The annual COP28 summit has just kicked off, with global participants and a global audience closely following the discussions and likely outcomes. Some pundits are calling this the most important COP meeting since 2015, when the Paris Agreement was forged. The host nation UAE has defined four key pillars for the conference: Energy transition, climate finance, climate adaption and resilience, and inclusion. In Rystad Energy, we focus on the first two of these pillars, monitoring how the world is tracking in relation to the target of limiting global warming to 1.5 degrees Celsius. Our observation is that the only realistic way to achieve this target is through a combination of limiting carbon dioxide emissions to 650 Gt by 2055 and reducing methane emissions by 30% by 2030. The steep reduction of CO2 emissions can be regarded as a marathon race that is already underway, while the task of cutting methane emissions can be seen as a sprint that is just about to start.

One important element of the CO2 marathon is to grow accumulated renewable capacity to 11 TW by 2030, up from 4 TW today. Our tracking of solar and wind projects worldwide shows that this target is still within reach, as solar is delivering above the levels needed to compensate for recent setbacks in the growth of wind.  

The capacity of the solar supply chain has skyrocketed over the past two years and has already surpassed the levels needed to reach the aforementioned targets. However, the dilemma for operators and governments is that more than 80% of this capacity resides in China.  

There is also reason for some optimism regarding methane, as China recently published its methane-reduction plan while the EU agreed on methane-reduction laws. China and the US, meanwhile, have recently held negotiations on climate goals, which could pave the way for a breakthrough of sorts in Dubai. This would be reminiscent of the success achieved in Paris back in 2015 after constructive discussions between Chinese leader Xi Jinping and then-US Vice President Joe Biden. 

Putting things in perspective, 8 Gt of annual CO2 emissions stem from burning coal for electricity production, making this the single largest source of fossil fuel emissions. Accelerating the substitution of coal with renewables in some countries, and with natural gas in others, represents the lowest-hanging fruit on the path to decarbonization, alongside oil demand destruction relating to the rise of electric vehicles and cutting methane emissions. Natural gas, therefore, is often referred to as the bridging fuel in many countries’ energy transition journey, also countering the intermittency issues associated with a growing reliance on renewables.

Looking at the vital US market, natural gas has replaced coal as the main energy source for electricity, now accounting for over 40% of US electricity generation. Coal, meanwhile, has declined from 51% in 2001 to 19% in 2022. The two main explanations for this shift are technological innovation and the shale revolution, elevating natural gas to become a reliable energy source for both base load and peak generation.

After a super spike in 2022, international gas prices have receded again in 2023. Both Title Transfer Facility (TTF) and Asian spot LNG prices slipped to single digits in May, mainly supported by healthy storage levels and muted spot demand for LNG. Global gas demand is still surprisingly moderate and is likely to end the year at about 4,040 Bcm, versus 4,005 Bcm in 2022 and 4,070 Bcm in 2021. Does this signal that the 2022 spike had larger structural implications on gas demand than expected? Or will the gas market be back on a 1.5% to 2.0% growth track from 2024? If so, we will need to see new resources brought on stream. 

Where might much-needed additional gas volumes come from? In our analysis, we have taken a closer look at 16 emerging gas basins, four of which offer significant potential based on a recent uptick in exploration and development activities. These are the Senegal-Bove, Levantine, Black Sea, and Perth basins – perhaps not the regions that most of us would have expected. 

With this as a backdrop, what role do we expect gas to play in the future global energy mix? And will gas help spur the continued growth in renewables?

Please join us this week for our monthly webinar, Rystad Talks Energy, where we take a closer look at the role of gas, with a particular focus on Latin America. 

I look forward to presenting our latest research at COP28 in Dubai. If you plan to attend the summit, please be sure to secure a spot at our in-person briefing in Dubai on 5 December. We will also host a post-COP28 webinar that will assess the possible consequences of the discussions and decisions made during the two-week gathering. It is our pleasure to help keep you updated on the fast-changing energy landscape.