High Degree of Uncertainty, Artificial
Intelligence's Impact on Energy Markets
Resilient Fossil
Fuels Markets Adapting to Changing Conditions
NEW
YORK and LONDON and
SINGAPORE, Dec. 11,
2024 /PRNewswire/ -- Analysts at S&P Global
Commodity Insights, the leading independent provider of
information, data, analysis, benchmark prices and workflow
solutions for the commodities and energy transition markets, today
released their 2025 energy outlook.
As the calendar turns to 2025, there is more uncertainty in
energy markets heading into a new year than any year since the
pandemic. Conflicts in Ukraine and
Gaza remain unresolved and have
the potential to significantly alter energy markets. Polarization
and geopolitical rivalry between China and the West are becoming more
pronounced. China is leveraging
its leading position in clean technology for greater global
influence, while the US and Europe
enhance tariffs to protect domestic industry. The election of
Donald Trump to the US presidency
adds further uncertainty to geopolitics and raises question about
US participation in the already weakened Paris Agreement and the UN
Conference of Parties (COP) process, as well as question about US
foreign policy and energy objectives.
Dave Ernsberger, Co-President,
S&P Global Commodity Insights, said: "There are emerging
technological and fundamental trends that will clearly have an
impact on markets over the coming year, although how significant
their impact will be is uncertain."
Rapid growth of artificial intelligence is accelerating power
demand for data centers, although the timing, tenor, and location
of the resulting incremental demand is somewhat difficult to
predict. The potential boom in electricity demand has already
revived interest in nuclear power, but despite the backing from big
technology firms, it is uncertain whether a nuclear renaissance
will occur.
Mark Eramo, Co-President,
S&P Global Commodity Insights, said: "Fossil fuel
prices in 2025 will be shaped by how markets adjust to growing
supply and generally soft demand growth."
For oil, OPEC+ has stated ambitions to bring supply back to the
market, although after delaying its plan to unwind production cuts
three times, it is uncertain if it will be able to bring any supply
back in 2025 without pushing crude prices below $70 per barrel (/b). Similarly, another wave of
North American liquefied natural gas (LNG) supply will begin to hit
the market in earnest in 2025, weakening global LNG prices, but
boosting US gas prices, although the timing of project completion
and the degree of producer foresight to ramp up supply ahead of the
surge will ultimately determine the relative impact. Some important
energy commodities are at or approaching global demand peaks
resulting in difficult choices for certain industries, like
refining, as they adjust to changing market dynamics.
TOP TEN KEY THEMES TO THE 2025 ENERGY OUTLOOK - S&P
GLOBAL COMMODITY INSIGHTS:
- Back to the Future: Trump's Second Term to Have Large
Impacts on Policy & Markets: With the election of
Donald Trump to a second presidency
of the United States, expect a
scene shift to a very different path for energy and climate policy
than the four-year Biden presidency. Based on actions from the
prior Trump administration, statements made during the election
campaign trail, and recommendations of the Project 2025 report, the
second Trump administration will likely look to pull the US out of
the Paris Agreement, rescind and redraft existing vehicle emission
regulations, weaken methane regulations, and reduce support for
electric vehicle (EV) adoption. Furthermore, we expect the Trump
administration to grant export approvals to all pending LNG export
projects which could support final investment decisions (FIDs) in
the second half of 2025. While a complete repeal of the Biden
administration's signature Inflation Reduction Act (IRA) is
unlikely given Senate filibuster rules, the Republican
Congressional majority can and likely will leverage the budget
reconciliation process to at least repeal parts of the IRA.
The change in US administration also raises questions regarding US
foreign policy that may impact energy markets, specifically the
ongoing conflicts in Russia/Ukraine and the Middle East, as well as the implementation of
sanctions on Iranian oil exports. Also, President-elect Trump has
pledged to implement and raise tariffs on imports from several
countries, but China in
particular, which, if implemented, would have outsized influence on
the US, Chinese, and global economy. The first Trump administration
proved to be unpredictable, and market players will need to be
nimble when the second Trump administration begins in January.
