Illustration; Source: Brava Energia

Energy outlook: Uncertainty and ‘resilient’ oil & gas to run the energy show in 2025

Market Outlooks

As the wheel of the energy industry’s fate keeps turning, fortune still seems to favor some sources of supply over others, despite attempts to leave them in the ground and pivot toward greener alternatives. Extracting new oil and gas is more problematic in some countries than in others, with emissions from burning fossil fuels now being required to be taken into consideration when deciding on new projects in countries like the UK. However, the world at large still runs on coal, oil, and gas, with the lion’s share of the energy mix controlled by these fuels.

Illustration; Source: Brava Energia

The global energy crisis that befell the world in 2022 forced Europe to diversify its supplies to tackle the gas crunch threatening to wreak havoc on its energy security ecosystem, putting new safeguards in place to battle the all-time high energy prices. The world, and Europe in particular, is not out of the woods yet, as the energy market’s balance is still believed to be precarious, sometimes standing on a knife’s edge that could tip either way at any minute.

While strides have been made in curbing inflation, gas prices have not gone back to their pre-2022 levels due to rising geopolitical tensions, growing demand in Asia-Pacific, and warm weather. While it is hard to predict which, if any, of the energy scenarios being run on a loop will come to pass, shifts in the global LNG market’s arena are bound to have an impact on Europe.

Will the U.S. unleash a new LNG boom under the administration of President-elect Donald Trump, or will the challenges in the fossil fuel sphere prove to be too much to handle throughout 2025 and beyond? While disclosing its views on the state of global energy markets in 2025, S&P Global Commodity Insights highlighted in its ‘2025 Energy Outlook’ that a high degree of uncertainty was enveloping the energy markets far more strongly than any other year since COVID-19 exited the stage.

This veil of uncertainty is bolstered by the ongoing geopolitical challenges, including the Ukraine and Gaza crises, and continuing rivalry between the U.S. and China, which is working on “leveraging its leading position in clean technology for greater global influence, while the US and Europe enhance tariffs to protect domestic industry,” based on S&P Global’s predictions that emphasize the fossil fuel market’s “resilient” status in the face of growing climate action momentum, as the oil and gas sector keeps adapting to changing conditions.

Based on this energy outlook, the election of Donald Trump to the U.S. presidency fuels further uncertainty in geopolitics and puts a question mark on U.S. participation in the Paris Agreement and the UN Conference of Parties (COP) process. In addition, it also problematizes U.S. foreign policy and energy objectives.

Dave Ernsberger, Co-President of S&P Global Commodity Insights, underlined: “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.”

Moreover, S&P Global’s energy outlook spotlights the rapid growth of artificial intelligence as an acceleration driver of power demand for data centers, with the potential boom in electricity demand already reviving interest in nuclear power. However, it is uncertain whether a nuclear renaissance will come to pass, regardless of the backing from big technology corporations.

Given that OPEC+ has disclosed aspirations to bring supply back to the market, after delaying its plan to unwind production cuts three times, S&P Global points out that it is uncertain whether the region will be able to bring any supply back in 2025 without pushing crude prices below $70 per barrel (/b).

Along these lines, the next wave of North American LNG supply is set to start hitting the market in 2025. While this is expected to weaken global LNG prices, it is also anticipated to boost U.S. gas prices, even though the timing of project completion and the degree of producer foresight to increase supply ahead of the surge are set to determine the relative impact.

Mark Eramo, Co-President, S&P Global Commodity Insights, explained: “Fossil fuel prices in 2025 will be shaped by how markets adjust to growing supply and generally soft demand growth.”

Ten key energy themes to watch in 2025

➡️ Upheaval in U.S. energy playground and its impacts: S&P Global is convinced that Trump’s second term will have large impacts on overall energy policy and multiple markets, thus, it expects a scene shift to a very different path for energy and climate policy than the four-year Joe Biden presidency.

The firm’s insights indicate that the second Trump administration will probably look to pull the U.S. out of the Paris Agreement, rescind and redraft existing vehicle emission regulations, weaken methane regulations, and curb support for electric vehicle (EV) adoption. Aside from these, the company anticipates that the Trump administration will grant export approvals to all pending LNG export projects which could support final investment decisions in H2 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,” S&P Global added.

Given Trump’s deviation from Biden’s worldview, the forecasted change in U.S. foreign policy is also likely to shake the energy markets up, with the ongoing conflicts in Russia/Ukraine and the Middle East playing a prominent role in this alongside the tightening sanctions on Iranian oil exports.

“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,” S&P Global warned.

➡️ Emissions on the rise with energy demand set to outstrip clean energy supply: The energy outlook for the upcoming year pinpoints the development of sufficient green energy to meet rising demand and displace existing fossil fuel one to reverse carbon emissions growth in the energy sector.

“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,” S&P Global warned.

While primary energy demand increased on average by 5.4 million barrels of oil equivalent per day (boe/d) between 2000-2019, S&P Global Commodity Insights projects that primary energy demand will rise by 9 million boe/d in 2024, growing by more than 8 million boe/d in 2025. Even though clean energy is perceived to be growing faster than ever, this is not yet considered fast enough to curtail the fossil fuel demand, let alone displace existing coal, oil, and gas consumption.

