Samuel Goldwyn, a legendary Hollywood movie mogul, once quipped.
Samuel Goldwyn, a legendary Hollywood movie mogul, once quipped. ‘We want a story that starts out with an earthquake and works its way up to a climax’. Hopefully that’s not what we are witnessing with the current eruption of change in the energy landscape.
In the last few months government and industry leadership around the world have been noticeably adopting a more explicit pushback back on the net zero 2050 schedule and the means for getting there and a more vocal appreciation of the continuing need for oil and gas. It all adds up to a big shakedown of previous assumptions about where global energy supply and demand is heading, complicated by the disruptive influence of US energy strategy going forward.
Tempting as it is, not all the blame can be heaped on the newly elected US President Trump. In fact his early energy-related executive orders (EOs), disruptive as they may be, were telegraphed during his election campaign encompassed by ‘Drill, baby, drill’ the populist slogan first mouthed by the now forgotten failed vice-presidential candidate Sara Palin.
So it was expected that the US would immediately withdraw from the 2015 UN Paris climate accord (although even Darren Woods, CEO, ExxonMobil, protested this). To add salt to the wound, it has quit the Just Energy Transition Partnership (JETP) and cut its contribution to the $45 billion international initiative launched at the Glasgow COP26 climate summit to support several developing countries in their shift away from coal to clean energy.
Other headline EO directives included various deregulation measures to ‘unleash America’s affordable and reliable energy and natural resources’, lifting restrictions on LNG exports, promoting energy development in Alaska, pausing of offshore wind development and reversing the electric vehicle promotion mandate of the Biden administration (surprising given the president’s embrace of Elon Musk, CEO of Tesla, and his federal bureacracy chainsaw man). Two further EOs couldn’t resist some anti-woke sentiment revoking all pre-existing mandates directing agencies to advance environmental justice (EJ) and require agencies to terminate all offices dedicated to EJ or ‘equity’.
Specifically with regard to US hydrocarbons production, the EOs are mostly shock and awe to please some sectors of the US electorate. In reality the impact may not be that significant, although encouraging to the oil business to know that the government is on its side. Despite the grumbling about over-regulation, the Biden Administration authorised a historic number of leases for oil drilling in the US in 2023. US oil and natural gas production also reached record highs in 2022 making it the world’s largest producer of crude oil with the highest level of refining capacity, producing a world record-breaking average 12.9 million barrels per day in 2023. It has also been the largest exporter of LNG, with an average export volume of 11.9 billion cubic feet per day in 2023.
As analysts have pointed out, there seems little to warrant emergency measures. The US could in fact contribute to a potentially looming global oil glut exerting down pressure on the price of oil. That could bring relief at the gas pumps for US consumers in accordance with Trump’s wishes. However it reduces the incentive for any serious investment by oil companies in the near future, notwithstanding the newly created National Energy Dominance Council tasked with clearing the way for more US oil and gas production.
The US Energy Information Administration suggested in March that ‘oil inventories will build and place downward pressure on crude oil prices in late-2025 and through 2026 when we expect OPEC+ to unwind production cuts and non-OPEC oil production grows. It said: ‘As a result, we forecast the Brent crude oil price will fall to an average of $68/b in 2026’. No reference was made to the potential economic mayhem or otherwise likely from the Trump Administration’s tariff war antics against Canada, Mexico, China and the EU. For that you have to go to OPEC+.
OPEC+ confirmed in March its commitment to gradually unwinding its 2.2 million b/d voluntary cuts through to December next year but emphasised the pre-cautionary nature of this strategy in line with maintaining a stable market. It is sticking to its demand growth projection of 1.4 million barrels per day for 2025 and 2026, and said it expects the global economy to grow by 3.1% this year and 3.2% next year with strong demand from the air travel and automotive industries. Uncertainty arising from the Trump administration’s tariff plans will ‘contribute to volatility’. OPEC+ said it expects the world economy to adjust. ‘It remains to be seen how and to what extent potential tariffs and other policy measures will play out. So far, they are not anticipated to materially impact current underlying growth assumptions, but the outcome of potentially further rising uncertainties and the scope and significance of potential tariffs and other policy measures will need close monitoring.’
