The trends that defined the energy sector in 2024

Welcome to our ultimate Vitality Supply e-newsletter till 2025, coming to you immediately from New York.

The Federal Reserve lower rates of interest yesterday for the third time this yr however signalled they could keep borrowing costs higher than expected in 2025.

The forecast despatched renewables shares tumbling, with the iShares Clear Vitality ETF closing 3.2 per cent decrease. The renewables sector, which faces excessive upfront prices, has been battered by elevated borrowing prices and faces an unsure future subsequent yr underneath incoming US president Donald Trump.

In immediately’s challenge we glance again on the tendencies that outlined 2024, from secure oil markets, merger and acquisitions within the US, accelerating energy demand and the revival of nuclear vitality. I hope you all keep protected and benefit from the vacation interval. Merry Christmas to all who rejoice and Blissful New Yr!

The soundness of oil markets

This yr we noticed the intensification of the wars in Ukraine and Gaza, together with a number of assaults on vital vitality infrastructure in Russia and Ukraine and direct clashes between Iran and Israel that put the Center East on the brink of an “oil war”.

Nonetheless, oil markets had been comparatively secure. In response to Deloitte, 2024 was one of the secure years previously quarter century for oil markets, with Brent crude, the worldwide benchmark, exhibiting minimal common month-to-month modifications. Costs for Brent settled at $73.39 a barrel yesterday, down 3.3 per cent from $75.89 a barrel on January 2.

“This yr has been a comparatively balanced yr on oil provide demand,” stated Vikas Dwivedi, an analyst at Macquarie. “I might say most likely 70 to 80 per cent of oil value actions are pushed by modifications in provide . . . this yr it’s been far more weighted to demand disappointing.”

The rationale: extra provide from Opec+ sitting on the sidelines, to not point out the continued progress in manufacturing from non-Opec nations such because the US. Slowing demand in China, the cornerstone of oil demand progress, additionally basically altering the dynamics of the market.

The slowdown could be partially attributed to the Chinese language economic system, which remained sluggish this yr because it navigated deflationary pressures and a weak property market.

However analysts say China’s muted thirst for crude factors to a bigger structural downturn in demand because the vitality transition picks up pace. Greater than half of automobiles offered in China over the summer time had been electrical, and low-cost gasoline is driving many Chinese language truckers to ditch rigs powered by diesel.

“It goes deeper on the China facet than simply the woes of the property sector. Our view is that it’s really structural. China, most likely extra so than most different geographies, is efficiently transitioning,” stated Benjamin Hoff, international head of commodities analysis at Société Générale.

Accelerating energy demand 

This yr will go down because the one during which the world woke as much as the fact that the transition to a decrease carbon and extra digital economic system will set off an unprecedented surge in electrical energy consumption. Energy demand accelerated this yr with the IEA forecasting consumption to develop by about 4 per cent, up from 2.5 per cent in 2023. The organisation stated that international electrical energy demand was rising at an annual charge of 1,000 terawatt hours, equal to including one other Japan to the world’s electrical energy consumption annually.

Robust financial progress and an enormous improve in demand for air con as temperatures rise are anticipated to have a big impression on the world’s electrical energy grids within the coming decade, in response to the IEA. The proliferation of knowledge centres for synthetic intelligence, the onshoring of producing and the adoption of electrical autos are additionally anticipated to drive energy consumption.

Within the US, consultancy Bain warned in October that electrical energy demand pushed by the growth in knowledge centres will outstrip provide later this decade. It forecasts that US utilities might want to enhance annual technology by as a lot as 26 per cent by 2028 from 2023 ranges with a purpose to meet rising demand.

The looming query is whether or not this load progress will immediate a retreat in our transition to renewable energy and tempo of emissions reductions. “All of [a] sudden electrical utilities have been deluged with requests of huge masses to connect with their electrical energy system,” stated Chris Seiple, Wooden Mackenzie’s vice-chair of vitality transition and energy and renewables. “It’s clear that it’s not simple to accommodate all of their demand progress with renewables alone.”

Nuclear revival

The seek for a low-carbon, round the clock supply of energy is heralding a brand new period for nuclear vitality. 

Huge know-how corporations Amazon, Microsoft, Meta and Google have all introduced investments in nuclear this yr as they face mounting strain to align their surging vitality wants with their local weather objectives. In October, Google ordered six to seven small modular reactors from Kairos Energy, changing into the primary tech firm to fee nuclear energy vegetation to supply vitality to knowledge centres. Later that week, Amazon bought a stake in US nuclear developer X-energy to assist the corporate finance the event and licensing of its new technology of SMRs.

In maybe probably the most tell-tale signal of nuclear’s altering fortunes, Microsoft introduced a 20-year energy provide cope with Constellation Vitality to reopen the Three Mile Island nuclear plant in Pennsylvania, notorious as the location of the worst nuclear catastrophe in US historical past.

Regardless of its newfound recognition, it might take time earlier than nuclear vitality makes an impression on US energy provide, because the trade faces excessive constructing prices and allowing hurdles. SMRs have additionally but to be demonstrated at scale, with solely 4 tasks underneath building globally, in response to the World Nuclear Affiliation. David Brown, Wooden Mackenzie’s director of vitality transition follow, stated he expects to see gigawatts of nuclear capability come on-line by about 2040 within the US.

“These corporations want vitality now. Nuclear doesn’t clear up that downside,” Brown stated.

“It is a long-term wager on how the tech corporations attain sustainability objectives and it is a signal of how difficult a 2030 goal is for a corporation or a rustic due to the load progress and among the different funding challenges with scaling renewable capability,” he added.

A dealmaking spree in US oil and gasoline continued

A wave of dealmaking within the US oil and gasoline trade continued this yr, leaving massive publicly listed gamers in command of the vitality panorama.

ConocoPhillips acquired Marathon Oil for $22.5bn, deepening one of many world’s greatest unbiased oil and gasoline producers’ portfolios that now consists of property stretching from North Dakota to Texas. The deal was Conoco’s greatest because it acquired Concho Assets for $10bn in 2021, and Wooden Mackenzie estimated in June that it will give the corporate an output bigger than supermajor TotalEnergies.

Different notable offers embrace Diamondback Energy’s $26bn purchase of Endeavor Energy Resources and Chesapeake Energy’s acquisition of Southwestern Energy for $7.4bn.

Whereas mergers and acquisitions have slowed sharply within the second half of the yr, Trump’s guarantees to be friendlier to enterprise and enhance drilling may function a tailwind for extra oil and gasoline dealmaking, stated PwC in its latest outlook. A Republican-led Federal Commerce Fee is also extra beneficial to grease and gasoline offers, which have been subjected to scrutiny underneath present FTC chair Lina Khan.

Energy Factors

Vitality Supply is written and edited by Jamie Smyth, Myles McCormick, Amanda Chu, Tom Wilson and Malcolm Moore, with assist from the FT’s international staff of reporters. Attain us at energy.source@ft.com and comply with us on X at @FTEnergy. Atone for previous editions of the e-newsletter here.