For over a decade, Western policymakers have prioritized renewable energy as the primary path to decarbonization at the expense of oil and gas development. More than $6 trillion has been invested in intermittent wind and solar around the world to produce about 5.3% of global power demand. Oil and gas, on the other hand, suffered under-investment as ESG covenants raised fears of stranded assets and failed projects (MEES, 26 April 2024).
That has begun to change as a resurgence in gas demand forces a rethink of climate policies that may in fact have caused more emissions rather than less. Shifting energy flows caused by the conflict in Ukraine, and the race to electrify energy systems for modern digital economies has brought gas back to the center of global energy systems.
Now policymakers are seeking balance in the energy trilemma of availability, reliability and sustainability, not just sustainability at any cost. Some Western countries like Germany have resorted to burning more coal and restarted nuclear plants, but many have turned to gas to maintain grid stability cleanly and efficiently.
Yet one significant factor is notably missing in this change. While gas is emerging as the indispensable fuel for the West, the developing world remains conspicuously absent from the transition despite its rapidly growing energy needs and emissions.
THE GLOBAL SOUTH IS KEY
From Africa to Latin America, emerging markets will see their energy needs grow massively in coming decades as their populations and economies grow. With 900mn people still lacking electricity and 2.4bn without clean cooking fuels, the global south will drive the greatest growth in energy demand—and emissions.
By 2050, global energy demand is projected by the EIA to rise by 50% against 2020 levels, much of that driven by emerging economies. And while oil demand in these countries is expected to grow by around 10%, gas demand is forecast to rise by 50% over the coming 25 years under BP’s Current Trajectory scenario, reflecting the level of electrification to come.
Emerging economies, however, face a chronic lack of capital and financing options for domestic energy development. Western ESG mandates, often conflating gas with coal, apply to these countries more directly and more deliberately. They have put a near halt to financing natural gas development in emerging markets in recent years, particularly for local use. Ironically, the unintended consequence of such climate policies is to increase reliance on cheap coal and biomass — thus boosting, rather than cutting emissions.
This is a golden opportunity for a rethink on the developing world’s energy needs. A shifting landscape requires policymakers to explicitly support gas development as an actual climate solution. Gas, when produced cleanly and efficiently, can have an outsize impact on carbon emissions at scale and for the long term. For example, an estimated $6 trillion spent on converting from coal power to gas could cut global emissions by 15 per cent, far surpassing the impact of the equivalent investment in renewables, faster and with higher reliability.
Meanwhile the Trump administration’s emphasis on energy access and market resilience has reopened the conversation on ESG, challenging policies that have hindered development of cleaner fuels.
But unlike the West, gas development in the global south faces more unique financing hurdles. While oil is often developed by state-owned firms, gas projects are often led by companies which are more vulnerable to ESG pressures and their financing constraints. Gas also demands higher upfront capital and longer timelines, with extensive infrastructure needs. Emerging economies must unlock avenues for affordable finance to replace coal and biomass with indigenous sources of gas and to guarantee long-term supply of that gas.
THE CRUCIAL ROLE OF MULTILATERAL DEVELOPMENT BANKS
Multilateral Development Banks (MDB) like the DFC and World Bank may be the key to this. Historically, MDBs have helped emerging economies unlock financing to develop their own infrastructure and resources. The presence of an MDB or Export Credit Agency (ECA) supports the credit risk associated with projects in developing economies, giving those countries access to a deeper funding pool on more favorable lending terms.
MDB mandates have shifted in recent years to reflect the changing environmental priorities of their shareholders. Today projects must reflect climate change considerations.
A recent Atlantic Council whitepaper found that MDBs have shifted away from their original mission of broad meta-goals like maximizing economic growth, instead adopting narrower ESG goals that limit their ultimate impact. Under current net-zero carbon targets, for example, energy investment in hydrocarbons is treated as a last resort rather than a vital development priority.
MDBs must now be part of a global paradigm shift by recalibrating their energy investment strategies to support scalable, growth-oriented capital flows — particularly toward cleaner, more stable energy sources like natural gas. Much like the shift happening in the West, a shift to acknowledge energy development as a central part of economic growth is crucial for MDBs.
Crescent Petroleum has experienced this in practice with US$250mn in financing from the US Development Finance Corporation supporting a major expansion in the Kurdistan Region of Iraq (KRI). The project promises to boost gas production by more than 50 per cent and will help deliver more reliable grid power and replace the use of dirty liquid fuels like diesel. Since 2008, the replacement of dirty fuels has enabled the avoidance of nearly 60mn tonnes of CO2eq.
MDB involvement also resulted in a “halo effect,” attracting additional financing and building investor confidence in the KRI and Iraq more broadly. This virtuous cycle helps build a higher level of confidence to enable other projects to come to fruition, reinforcing progress and economic growth. MDB financing can thus catalyze a wider range of energy investments — including cleaner gas projects to drive sustainable development and underpin growth. That world would include renewables and other forms of energy, but it will ultimately have gas at its center.
When developing countries can finance their own cleaner energy projects, they too can enjoy the abundant, stable, and low-cost gas supplies that developed nations have taken for granted. The financial community must now rally behind this next chapter in energy development and recognize the role of gas in addressing both energy access and climate goals.
*Majid Jafar is Chief Executive Officer of Crescent Petroleum
