Five questions for the energy industry in 2025

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President Joe Biden on Monday announced a new ban on offshore oil and gas drilling along much of the U.S. coastline, which will “drill, baby, drill” and increase already record oil production. This is expected to complicate President-elect Donald Trump’s plans to .

Elsewhere, millions of Americans remained under weather warnings Monday as the winter storm brought subzero temperatures and knocked out power to about 250,000 homes. The Henry Hub natural gas benchmark price yesterday ended 10% higher at $3.71 per million British thermal units.

In today’s newsletter, we look at five key issues facing the energy sector in 2025. This year, countries will grapple with weak oil markets, rising electricity demand, and domestic and regional crises that challenge climate change and emissions reduction commitments.

Thank you for reading,

amanda

1. Will OPEC be able to overcome the drop in oil prices?

The price pressures that plagued OPEC last year will continue to build in 2025. The market is expected to remain bearish as global demand, particularly in China, slows and non-OPEC countries increase oil supplies. JPMorgan predicts a “completely bearish” market this year, with global oil demand growth slowing from 1.3 million barrels per day to 1.1 million barrels per day, while non-OPEC+ supply growth slows. The average daily production will be 1.8 million barrels. The bank expects the average price of global benchmark Brent crude to average $73 per barrel in 2025, down from $80 per barrel last year. Goldman Sachs expects prices to average $76 a barrel.

The oversupply underscores the growing crisis facing oil cartels as the world moves to a system that reduces oil consumption. S&P Global Commodity Insights predicts that global gasoline demand will peak this year due to the growing adoption of electric vehicles and improved fuel efficiency of internal combustion engine vehicles.

In December, OPEC postponed plans to reintroduce 2.2 million barrels a day until April, following a series of supply cuts that began in 2022 to support prices.

2. Will President Trump be able to convince producers to “Drill, Baby, Drill”?

The drop in oil prices is not only a problem for OPEC, but also for President Trump’s “Drill, Baby, Drill” plan. The US president-elect has vowed to unleash the country’s oil production, which reached record levels under the Biden administration, but producers are unlikely to significantly increase drilling at current prices.

Half of large exploration and production groups, accounting for 80% of production, say they plan to reduce capital spending this year, while 14% say spending levels will remain the same, the Dallas Federal Reserve Board found. This was revealed in an energy survey conducted by the association. Last week was the prolific Permian Basin. Smaller E&Ps, on the other hand, are more bullish, with 63% planning to increase spending.

“If OPEC eventually ramps up production and China’s demand falls, U.S. production growth will be further moderated,” said Gregory Belew, senior analyst at Eurasia Group.

A recent Kansas City Fed survey of energy companies found that the average price of oil required to make drilling profitable is $65 per barrel, but $89 per barrel to significantly increase drilling volumes. It turned out that a price of . Goldman Sachs expects the average price of U.S. benchmark West Texas Intermediate to average $71 a barrel this year, falling to $66 a barrel by 2026.

3. Will the AI ​​race usher in a natural gas boom?

As developers race to build data centers for artificial intelligence, investors are bullish on the role natural gas will play in the demand for cheap, reliable electricity.

Shares of gas turbine manufacturers have soared in 2024, with GE Vernova stock up 170 percent since trading began in March and Siemens Energy stock up more than 250 percent. GE Bellnova’s total turbine orders are expected to nearly double worldwide in 2024, from 11GW to 20GW.

“We haven’t really seen this kind of long-term, systemic demand growth over the past few decades. We think we’re going to need a more all-hands-on-deck approach to meeting this kind of demand.” said Angelo Acconcia, Partner at ArcLight. Capital Partners added that “the opportunities set for natural gas-related infrastructure are in the hundreds of billions of dollars.”

The International Energy Agency estimates that electricity consumption from data centers could double by 2026, consuming more than 1,000 TWh of electricity, an area the size of Japan. Global gas consumption in all sectors is expected to reach an all-time high in 2025.

Pooja Goyal, Chief Investment Officer of Carlyle’s Infrastructure Group, said: “Given the technology currently available, we need to consider a holistic solution that includes thermal capacity in addition to renewable energy capacity, combined with battery storage. “There is,” he said.

4. Can climate multilateralism overcome geopolitics?

Last year ended with a series of disappointing climate summits. First, UN biodiversity talks in Colombia were suspended in November as they went into overtime. A few weeks later, the United Nations COP29 climate change summit in Azerbaijan concluded with results far short of the funding targets that experts believe developing countries need. Negotiations in South Korea over a U.N. treaty on plastic pollution then collapsed after oil-producing countries blocked efforts to limit production.

Whether climate multilateralism can regain momentum in 2025 is up in the air as countries face domestic crises, right-wing governments, and regional wars. President Trump is expected to withdraw the United States from the Paris climate change agreement again, and developed countries are unlikely to meet their current 2030 emissions commitments or national contributions. The updated NDC is expected to be submitted in February ahead of COP30 in November, which marks 10 years since the Paris Agreement.

“The COP30 target setting should not be interpreted primarily as a guide to the future trajectory of global greenhouse gas (GHG) emissions, but rather as a barometer of the viability of the (United Nations Framework Convention on Climate Change). “The relevance of climate change within the broader evolving context of global geopolitics,” analysts at S&P Global Commodities wrote in I am writing in the next outlook.

5. Will the IRA survive President Trump?

Perhaps one of Biden’s greatest legacies will be the passage of the Inflation Control Act, the most important action the United States has taken to address climate change and the law that marked the beginning of global environmentalism. .

That is, if you survive. President Trump called the IRA a “green scam” and vowed to “end” industrial policy.

Complete abolition is unlikely. The IRA’s manufacturing goals are consistent with the president-elect’s vision to revitalize the nation’s industrial sector, and despite not receiving Republican votes in Congress, the IRA’s manufacturing goals are It brings overwhelming benefits to the constituencies it controls.

“Money is money. . . . The economic benefits of bringing new projects into production will lead to broader political and social support for the range of technologies that have a home here, beyond oil and gas.” said Cameron Poole, energy and innovation manager for Greater New Orleans, an economic development organization in New Orleans. Republican-led Louisiana is investing in green hydrogen, carbon capture and offshore wind power. GNO President Michael Hecht said he expects “amendments” to the law, but not a “total repeal.”

The Rhodium Group think tank estimates that clean investments accounted for 5% of all U.S. private investment in structures, equipment and consumer durables in the third quarter of last year. How long the IRA can survive under a three-party Republican government bent on cutting spending will be a test of the power of the clean energy economy. (Amanda Chu)

power point

Moldova has accused Russia of causing an energy crisis after tens of thousands of homes in the breakaway region of Transnistria were left without power or heat.

Canada is vying to become the world’s biggest uranium producer as the price of the radioactive metal soars on the back of surging demand for emissions-free electricity and geopolitical threats to supply.

Frans Timmermans, architect of the EU’s Green Deal, says European voters will abandon the fight against climate change unless the wealthy pay others to look after the environment. claim that it will.

Energy Source is written and edited by Jamie Smith, Miles McCormick, Amanda Chu, Tom Wilson and Malcolm Moore, with support from the FT’s global team of reporters. Please contact us at energy.source@ft.com. Follow @FTEnergy on X. Click here for past editions of the newsletter.