- Total Energy Demand Growth to Outstrip Clean Energy Supply
Growth, Pushing Emissions Higher: One of the primary challenges
to the energy transition is developing enough clean energy supply
to not only meet overall energy demand growth, but enough to
displace existing fossil fuel demand and reverse growth in
energy-related carbon emissions. Aside from the pandemic and other
significant economic recessions, there has never been a year in
which clean energy supply (wind, solar, hydro, other renewables and
nuclear) growth exceeded total demand growth, resulting in a
reduction in fossil fuel use. Making matters even more challenging
is that total primary energy demand has been growing above trend
since the pandemic and growth will remain robust in 2025. Between
2000-2019, primary energy demand increased on average by 5.4
million barrels of oil equivalent per day (boe/d). S&P Global
Commodity Insights projects that primary energy demand will
increase by approximately nine million boe/d in 2024 and will grow
by more than eight million boe/d in 2025. While the supply of clean
energy is growing faster than it ever has in history (over five
million boe/d), it is not yet fast enough to curtail the growth in
fossil fuel demand, let alone displace existing fossil fuel
consumption. As a result, demand for fossil fuels is expected to
increase by more than three million boe/d in 2025, and
CO2 emissions associated with fossil fuel combustion
will reach a new record high, although it will be the smallest
increase since the pandemic.
- Artificial Intelligence and Datacenters to Spark a New Era
for Electricity Consumption: While a widening adoption of
AI and an expanding fleet of datacenters are not new, an expected
acceleration of both will fundamentally alter the trajectory of
global power demand. S&P Global Commodity Insights expects that
power demand for data centers will grow between 10-15% per year
between now and 2030, and that datacenters could account for up to
5% of total global power demand by 2030. In the developed economies
of North America, Europe, and Asia, where power demand has been flat or has
even fallen in recent years, datacenters represent a shift to 2%-3%
growth. In developing economies, incremental datacenter demand will
add to already robust electricity demand growth. In both cases,
this enhanced level of growth offers challenges to electricity
grids as new datacenter projects take, on average, two to three
years from inception to commercial launch, while new power supply
can take four to five years or more and transmission projects even
longer. While large technology companies have led the way in terms
of clean energy procurement to feed their datacenters, oftentimes
this syphons clean power away from the grid at large. This may
require additional gas-fired generation capacity to be built, or to
keep aging coal-fired generation capacity online longer than
originally planned.
- Nuclear Energy Making a Comeback? Nuclear energy
has been showing signs of gaining traction in energy markets,
especially in North America. The
technology has a proven track-record as being a reliable, stable,
and carbon free source of electricity for decades and is
increasingly being looked at as an option for growing electricity
demand as companies try to decarbonize their portfolio. Microsoft,
Google, and Amazon all signed power purchase agreements in 2024
totaling more than three gigawatts (GW) tied to nuclear capacity to
help feed growing demand from datacenters. Restarting
previously-retired large-scale reactors has gained traction with
Holtec International aiming to restart the Palisades nuclear plant
(Michigan, USA) sometime in 2025,
and Constellation working to restart their Three Mile Island plant
(Pennsylvania, USA) to help meet
growing demand, with the latter supported by Microsoft in the PPA.
2024 also marked the first new large-scale nuclear plant
commissioned in North America
since the mid-1990s with the startup of the Vogtle plant in
Georgia. However, although the new
plant marks a milestone in nuclear capacity additions, many point
to the cost of more than $36 billion
for the two new units (more than double the projected cost) as an
indication that nuclear power remains an outsider for significant
consideration in terms of new capacity additions to support the
energy transition in North
America, although China
continues to grow nuclear capacity significantly.
Some interest from big technology companies in securing nuclear
energy has been geared toward the development of small modular
reactors (SMRs). While this technology is still fairly nascent and
will not impact energy balances over the next year, the level of
interest and development of SMRs in 2025 will be a key indicator of
the likelihood and potential magnitude of a nuclear renaissance.
Key projects to monitor in 2025 are the Linglong-1 power plant in
Hainan China, which would be the
first commercial onshore SMR to go online (schedule for 2026) and
the X-energy SMR project at Dow Chemical's Seadrift petrochemical
manufacturing site, which would provide both power and heat for the
facility. Success at this facility which would represent a
significant milestone in the efforts to decarbonize downstream
chemical operations.
