Global energy investments to hit record $3.3tn in 2025, despite uncertainty and geopolitical tensions

Shifting of energy investment along geographical lines will have long-term implications, IEA says

Investments in the electricity industry, the main power source for AI-driven data centres, is set to reach $1.5 trillion in 2025. AFP

Investments in the global energy sector are set to hit a record $3.3 trillion in 2025 despite economic uncertainty and rising geopolitical tensions, the International Energy Agency said.

A total of $2.2 trillion will be invested in renewables, nuclear energy, grids, storage, low-emissions fuels, efficiency and electrification, with $1.1 trillion to go into oil, natural gas and coal, the Paris-based IEA said in its World Energy Investment 2025 report on Thursday. The total is up about 2 per cent in real terms compared with 2024.

"Open questions about the economic and trade outlook means that some investors are adopting a wait-and-see approach to new project approvals, but we have yet to see significant implications for spending on existing projects," it said.

Part of the growth is fuelled by rapidly rising requirements for artificial intelligence-powered data centres around the world. Spending in the electricity industry, the main power source for data centres, is set to reach $1.5 trillion this year, the IEA said.

"Rapid growth in spending on energy transitions over the past five years was kicked off by post-pandemic recovery packages and then sustained by a variety of economic, technology, industrial and energy security considerations, not only by climate policies," the agency added.

The increased activity will be complemented by the doubling of investments into low-emissions power generation, the IEA said. Spending in the solar industry, in particular, is projected to hit $450 billion in 2025, making it the largest single item in the IEA's inventory of global investments, the report said.

"Fierce competition among suppliers and ultra-low costs are seeing imported solar panels, often paired with batteries, become an important driver of energy investment in many emerging and developing economies," it added.

Conversely, upstream oil investments are projected to be under $570 billion in 2025. That would be a 6 per cent decline, marking the first annual drop since the Covid-induced slide in 2020 and the largest since 2016, the IEA said. Global refinery investment is set to hit its lowest level in a decade.

The decrease is being attributed to lower oil prices and demand expectations, amid economic uncertainties. Opec+, led by Saudi Arabia and Russia, has sought to prop up the market with last week's announcement of a third straight month of output increases in July.

"Our initial expectation for 2025, based on company announcements, was that upstream oil and gas spending would be flat, but sentiment has since become more downbeat as oil prices came under pressure," the report said.

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Despite the expected record spending this year, the industry is still adopting a wait-and-see approach on new energy project approvals. The IEA acknowledged it has yet to identify "significant implications for spending on existing projects", executive director Fatih Birol said.

Global tariffs, initiated by the administration of US President Donald Trump, would also be felt in America's oil and gas industry, as higher levies on imported steel and aluminium may put cost pressures on the sector, the IEA said.

"Tariffs and inflation are affecting production costs – especially for basic materials," the report said.

Experts have said that countries should realign their strategies to attain energy independence, which will help them cope with future uncertainties. "Today’s energy decision makers are facing new geopolitical tensions and the risk of energy shocks remains high," the IEA said.

Geographical shift

Additionally, the shifting of energy investment along geographical lines is expected to have long-term implications, the report found.

China remains the biggest global energy investor by a wide margin. Its share of global clean energy investment has risen from a quarter a decade ago to nearly a third at present, the IEA said.

On the other hand, the US ha seen its spending on renewables and low-emissions fuels almost double in the past 10 years, but that is now expected to level off as Washington pulls back on policies that support the clean energy sector to promote the fossil fuel industry.

The Middle East, meanwhile, continues to spend heavily on upstream oil and gas, with the region’s share of global upstream investment set to hit a record 20 per cent this year, the IEA said.

A large portion of this spending is to be used to expand projects for natural gas, including the Jafurah field in Saudi Arabia, the liquefied natural gasfields of Rub Al Khali in the UAE and the North Field developments in Qatar, it added.