Maroc - EURASIAREVIEW.COM - A la une - 25/Jan 00:37

Global Energy Will Face Severe Overcapacity In 2025 – Analysis

By He Yan Given the increasing volatility in the global economy and the growing uncertainty in geopolitical dynamics, along with fluctuations in oil and gas supply and the continued growth of renewable energy generation, the current global energy system is significantly impacted. Looking back at 2024, China’s oil companies took over large oil fields in the Middle East from ExxonMobil. Meanwhile, oil giants Shell and Norway’s Equinor paved new paths by merging their oil and gas assets in the North Sea, creating the largest oil company in the region. These major events have greatly influenced the oil and gas industry. As the industry continues to adapt to the changing environment, a series of trends are emerging, including shifts in geopolitical balance, breakthroughs in low-carbon technologies, the growing influence of artificial intelligence (AI), and the ups and downs of hydrogen energy development. First, geopolitical tensions remain a major risk factor for energy security and emissions reduction efforts. The new U.S. administration and its evolving approach to U.S.-China relations will be a focal point of global attention. At the same time, the ongoing conflicts in the Middle East and the situation in Ukraine will continue to draw widespread international concern. Furthermore, the increasingly unstable state of the Global South, the continued fragmentation of international alliances, and the revolutionary impact of AI will collectively shape a new global order. In the economic realm, the imminent threat of a global trade war triggered by U.S. tariffs could hinder economic growth and fuel protectionist policies. In this process, American liquefied natural gas (LNG) exports may become an important bargaining chip in global trade negotiations. After the Trump administration took office, its push for energy dominance policies could accelerate LNG exports through regulatory relaxation, faster approval processes, and infrastructure development, thus boosting the growth of American oil and gas production and LNG exports. According to reports, during the Trump 1.0 period in 2019, the U.S. became a net energy exporter. By 2023, it became the world's largest LNG exporter. According to the U.S. Energy Information Administration, by 2028, North America's LNG export capacity is expected to more than double, where one-third of this growth will come from LNG projects in Canada and Mexico. This indicates that during Trump's second term, the U.S. will fully leverage LNG exports as a powerful tool in energy diplomacy. However, the acceleration of these projects could lead to a growing oversupply of LNG on the global market. This increased supply may undermine price stability, especially if trade tensions between the U.S. and China escalate once again. Such tensions would negatively impact U.S. producers and LNG developers, as American LNG projects rely heavily on steady demand from China. Additionally, Trump is attempting to strike a delicate balance between fostering the growth of American LNG exports to Europe and managing his stance on Russia. As Europe’s demand for LNG continues to rise, Trump views this as an opportunity to reduce Russia’s influence. However, as he has repeatedly pointed out, in order to bring an end to the war in Ukraine swiftly, it may be necessary to consider easing sanctions on Russia. Therefore, Trump’s role in shaping the U.S. and global energy markets through his 2025 energy agenda is especially significant. Secondly, supply chain challenges will continue to impact the global energy market. Over the past year, as global demand for energy has surged, not only in traditional oil and gas sectors but also in the low-carbon energy industry, energy supply chains have faced significant challenges. In the oil and gas industry, both buyers and suppliers have been struggling with high input costs. Although these costs have come down from historical highs, they are still expected to remain at elevated levels. Rystad Energy predicts that by 2025, high investment levels in both oil and gas and new energy sectors will exacerbate the already strained supply chains. In the offshore oil and gas industry, bottlenecks in floating production storage and offloading units (FPSOs), subsea equipment, drilling rigs, and other related vessels are expected to persist, continuing to delay the progress of capital projects. In North America, capital optimization and increased efficiency have further intensified overcapacity, putting pressure on the earnings of oilfield services companies. In the new energy sector, overcapacity in battery and solar photovoltaic manufacturing will continue to grow, fundamentally lowering prices. However, protectionism and tariffs will drive up costs for importers and force manufacturers to shift more of their operations to domestic outsourcing and overseas markets. Overall, as suppliers prepare for the new world order, divestments and mergers and acquisitions will become a key feature of the entire energy supply chain. Furthermore, driven by efforts to decarbonize industries, the rise of electric vehicles, and the rapid expansion of data centers, global electricity demand is entering a new phase of accelerated growth, which will continue to fuel the expansion of the low-carbon energy market. Goldman Sachs predicts that, globally, data centers currently consume an average of 1% to 2% of total global electricity, but driven by AI technologies, their energy consumption is steadily increasing. It is expected that by 2030, this share will rise to 3% to 4%. As a result, tech companies have become one of the key buyers in the power purchase agreement (PPA) market. Oil giants have already taken note of this market opportunity and begun entering the electricity market. In order to meet the 24-hour electricity demand, some tech companies are also turning to other base-load power sources, including signing power purchase agreements with traditional nuclear power plants. At the same time, these companies are showing strong interest in new small modular reactor (SMR) technologies. However, due to the still-high development costs of nuclear power and the need for further verification of technical feasibility, the primary focus remains on purchasing low-carbon energy for now. Therefore, in the short term, renewable energy will continue to be the priority for electricity investment. The International Energy Agency (IEA) has stated that by 2025, solar power is expected to meet more than half of the world's new electricity demand. In addition, the hydrogen energy sector may receive more policy support but will also face an increasing number of stalled projects. For instance, in the hydrogen subsidy final plan released by the Biden administration in January this year, the electricity consumption time standard for electrolyzers in hydrogen production was relaxed from "hourly" to "annual", and subsidies for hydrogen production from sources like nuclear power and biomass power generation were also introduced. This field has bipartisan consensus, hence one can expect to see strong continuity after the Trump administration takes office. Meanwhile, Germany, as one of the major markets for clean hydrogen, will make its political support and commitment to hydrogen energy even clearer after its elections. Both China and India will also continue to push forward agendas related to clean hydrogen and its derivatives. However, in mid-2024, many hydrogen projects faced suspension or cancellation. This includes Kansai Electric Power’s pull out from the Australian green hydrogen project, Shell’s suspension of the Norwegian blue hydrogen project, Repsol’s suspension of its Spanish green hydrogen development, and multiple large-scale hydrogen projects in Inner Mongolia, among others. On the whole, these projects face numerous challenges, including R&D costs, hydrogen source supply, technical standards, hydrogen storage and transportation, and talent shortages. By 2025, many large-scale hydrogen projects that were launched earlier will likely face similar difficulties and may start to fall by the wayside. Final analysis conclusion: As the energy industry continues to adapt to a changing environment, a series of trends are emerging. First, American LNG exports may become an important bargaining chip in global trade negotiations. At the same time, the risk of oversupply in the global market, influenced by this trend, could undermine price stability. Second, the global energy market will continue to face supply chain challenges. Furthermore, the accelerated growth of global electricity demand will continue to drive the development of the low-carbon energy market. Lastly, while the hydrogen energy sector will receive more policy support, it will also face an increasing number of stalled projects. He Yan is a researcher at ANBOUND, an independent think tank.