S&P Global Commodity Insights Releases its 2025 Energy Outlook
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:
1. 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.
2. 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 CO(2) emissions associated
with fossil fuel combustion will reach a new record high, although it
will be the smallest increase since the pandemic.
3. 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.
4. 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.
5. 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.
6. 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.
7. 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.
8. 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.
9. 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.
10. 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.
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About S&P Global Commodity Insights
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