Five questions looming over the vitality sector in 2025  | USAEMALL.com

Happy new year, and welcome back to Energy Source.

President Joe Biden announced a new ban on offshore oil and gas drilling across most of the US coastline on Monday in a move that is expected to complicate incoming president Donald Trump’s agenda to “drill, baby, drill” and boost the country’s already record oil production.

Elsewhere, millions of Americans remained under weather advisories on Monday as a winter storm brought freezing temperatures and left nearly 250,000 households without power. The Henry Hub benchmark price for natural gas closed 10 per cent higher yesterday at $3.71 per million British thermal units. 

Today’s newsletter explores five key questions facing the energy sector in 2025. This year, countries will grapple with a bearish oil market, rising power demand, and domestic and regional crises that challenge their climate and emissions reduction pledges.

Thanks for reading,

Amanda

1. Will Opec overcome sliding oil prices?

The price pressures that plagued Opec last year will continue to mount in 2025. Markets are expected to remain bearish as global demand slows, especially in China, and non-Opec countries pump more crude. JPMorgan projects an “outright bearish” market this year, with global oil demand growth decelerating from 1.3mn barrels a day to 1.1mn b/d while non Opec+ supply growth averages 1.8mn b/d. The bank expects Brent crude, the global benchmark, to average $73 per barrel in 2025, down from $80 per barrel last year. Goldman Sachs expects prices to average $76 per barrel. 

The glut underscores the growing crisis facing the oil cartel as the world transitions to a system that consumes less crude. S&P Global Commodity Insights predicts global gasoline demand will peak this year, citing growing electric vehicle adoption and fuel efficiency gains in internal combustion engine cars.

In December, Opec delayed plans to reintroduce 2.2mn b/d until April after a series of supply cuts that began in 2022 to support prices.

2. Can Trump convince producers to ‘drill, baby, drill?’

The slide in oil prices is not only a problem for Opec but also Trump’s plans to “drill, baby, drill.”. The US president-elect has vowed to unleash the country’s oil production, which reached record levels under Biden, but producers are unlikely to significantly boost drilling at current prices.

Half of large exploration and production groups, making up 80 per cent of production, said they planned to decrease capital spending this year, while 14 per cent said spending levels would remain unchanged, according to a Dallas Federal Reserve energy survey of groups operating in the prolific Permian basin last week. Small E&Ps, meanwhile, were more bullish, with 63 per cent planning to increase spending.

“If Opec ends up producing more and if China ends up demanding less, then that will further mitigate an increase in US production,” said Gregory Brew, a senior analyst at Eurasia Group.

A recent Kansas City Fed survey of energy firms found that the average price of oil required for drilling to be profitable was $65 per barrel, while prices of $89 per barrel were needed for a substantial increase in drilling. Goldman Sachs expects West Texas Intermediate, the US benchmark, to average $71 per barrel this year, before falling to $66 barrel in 2026.

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

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

Shares of gas turbine manufacturers soared in 2024, with GE Vernova’s stock up 170 per cent since it began trading in March and Siemens Energy’s shares up more than 250 per cent. Total orders for turbines at GE Vernova are expected to have nearly doubled in 2024, from 11GW to 20GW globally.

“We really haven’t seen this type of secular and systemic demand increase in the last several decades, and it’s one where we believe a more of everything approach will be necessary to meet this type of demand,” said Angelo Acconcia, partner at ArcLight Capital Partners, adding that “the opportunity set for natural gas-related infrastructure is in the hundreds of billions of dollars.”

The International Energy Agency estimates that power consumption from data centres could double by 2026, consuming more than 1,000 TWh of electricity, equivalent to the footprint of Japan. Global gas consumption across sectors is expected to reach record highs in 2025. 

“Given the technologies that are available right now, you have to look at a holistic solution that involves thermal capacity in addition to renewables capacity, paired with battery storage,” said Pooja Goyal, chief investment officer at Carlyle’s infrastructure group. 

4. Can climate multilateralism overcome geopolitics? 

Last year concluded with a series of disappointing climate summits. First, the UN biodiversity talks in Colombia were suspended after running into overtime in November. Weeks later, the UN COP29 climate summit in Azerbaijan ended with a finance target that fell far short of what experts deemed was needed for the developing world. Then the negotiations over a UN treaty on plastic pollution collapsed in South Korea after oil-producing nations blocked efforts to place limits on production. 

Whether climate multilateralism can regain traction in 2025 is up in the air as countries confront domestic crises, rightward shifts in governments and regional wars. Trump is expected to withdraw the US from the Paris climate agreement again, and developed countries are likely to miss their current 2030 emissions pledges or nationally determined contributions. Updated NDCs are due in February ahead of COP30 in November, which marks a decade since the Paris Agreement.

“Target-setting for COP30 should not be interpreted primarily as a guide to the future trajectory of global greenhouse gas (GHG) emissions, but as a barometer for the viability of the [United Nations Framework Convention on Climate Change], and an indicator for the relevance of climate change within the wider evolving context of global geopolitics,” S&P Global Commodity analysts wrote in their annual outlook.

5. Will the IRA survive Trump?

Perhaps one of Biden’s greatest legacies will be the passage of the Inflation Reduction Act, the most significant action the US has taken to address climate change and the law that marked the start of global green protectionism.

That is, if it survives. Trump has vowed to “terminate” the industrial policy, calling the IRA a “green scam”. 

A full repeal is unlikely. The IRA’s manufacturing goals are aligned with the incoming president’s vision to boost the country’s industrial sector and has overwhelmingly benefited Republican-controlled districts over Democratic-led ones, despite receiving no Republican votes in Congress. 

“Money is money . . . Seeing the economic benefits of new projects come online create[s] wider political and social support for different technologies having a home here beyond oil and gas,” said Cameron Poole, energy and innovation manager at Greater New Orleans, an economic development organisation in Republican-led Louisiana that has seen investments in green hydrogen, carbon capture and offshore wind. GNO’s president Michael Hecht expects “modifications” to the law but “not wholesale pullbacks”.

Think-tank Rhodium Group estimates clean investment made up 5 per cent of all US private investment in structures, equipment and durable consumer goods in the third quarter of last year. To what extent the IRA will survive a Republican-trifecta government eager to cut spending will be a test of the power of the clean energy economy. (Amanda Chu)

Power Points

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

• Canada is racing to become the world’s biggest uranium producer as prices for the radioactive metal surge in response to soaring demand for emissions-free power and geopolitical threats to supplies.

• European voters will abandon the fight against climate change unless the rich pay for others to go green, argues Frans Timmermans, the architect of the EU “Green Deal”.

Energy Source is written and edited by Jamie Smyth, Myles McCormick, Amanda Chu, Tom Wilson and Malcolm Moore, with support from the FT’s global team of reporters. Reach us at energy.source@ft.com and follow us on X at @FTEnergy. Catch up on past editions of the newsletter here.