Energy reset

Two forces are reshaping the investment landscape for global energy.

First, expectations for peak oil and gas demand have shifted further out, as structural factors continue to boost energy consumption. Second, geopolitical risk has intensified.

Higher for longer

The rapid expansion of AI and cloud computing is adding a new, electricity-intensive layer to global demand. Electricity consumption by data centres is expected to more than double by 2030. Much of this increase is likely to be for AI infrastructure, particularly in the US.

More broadly, population growth, economic development, and electrification continue to propel energy consumption higher. 

Renewable capacity is expanding, but has so far met only part of this increase in demand. Moreover, because renewables supply is intermittent, excessive reliance on it can make the grid less dependable. And building nuclear generation takes a long time. This suggests that the energy transition – the move from fossil fuels to net zero, to fight climate change – will take longer than previously expected.

The International Energy Agency’s (IEA’s) World Energy Outlook 2025 reflects this uncertainty. Its Current Policies Scenario shows oil demand growing until 2050. The Stated Policies Scenario suggests a plateau from around 2030. Only the Net Zero Emissions pathway – a scenario where states get on track to cut emissions to zero by 2050 – implies a sustained decline.

As well as oil, we expect natural gas to meet much of this additional demand. The narrative has therefore shifted from ‘energy transition’ to ‘energy addition’. This means that renewables are integrated into the system while oil and gas continue to provide affordable, reliable baseload power.

Supply shocks expose vulnerabilities 

Even as demand expectations rise, conflict in the Middle East has highlighted the fragility of global oil and gas supply. It has severely disrupted shipping through the Strait of Hormuz – a vital chokepoint for around 20% of global oil and LNG exports. With limited alternative routes and storage filling quickly, Gulf producers have been forced to shut down production, reducing output by more than 10 million barrels a day.

IEA members have responded with a record 400 million-barrel release from strategic oil reserves. This measure can ease short-term disruptions, but can’t fully replace lost production. Prices for crude and refined products, particularly diesel and jet fuel, have risen sharply, and inventories will need rebuilding. This suggests higher oil prices not just in the short but also the medium term.

The war has also disturbed gas markets. Qatar, which accounts for around 20% of global LNG exports, has seen shipments disrupted. This has fostered price increases for natural gas across Europe and Asia. Damage to infrastructure at Qatar’s main LNG production site could take years to repair, raising the risk of prolonged tightness. For Europe, which relies heavily on LNG following the loss of Russian pipeline gas, the conflict underscores continued exposure to volatile global markets.

For now, the world has no choice but to rely on fossil fuels. But the conflict might accelerate investment in renewable energy generation and battery storage in Europe to lessen its reliance (though not in the US, where the federal government is more hostile).