypt in November, the need to deliver a just transition whilst ensuring access to energy for all remains an overarching priority for governments and industry alike.
Failure to provide adequate political, financial, regulatory and social support for the full range of complementary gas solutions could have serious consequences for global energy consumption.

High-income countries could risk falling short on pivotal net zero pledges.
Businesses and homes across the energy-impoverished Global South could remain reliant on carbon-intensive coal.
To prevent this outcome, gas needs to be at the heart of the global transition.

We have seen, even before the full-scale assault on Ukraine, a drive towards rewiring supply chains in strategic industries, such as microchip manufacturing, to diversify geopolitical risk.
But the sudden and dramatic shift to an age of energy pragmatism presents challenges of a different order of magnitude, both in difficulty and global importance.

Successfully navigating the dislocation in the global energy sector will require unprecedented collaboration between industry leaders, policymakers and investors.
Together, they must collectively chart an achievable pathway to energy security and ensure climate adaptation initiatives are met by harnessing the power of natural gas and hydrogen.

More than ever before, dialogue is needed.
Forums like Gastech, the world’s largest and most influential gas conference taking place in Milan in September, have always guided the industry’s direction at the highest level.
Now they will be crucial platforms for facilitating cooperation and forming a global response to the new geopolitical reality.

In the face of major price volatility, which is already having a significant impact on consumers and end users, the stakes of the energy sector’s transformation could not be higher.
But if anything good can come of the Ukraine crisis, a more pragmatic approach to achieving energy securityand carbon neutrality – enabled by diverse range of energy sources – may just be it.


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Author: Arthur Hanna