“Demand for fossil fuels is expected to increase by more than 3 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,” based on the energy outlook.

➡️ Artificial intelligence and data centers to usher in new electricity consumption era: S&P Global predicts that an acceleration of AI adoption and data centers’ expansion will fundamentally alter the trajectory of global power demand, which will grow between 10-15% per year between now and 2030 for data centers, enabling them to account for up to 5% of total global power demand by 2030.

Datacenters are estimated to represent a shift to 2%-3% growth in the developed economies of North America, Europe, and Asia, where power demand has been flat or has even fallen in recent years, while in developing economies, incremental data center demand is expected to add to already robust electricity demand growth.

The growth in both scenarios is said to offer challenges to electricity grids as new data center projects require two to three years from inception to commercial launch, with new power supply taking 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 data centers, 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,” S&P Global emphasized.

➡️ Nuclear energy comeback makes the cut once again: Nuclear energy, which has shown signs of gaining traction in energy markets, especially in North America, as “a reliable, stable, and carbon free source of electricity,” is increasingly being contemplated as an option to meet growing electricity demand as companies try to decarbonize their portfolio, as illustrated by Microsoft, Google, and Amazon, with signed power purchase agreements in 2024, totaling more than 3 GW tied to nuclear capacity to help feed growing demand from data centers.

Although 2024 saw the first new large-scale nuclear plant commissioned in North America since the mid-1990s with the startup of the Vogtle plant in Georgia, many point to the cost of more than $36 billion for the two new units to underline that nuclear power remains an outsider for significant consideration in terms of new capacity additions to support the energy transition in North America, despite China continuing 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,” specified the energy outlook.

➡️ Clean technology race prompts China to step up its game as the West taps the brakes: China is portrayed as the largest producer and consumer of electric vehicles, batteries, solar panels, wind turbines, and green hydrogen electrolyzers with the deployment of clean energy technology remaining on the growth path.

On the other hand, the deployment of clean technologies is portrayed as facing considerable headwinds in the West due to pledges from U.S. 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,” S&P Global said.

The company states that China is leveraging its cleantech industry to slash its fossil fuel demand, particularly for imported fossil fuels. The Asian country’s rapid growth of renewables generation is seen as limiting the 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. This year is expected to be highlighted by an even greater degree of polarization of clean technology between China and the West.

➡️ Peak gasoline head-to-head with new refining capacity: S&P Global claims that global gasoline demand will 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.

The firm underscored: “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.”

➡️ OPEC+ caught between a rock and a hard place: S&P Global claims that OPEC+ has been in a difficult position for several years to achieve its objectives of moderately high prices and increased production volumes. Thanks to strong oil production growth in the Americas, primarily the U.S., but also Canada, Guyana, and Brazil, and decelerating oil demand growth, OPEC+ has cut oil supply four times since 2022, only to see prices continue to 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 S&P Global named “thread the needle.” Come September 2024, 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 the firm’s view, OPEC+ will find it difficult to increase supply in 2025 without notably weighing on prices since non-OPEC production growth is expected to be greater than total global oil demand growth.

➡️ Next wave of LNG exports could rock the U.S. domestic gas market boat: The energy outlook notes that 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 with the new liquefaction capacity coming online in North America.

Nearly 90% of the 27 million metric tons of new supply expected in 2025 is expected from North America with facilities such as Corpus Christi Stage 3, Plaquemines LNG, LNG Canada, and Costa Azul LNG all expected to speed up throughout 2025. The uptick in exports is perceived to leave a significant strain on the domestic U.S. natural gas market while feedgas demand picks up faster than production can respond.

S&P Global Commodity Insights noted: “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.”

➡️ Coal consumption may but probably will not start to go down: While renewables installations consistently hit 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 around 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 data centers and EV charging said to have surpassed the tremendous growth in renewables, increasing the call on fossil fuels.

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, the outlook shows that coal demand will continue to grow in 2025, most notably in India, where the growth in renewables supply is dwarfed by growth in electricity demand. The data also shows that despite more than a decade of consistent declines, coal demand in the U.S. 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,” underlined S&P Global.

➡️ COP as an opportunity to boost emission cuts: A new COP will begin in November 2025, returning to Brazil for the first time since the UN Framework Convention on Climate Change (UNFCCC) was established at the Rio Earth Summit in 1992.

Based on the outlook: “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.”

The negotiators at COP30 will be tasked with strengthening emissions pledges known as nationally determined contributions or NDCs. S&P Global predicts that most developed economies, including the United States, will miss their current NDCs for 2030, with President-elect Trump expected to remove the United States from the Paris Agreement once again.

Dan Klein, Head of Future Energy Pathways, S&P Global Commodity Insights, hammered this home by noting: “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.”

S&P Global is adamant that a lack of ambition on new targets will redouble questions over the viability of the COP process, pushing climate down the list of countries’ strategic priorities.