- The Clean Technology Race - China Accelerates While the West
Taps the Brakes: China's position as the preeminent
superpower in the clean technology space is not new, as it already
is the largest producer and consumer of electric vehicles,
batteries, solar panels, wind turbines, and green hydrogen
electrolyzers. However, while deployment of clean energy technology
continues to accelerate in China,
the deployment of clean technologies is facing considerable
headwinds in the West, not least due to pledges from US
President-elect Trump to roll back subsidy provisions in the IRA,
and already-reduced subsidies in parts of Europe. The bankruptcy of Northvolt in
November 2024 is the latest example
of a Western cleantech company unable to compete with low-cost
Chinese equipment. In both the US and Europe, policymakers are utilizing tariffs on
Chinese clean technologies, particularly electric vehicles, to
protect their domestic industries. Limiting access to
price-competitive Chinese-made clean technology equipment increases
the risks that the US and Europe
will fall even farther behind China and slow emissions reduction
progress.
Meanwhile, China is leveraging its
cleantech industry to reduce its fossil fuel demand (particularly
of imported fossil fuels). As China's EV sales penetration is pushing above
50% of all light duty vehicles sold, S&P Global Commodity
Insights projects that China's oil
demand for passenger vehicles will begin to decline in 2025. At the
same time, China's EV exports are
helping countries electrify transport, particularly countries that
are net oil importers, have no sizeable domestic vehicle brands,
and have a general favorable public opinion of China. Outside of Southeast Asia, Brazil has already become one of the top
importers of Chinese EVs, and two major Chinese EV producers BYD
and Great Wall have made very public significant investments in EV
manufacturing in Brazil.
Additionally, China's rapid growth
of renewables generation is limiting growth of domestic coal and
natural gas demand, and its 200+ GW per year of solar panel exports
is having a similar deflationary impact on fossil fuel demand
elsewhere and is an influence in the rest of the world. 2025 likely
will be highlighted by an even greater degree of polarization of
clean technology between China and
the West.
- Peak Gasoline Comes Head-to-Head with New Refining
Capacity: Global gasoline demand is expected to peak in
2025 as EV adoption and gasoline vehicle efficiency gains finally
catch up to economic and population-driven demand growth, notably
in developing nations. At odds with this demand peak is
notable refining capacity additions, including the high gasoline
yielding Dangote refinery in Nigeria that is projected to fully stream in
2025. The Dangote refinery, the largest in Africa, is expected to shift gasoline trade
flows as it adds to capacity additions in Mexico and the Middle East. The imbalance is expected to
pressure margins and result in accelerated rationalization of
refining capacity, especially in the Eastern US and Europe but also in China and other markets. These dynamics could
impact crude markets and the crude slate of the shuttered
refineries, which could well be heavier than the expected crude
intake at Dangote. So far, Dangote's crude has come from the US and
Nigeria, but the plant is only at
about half capacity rates. Refining margins are expected to enter a
down cycle period and a return to mid-cycle margins will depend
predominantly on the rate of refinery closures – as opposed to the
rate of demand growth, which could have been expected in past
recovery cycles.
- OPEC+ Caught Between a Rock and a Hard Place OPEC+
has been in a difficult position for several years to achieve its
objectives of moderately high prices and increased production
volumes. Due to strong oil production growth in the Americas
(primarily the US, but also Canada, Guyana, and Brazil) and decelerating oil demand growth,
OPEC+ (or a subset of its membership) has cut oil supply four times
since 2022, only to see prices continue to generally weaken. In
early June, OPEC+ decided to begin a year-long process of gradually
raising production that would start in October 2024, attempting to bring back supply
without overly deflating prices – a theme we call "thread the
needle". However, the group has consistently stated that these
plans are subject to change, particularly if market conditions are
not supportive of such a move. In September, OPEC's Joint
Ministerial Monitoring Committee adjusted the timeline, delaying
the increase to December. In early November, OPEC+ decided to again
postpone the increase in production to January 2025. On December
5, OPEC+ once again delayed the unwinding of production
cuts, this time by an additional three months. In our view, OPEC+
will find it difficult to increase supply at all in 2025 without
notably weighing on prices since non-OPEC production growth is
expected to be greater than total global oil demand
growth.
- The next wave of LNG exports could rock the US domestic gas
market boat: The global LNG market is poised for
significant change in 2025 after two years of relatively limited
growth, as total trade grew only 10 million metric tons (3%)
relative to 2022 levels by 2024. The next major wave of supply
starts in 2025 and will be kicked off from new liquefaction
capacity coming online in North
America. Of the 27 million metric tons of new supply
expected in 2025, nearly 90% is expected from North America. According to public statements,
facilities such as Corpus Christi Stage 3, Plaquemines LNG, LNG
Canada, and Costa Azul LNG are all expected to ramp up throughout
2025. The uptick in exports will put significant strain on the
domestic US natural gas market as feedgas demand picks up faster
than production can respond. This is likely to pull inventories
back into a relative deficit compared to five-year average levels
throughout most of the year and put upward pressure on cash prices
across the country, although higher prices are expected especially
in the Gulf Coast of the US. Feedgas demand is expected to grow by
5.2 billion cubic feet per day (Bcf/d) -- nearly 39% -- from
October 2024 to December 2025, putting particular strain on the
domestic US market heading into the winter 2025-2026. Henry Hub is
expected to average more than $4.00
per million metric British Thermal units (MMBtu) in 2025 after two
years averaging below $3.00/MMBtu.
