At Cop 29 in Azerbaijan this week, the host of the UN’s annual climate event laid bare the lingering tension characterising the current energy transition debate: much as the global economy needs to decarbonise and mitigate climate change, its thirst for fossil fuels continues to rise. 

Azerbaijan’s president Ilham Aliyev said on November 12 that oil and gas were a “gift of God” and that “countries should not be blamed” for being endowed with and selling natural resources. “The market needs them,” he said in Baku, Azerbaijan’s capital and the ‘world’s first oil town’ where wells were drilled as early as the 1840s.

Natural gas, a fossil fuel that accounts for about a quarter of global electricity generation, is a case in point. Global demand for natural gas is forecast to grow by more than 2.5% this year compared with a 2% historical average between 2010 and 2020, according to the International Energy Agency (IEA). 

Investment into new capacity at liquefied natural gas (LNG) terminals, which enable seaborne gas trade, has surged in recent years too. IEA data shows that most new LNG capacity is being built in North America and the Middle East to cater to European demand as countries have sought to diversify to new gas suppliers after Russia’s full-scale invasion of Ukraine began in February 2022. 

Since then, more than 150 billion cubic metres (bcm) per year of global LNG liquefaction capacity have already reached a final investment decision, according to the IEA, with global capacity set to reach 884 bcm per year in 2028. The Institute for Energy Economics and Financial Analysis expects 40% growth in global LNG capacity between 2024 and 2028, the fastest growth in the industry’s history. 

“Gas is in many cases the only solution for balancing out the intermittency of renewable generation that is available today,” explains Christoph Halser, an analyst at Rystad Energy, noting its importance in developing countries like Bangladesh. This was seen last week in Germany where a Dunkelflaute — a period when there is no sun or wind — led most of the country’s electricity generation to be fossil-fuel driven.

But researchers and activists stress that gas investments today are wedding the world to fossil fuels at a time of more severe climatic events like flooding in Spain, droughts in Africa, hurricanes in the Americas and Asian super typhoons.

Europe’s Copernicus climate monitoring agency said on November 7 that it is “virtually certain” that 2024 will be the warmest since records began in 1940 and the first year in which global average temperature will be 1.5 degrees Celsius higher than pre-industrial levels, the threshold that the global community committed to keep temperatures under at Cop 21 in Paris in 2015. 

“We no longer have time to take a step via another fossil fuel on our way to a clean energy system,” says Greg Muttitt, senior associate at the International Institute for Sustainable Development, adding that gas shouldn’t be used as a transition fuel, particularly given that wind and solar power are cheaper in many parts of the world. About 81% of newly-commissioned, utility-scale renewable power generation projects in 2023 had costs of electricity lower than the weighted average fossil fuel-fired costs, according to the International Renewable Energy Agency.

Data on greenfield FDI shows that capital pledged to global gas projects (including both extraction and liquefaction) are far lower than in wind, solar and other renewables. But preliminary data for the first three quarters of 2024 shows that gas was the only major energy FDI sub-sector to record growth compared with full-year 2023, due mainly to a $30bn mega gas project planned by Malaysia’s Petronas in Argentina.

Oil and natural gas dominate Azerbaijan’s economy, accounting for about 90% of its export revenues and roughly 60% of the government budget, according to a 2021 IEA report. The country has benefited from diversification from Russia, signing a deal in 2022 to double gas exports to the EU to “at least” 20 bcm per year by 2027. 

While official data shows total gas exports rose year-on-year by 5.7% in the first seven months of 2024, Azerbaijan’s gas exports of 7.5 bcm to Europe remain well below its target. Rystad Energy data shows that Europe’s monthly gas imports via Russia’s gas pipeline have fallen by about a quarter between 2021 and 2024.

Forecasters are also trying to predict the likely impact of a second term for Donald Trump, a known climate sceptic whose platform promises to make the US “by far”the dominant energy producer in the world. By 2030, the European gas benchmark TTF price could fall by up to 9%, according to Aurora Energy Research, which assumes that Trump revokes President Joe Biden’s ban on new LNG terminals in the US and thereby increases global gas supply. 

Baku saw the dawn of the oil and gas industry when the likes of Ludvig Nobel pioneered the first extraction and transportation technologies in the capital of modern day Azerbaijan. Cop 29 will hardly see its sunset.

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