Why realism is key as we balance the energy transition with global growth

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Fahad Al-Dhubaib, Senior Vice-President, Strategy and Market Analysis, Aramco

• A successful energy transition requires a pragmatic new approach to deliver energy that is affordable, secure, and more sustainable.
• Oil and gas are expected to play a significant role in the global energy mix, so the focus should be on reducing emissions from conventional energy sources — not simply replacing them.
• Emerging technologies and rising energy demand provide new opportunities for investment.

The global energy transition has reached a critical juncture. Increasingly, we are observing a reassessment of greenhouse gas (GHG) emissions targets as more nations enter periods of economic growth and increased energy demand.

With alternative power yet to displace conventional sources at scale, it is clear that more diverse and pragmatic GHG mitigation pathways are needed — particularly as energy demand is expected to continue rising.

To date, the transition narrative has largely centred on phasing out hydrocarbons, without much thought given to the impact this would have on large swathes of the world’s population, for whom energy affordability and reliability are essential.

Instead, the focus must be on GHG emissions reduction as part of a multidimensional transition, which includes investment in new technology and collective acknowledgement of the crucial role oil and gas will continue to play.

Balancing the energy transition with development

Nations should have the opportunity to sustainably develop their natural resources without compromising energy accessibility, affordability and reliability. That is why a technology-agnostic approach, in which hydrocarbons co-exist alongside alternative solutions such as renewables and hydrogen, is crucial — particularly as we see the energy demand paradigm shifting to emerging and developing countries.

Against this backdrop, global transition policies should be more adaptive and there can be no “one-size-fits-all” approach. A broad-brush approach could severely limit the competitiveness of countries at lower levels of economic maturity.

Those in the Global South, so often overlooked in the climate change debate, must have a voice — particularly as they account for 63% of global energy demand. So far this year, developing countries have helped drive robust oil demand growth of more than two million barrels per day, and any transition needs to accommodate their needs.

Illustrating the ongoing significance of hydrocarbons, their share in the global energy mix has barely fallen in the 21st century, from 83% to 80%, despite investment in new energy technologies. With energy consumption rising, the petrochemical sector showing signs of demand growth and hydrocarbons playing a role in the value chain for lower-carbon technologies, the outlook for oil and gas remains strong.

Hydrocarbons also have an important role to play in enabling the materials transition. They provide an important feedstock in the manufacturing of renewable energy equipment and products that can be deployed in other sectors, such as construction and transportation, where they can contribute to GHG emissions reductions by replacing conventional, carbon-intensive materials.

Investment opportunities

Anticipated energy demand growth represents an opportunity to invest in solutions that are both affordable and more sustainable, supported by robust policy mechanisms. While alternatives are part of the solution, private capital’s appetite to invest in technologies such as carbon capture and storage (CCS), hydrogen and energy storage has historically been limited. There is scope for this to change, but it will require increased awareness and knowledge sharing to facilitate greater understanding of potential investment risks and capital costs.

At the same time, investments in oil and gas projects remain crucial — particularly given opportunities for emerging technologies such as CCS to address associated GHG emissions. Seeking to replace oil and gas with alternatives too quickly could in fact be counterproductive to decreasing GHG emissions, for example by forcing renewed reliance on coal.

At Aramco, we are exploring multiple options — including more than doubling the size of our venture capital programme to $7.5 billion in January, with a view to enabling innovative startups and disruptive new technologies, and supporting our own GHG emission-reduction efforts.

Fiscal enablers that connect financial support to industrial value chains may also help economies unlock opportunities and provide investment certainty. Creating long-term agreements is another factor that could potentially support the adoption of technologies such as lower-carbon hydrogen, an area in which we see significant opportunity.

But energy transition investment is not only linked to market mechanisms. Infrastructure is also key, and the two should go hand in hand — with new projects benefiting from existing infrastructure wherever possible.

Lower-emission solutions

Ultimately, it is not feasible to meet the world’s growing energy needs and achieve net-zero ambitions without hydrocarbons. Not only does the sector help power the global economy, it also possesses the knowledge, expertise, resources and scale required to move it forward.

At Aramco, our portfolio is already evolving to include lower-carbon energy products such as blue hydrogen and blue ammonia, renewables and lower-carbon synthetic fuels. By demonstrating the validity of blue ammonia supply chains to transport hydrogen, we aim to help lay the foundations for GHG emissions reduction in hard-to-abate heavy industries, such as steel and cement — the furnaces of which currently use coal or gas but could use lower-carbon hydrogen in future.

Approximately 59% of Aramco’s total R&D spend goes to sustainability-related R&D, and we are exploring new ways of using captured CO2. This includes the curing of cement — achieved by technology that reduces curing time, strengthens concrete and results in a CO2 uptake in cement of about 20%. This could help mitigate GHG emissions in the construction industry.

At Aramco, our ambition is to achieve net-zero Scope 1 and Scope 2 GHG emissions across our wholly-owned and operated assets by 2050. Our upstream carbon intensity figure remains among the lowest in the industry at 10.7 kilograms of CO2 per barrel of oil equivalent in 2023. If this were replicated across the industry, more than 1.0 gigaton of CO2 emissions could be avoided.

We are also focusing on energy efficiency improvements, reduced flaring across our upstream operations and addressing methane emissions, which represents one of the best near-term opportunities for GHG emissions reduction for oil and gas.

Ultimately, the energy transition is a complex challenge that will not be solved by a single industry acting alone. It needs global collaboration and collective effort, and these efforts need to include the oil and gas industry — one of the few sectors with the scale, experience and global reach to move the needle while continuing to supply vital energy that the world needs.