Averaging the many forecasts available, the assessment seems to be that, without a major trade war, stockmarket crash, etc leading to recession, the oil price will hover precariously around the $70 a barrel mark for the next year or two with, if anything, a tendency to go lower, but no indication that the world is losing its appetite for oil.
This is not a good omen for rapid steps towards energy transition when taken in assocation with a generally cautious view of growth potential in the world economy following a limited rebound from the pandemic. For example, many OPEC+ members rely heavily on oil revenues to maintain their economies at a sustainable level, making substantial green investment a luxury they cannot afford. The situation is much worse for developing countries without an oil buffer. As Ruud Weijermars implies (Special Topic article in this issue), in the current economic climate with competing demands on their budgets, European countries may also baulk at the cost-effectiveness of a major decarbonisation investment such as carbon capture and storage and lack the political will required to achieve it.
With pressure on margins, major oil companies have been reassessing their priorities, and particularly the value of investing in decarbonisation markets. They are clearly choosing to focus on their core business for two main reasons. Firstly, the pace of transition has been slower than anticipated, meaning the timing of the decline in demand for oil and gas is constantly being deferred. Secondly, green initiatives do not make sufficient return on investment to satisfy stakeholders. How much impact this will have on energy transition is unclear since the oil industry is not the only player in the game, but its investment dollars are obviously very significant.
Reports from two industry analysts seem to sum up the prevailing view. Bain & Company’s 2025 Energy & Natural Resources Executive Survey of 700 executives in oil and gas, utilities, chemical, mining and agribusiness found nearly half (44%) of energy and natural resources executives now expect the world to reach net-zero emissions by 2070 or later, a steep jump from the 31% that felt this way in 2024. Similarly, only 32% expect it by 2050. On average, oil and gas executives anticipate peak oil around 2038, a clear signal that sector leaders expect legacy assets to play a crucial role in meeting energy demand for the foreseeable future’.
Bain & Co says: ‘The era of enthusiasm for environmental, social, and corporate governance–driven investment is giving way to a harder-nosed focus on ROI. Tighter budgets, constrained balance sheets, and rapidly rising capital costs are forcing companies to make tough calls about where to place their bets.’
A similar story comes from a report from Fitch Group’s BMI unit (quoted by Rigzone). It cites some major companies which had set ambitious goals for renewable energy investment and achieving net zero goals, and are now revising their commitments. ‘Equinor halved its low carbon investment from $10 billion to $5 billion. bp has abandoned its 2030 oil output reduction target and is divesting its US onshore wind business. Shell has weakened its carbon reduction targets and is investing in Bonga North deep-water oil and gas project in Nigeria.’
The Euro Majors’ cutbacks in low-carbon investment broadly mirror the global trend, according to a recent Wood Mackenzie commentary. After diverging for years, US and Euro Majors’ spend on low carbon is now converging at around 10-15% of total investment.
There are voices just as potent as President Trump’s that seek to normalise the oil industry’s outlook. At this months’s CERA Week international meeting in Houston, Saudi Aramco CEO Amin Nasser called for a ‘reset’ to acknowledge that demand for oil and gas is not going to be replaced soon. He called the ambitious timetables put out by consumer and environment groups a ‘fantasy’, and that there was more chance of Elvis (Presley) speaking after him at the meeting than current energy transition plans succeeding.
The big picture, according to Wood Mackenzie is that investment in power and renewables, upstream oil and gas and critical metals for the transition are continuing to rise to a record $1.5 trillion, a 6% increase. Low carbon’s share of the total jumped from 32% in 2015 to 50% in 2021 but has stalled since and won’t increase on its forecasts until the end of the decade, thereby not anywhere meeting the Paris Agreement goals.
Thanks to the scale of the NOCs’ cash generation, overarching national targets to decarbonise and aspirations to diversify their economies away from oil and gas, Wood Mackenzie suggests NOCs will carry the low-carbon torch for the oil industry in the next stage of the energy transition. Between them Saudi Aramco, ADNOC, Petrobras, Petronas, PetroChina, CNOOC and ONGC are said to be planning to invest more than $20 billion a year through 2030 ‘albeit for many of these industry giants, it’s a much smaller proportion of free cash flow’.
In these times we must expect the unexpected.
Little to warrant emergency measures
‘Euro Majors’ cutbacks broadly mirror the global trend
