Our energy future is a summation of cycles, secular trends and shocks. Though next year will be no exception, the rhythm of cycles increasingly struggles to be heard above the roar of long-term shifts and the shrieks of surprises.
Cyclicity in energy is created by the intersection of the business cycle and the investment cycle. Energy and mineral projects are typically expensive, long-term, capital-intensive ventures. Deepwater oilfields, liquefied natural gas plants, nuclear power plants or mines for uranium or copper take a decade or more to conceive and construct.
They are typically approved at times of high energy prices, which bring plentiful cash flow to their proponents and urgency to governments. By the time they begin operations, the economic environment may be completely different.
The global economy, meanwhile, runs on its own pulse. Sometimes this runs alongside the energy cycle, as when Chinese growth in the early 2000s met a long period of underinvestment, to drive soaring oil and gas prices. At other times, it collides, as in the 1970s stagflation of high energy bills, inflation and unemployment, or the booming 1990s economy with low energy costs.
Recently, cyclicity has been less pronounced. Since the recovery from the 2008-09 financial crisis, global economic growth has been mediocre but fairly stable, leaving aside the 2020 Covid-19 pandemic and the 2021 rebound.
In the oil and gas business, there has been no fundamental resurgence from the 2016 price crash, again leaving aside the Covid years, then the further shock of Russia’s invasion of Ukraine in 2022. Oil prices have been unusually stable since late 2022, helped by Opec policy.
The accumulation of Opec spare capacity, and the expected continuing growth in non-Opec production next year, suggests that the Vienna-based organisation has underwritten excessive investment in upstream oil, as it did in the early 1980s and the mid-2000s. The leading lights of Opec may tire of this strategy in 2025, or co-operation may simply break down.
The strong wave of LNG expansion, by contrast, mostly in Qatar and the US, will not arrive in earnest until 2027 or even later. The critical European gas market remains finely balanced, at risk from a cold winter, from windless weather, from further measures against Russian gas, and from climate and human rights policies that turn away suppliers such as Qatar.
So trends will swamp cycles. The key intersecting trends include climate change, the rapid progress of new energy technologies, the rise of electricity-hungry uses such as artificial intelligence, lower international co-operation and trade growth, and spreading economic and demographic maturity.
On the whole, these tend to lower economic growth and energy demand, particularly for oil. With electric vehicles now making up more than half of car sales in China, leading refiner Sinopec predicts a peak for Chinese oil demand in 2027. Though India will pick up some of the slack, that probably means a global plateau is not far behind. US tariffs on Chinese EVs will just push these increasingly cheap and sophisticated machines into other global markets.
Coal use, too, should be declining, but its role as a secure domestic source of energy for China, India and other Asian nations has made it remarkably persistent.
Electricity, though, is the bright spark. Not just AI, but heat pumps, air-conditioning, electric transport and electrified industry will push its use. That is good for renewables, nuclear power and gas.
For all the talk that the energy transition has “failed” or is slowing down, it is actually accelerating in key ways – but this is driven by better economics and technical performance, not by Western government or corporate policies. The GCC in particular is benefiting both at home and abroad from its rapidly-rising renewable capacity.
Though they will not have an impact in 2025, there is also the prospect of breakthroughs in areas such as small nuclear reactors, nuclear fusion, advanced geothermal energy, hydrogen and new battery systems.
Finally, we come to surprises.
Some of the shocks are more predicable than usual, at least in general terms. Most notably, the incoming administration of Donald Trump in the US promises instability. In foreign policy, it looks hawkish on China and Iran, perhaps appeasing Russia.
Mr Trump has already threatened four important global energy players who are traditional US allies: Mexico and Canada, important oil suppliers, with tariffs; Panama, holder of the critical canal waterway; and Greenland, a host of potentially important rare earths and other minerals. He has demanded Europe buy more American oil and gas, which it neither wants to nor can co-ordinate, or face tariffs.
Even if most of these are bluster or negotiating tactics, they raise uncertainty for trade and business. They cut in favour of self-sufficiency, or of regional blocs that can stand against the US, China, Russia or other bullies.
Economically, the combination of tax cuts, tariffs, expulsion of migrants from the US, a curbing of Federal Reserve independence, and grandstanding on Congressional budget talks, promises inflation, economic instability, and a slowdown in growth, or a boom-bust syndrome.
Tighter sanctions on Iran, an effort to capitalise on Tehran’s recent setbacks, and to diminish its influence in Iraq, looks likely. But more of the same will not diminish Iran’s oil exports much: it will take more aggressive action, such as targeting the “shadow fleet” that also carries Russian oil, or going after Chinese buyers. That in turn will heighten tensions with Beijing, at a time that China looks the most predictable and stable of the main international players.
Direct military confrontation between Washington and Iran is the most obvious risk to energy supplies. The latest damage to a subsea Baltic electric cable, likely by a suspect Russian tanker, is a reminder of the continuing energy risks in Europe. These may escalate if Moscow continues to stall on the battlefield and its war economy runs out of steam.
Even these “predictable surprises” can trip us up. Ahead of Covid, the US was ranked as the nation best-prepared to tackle a pandemic. Eight days before Hamas’s attack on Israel, which caused a multi-front war, terrible human suffering, the near-closure of the Red Sea, and arguably the fall of the Assad regime, US National Security Adviser Jake Sullivan opined that, “The Middle East region is quieter today than it has been in two decades.”
In 2025, the big energy surprise might be turmoil in an overlooked geopolitical hotspot such as the Arctic, Central Asia or outer space. It might be a huge natural disaster such as a volcano, earthquake or tsunami, a major climatic deterioration, or an economic crisis emanating from Congress, China or cryptocurrency. Shocks are inevitable. The problem for 2025 is that a conspiracy-minded and uncooperative world order will not handle them well.