However, the impact of the LNG surge is not expected to put
downward pressure on global gas prices until 2026.
- Will coal consumption finally start to decline in 2025?
Maybe, but probably not: Despite renewables installations
consistently hitting new record levels, global coal demand has
continued to grow, hitting new records in both 2023 and 2024. Even
in China, where wind and solar
installations have been ~300 GW in both 2023 and 2024, coal-fired
generation has hit new record highs in both years. Strong
electricity load growth, aided by rapidly expanding power demand
for datacenters and EV charging have surpassed the tremendous
growth in renewables, increasing the call on fossil fuels. In 2025,
S&P Global Commodity Insights expects that Chinese renewable
installations will slow slightly, but remain well above 250 GW, and
coal-fired generation in China
will once again be higher year on year and hit a new record. In
several other developing economies, coal demand will continue to
move higher in 2025, but most notably in India, where the growth in renewables supply
is dwarfed by growth in electricity demand. Despite over a decade
of consistent declines, coal demand in the US is expected to
rebound significantly in 2025. Heightened US LNG exports will pull
on domestic natural gas supply, and push prices higher, which
should spur some gas-to-coal switching. As China represents nearly 60% of global coal
consumption, if coal demand in China indeed grows again, demand in developing
nations remains on its upward trajectory, and demand in the US
temporarily rebounds, it is highly likely that global coal demand
will once again paint a new record higher, even if demand in
Europe and other developed
economies contracts in 2025.
- COP returns to Brazil, but
can the UNFCCC regain momentum?
In November 2025, the Conference of Parties (COP)
climate change negotiations will return to Brazil for the first time since the UN
Framework Convention on Climate Change (UNFCCC) was established at
the Rio Earth Summit in 1992. Over the 29 subsequent annual COPs,
the UNFCCC has produced the Kyoto Protocol (1997) and the much more
broadly adopted Paris Agreement (2015). But the process has
stuttered at times, notably at the 2009 COP21 round of negotiations in Copenhagen and most recently at COP29 in Baku in
November 2024, the outcome of which
questions the ongoing viability of the entire COP process. Against
this difficult background, negotiators at COP30 will be tasked with strengthening emissions
pledges known as "Nationally Determined Contributions" or NDCs.
However, most developed economies, including the United States, will miss their current
NDCs for 2030. Furthermore, President-elect Trump, based on past
positioning, is expected to again remove the United States from the Paris Agreement and
key OECD nations also appear distracted by domestic matters.
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 UNFCCC, and an indicator for the relevance of
climate change within the wider evolving context of global
geopolitics. China's GHG emissions
are expected to peak around 2025, so a new and challenging NDC –
cutting emissions in absolute terms – could position the country as
a climate leader not only for emerging economies, but for the whole
world, filling a void left by a retreating US and an EU that are
struggling to meet even its own ambitions. Conversely, a lack of
ambition on new targets will redouble questions over the viability
of the COP process and once again, as after the 2009 Copenhagen negotiations, push climate down the
list of countries' strategic priorities.
Dan Klein, Head of Future
Energy Pathways, S&P Global Commodity Insights, said: "How
governments, companies, and consumers react to uncertainty and
emerging trends will be crucial for 2025 outcomes and will also
serve as a key signpost for the success of the energy transition
and meeting decarbonization goals."
Watch for additional outlook 2025 highlights from S&P Global
Commodity Insights analysts in coming weeks, including Top Clean
Energy Technology Trends of 2025, which will be released in early
January 2025.
Media Contacts:
Americas: Kathleen Tanzy + 1
917-331-4607, kathleen.tanzy@spglobal.com
EMEA: Paul Sandell + 44 (0)7816 180039, paul.sandell@spglobal.com
Asia: Melissa Tan
+ 65-6597-6241, melissa.tan@spglobal.com
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