Welcome to our final Energy Source newsletter until 2025, coming to you today from New York.
The Federal Reserve cut interest rates yesterday for the third time this year but signalled they might keep borrowing costs higher than expected in 2025.
The forecast sent renewables stocks tumbling, with the iShares Clean Energy ETF closing 3.2 per cent lower. The renewables sector, which faces high upfront costs, has been battered by elevated borrowing costs and faces an uncertain future next year under incoming US president Donald Trump.
In today’s issue we look back on the trends that defined 2024, from stable oil markets, merger and acquisitions in the US, accelerating power demand and the revival of nuclear energy. I hope you all stay safe and enjoy the holiday period. Merry Christmas to all who celebrate and Happy New Year!
The stability of oil markets
This year we saw the intensification of the wars in Ukraine and Gaza, including multiple attacks on critical energy infrastructure in Russia and Ukraine and direct clashes between Iran and Israel that put the Middle East on the brink of an “oil war”.
Still, oil markets were relatively stable. According to Deloitte, 2024 was one of the most stable years in the past quarter century for oil markets, with Brent crude, the international benchmark, exhibiting minimal average monthly changes. Prices for Brent settled at $73.39 a barrel yesterday, down 3.3 per cent from $75.89 a barrel on January 2.
“This year has been a relatively balanced year on oil supply demand,” said Vikas Dwivedi, an analyst at Macquarie. “I would say probably 70 to 80 per cent of oil price movements are driven by changes in supply . . . this year it’s been way more weighted to demand disappointing.”
The reason: excess supply from Opec+ sitting on the sidelines, not to mention the continued growth in production from non-Opec countries such as the US. Slowing demand in China, the cornerstone of oil demand growth, also fundamentally changing the dynamics of the market.
The slowdown can be partially attributed to the Chinese economy, which remained sluggish this year as it navigated deflationary pressures and a weak property market.
But analysts say China’s muted thirst for crude points to a larger structural downturn in demand as the energy transition picks up speed. More than half of cars sold in China over the summer were electric, and cheap gas is driving many Chinese truckers to ditch rigs powered by diesel.
“It goes deeper on the China side than just the woes of the property sector. Our view is that it’s actually structural. China, probably more so than most other geographies, is successfully transitioning,” said Benjamin Hoff, global head of commodities research at Société Générale.
Accelerating power demand
This year will go down as the one in which the world woke up to the reality that the transition to a lower carbon and more digital economy will trigger an unprecedented surge in electricity consumption. Power demand accelerated this year with the IEA forecasting consumption to grow by about 4 per cent, up from 2.5 per cent in 2023. The organisation said that global electricity demand was rising at an annual rate of 1,000 terawatt hours, equivalent to adding another Japan to the world’s electricity consumption each year.
Strong economic growth and a huge increase in demand for air conditioning as temperatures rise are expected to have a significant impact on the world’s electricity grids in the coming decade, according to the IEA. The proliferation of data centres for artificial intelligence, the onshoring of manufacturing and the adoption of electric vehicles are also expected to drive power consumption.
In the US, consultancy Bain warned in October that electricity demand driven by the boom in data centres will outstrip supply later this decade. It forecasts that US utilities will need to boost annual generation by as much as 26 per cent by 2028 from 2023 levels in order to meet rising demand.
The looming question is whether this load growth will prompt a retreat in our transition to renewable power and pace of emissions reductions. “All of [a] sudden electric utilities have been deluged with requests of large loads to connect to their electricity system,” said Chris Seiple, Wood Mackenzie’s vice-chair of energy transition and power and renewables. “It’s clear that it’s not easy to accommodate all of their demand growth with renewables alone.”
Nuclear revival
The search for a low-carbon, round-the-clock source of power is heralding a new era for nuclear energy.
Big technology companies Amazon, Microsoft, Meta and Google have all announced investments in nuclear this year as they face mounting pressure to align their surging energy needs with their climate goals. In October, Google ordered six to seven small modular reactors from Kairos Power, becoming the first tech company to commission nuclear power plants to provide energy to data centres. Later that week, Amazon bought a stake in US nuclear developer X-energy to help the company finance the development and licensing of its new generation of SMRs.
In perhaps the most tell-tale sign of nuclear’s changing fortunes, Microsoft announced a 20-year power supply deal with Constellation Energy to reopen the Three Mile Island nuclear plant in Pennsylvania, infamous as the site of the worst nuclear disaster in US history.
Despite its newfound popularity, it may take time before nuclear energy makes an impact on US power supply, as the industry faces high building costs and permitting hurdles. SMRs have also yet to be demonstrated at scale, with only four projects under construction globally, according to the World Nuclear Association. David Brown, Wood Mackenzie’s director of energy transition practice, said he expects to see gigawatts of nuclear capacity come online by about 2040 in the US.
“These companies need energy now. Nuclear doesn’t solve that problem,” Brown said.
“It’s a long-term bet on how the tech companies reach sustainability goals and it’s a sign of how challenging a 2030 target is for a company or a country because of the load growth and some of the other investment challenges with scaling renewable capacity,” he added.
A dealmaking spree in US oil and gas continued
A wave of dealmaking in the US oil and gas industry continued this year, leaving large publicly listed players in control of the energy landscape.
ConocoPhillips acquired Marathon Oil for $22.5bn, deepening one of the world’s biggest independent oil and gas producers’ portfolios that now includes assets stretching from North Dakota to Texas. The deal was Conoco’s biggest since it acquired Concho Resources for $10bn in 2021, and Wood Mackenzie estimated in June that it would give the company an output larger than supermajor TotalEnergies.
Other notable deals include Diamondback Energy’s $26bn purchase of Endeavor Energy Resources and Chesapeake Energy’s acquisition of Southwestern Energy for $7.4bn.
While mergers and acquisitions have slowed sharply in the second half of the year, Trump’s promises to be friendlier to business and boost drilling could serve as a tailwind for more oil and gas dealmaking, said PwC in its recent outlook. A Republican-led Federal Trade Commission could also be more favourable to oil and gas deals, which have been subjected to scrutiny under current FTC chair Lina Khan.
Power Points
Energy Source is written and edited by Jamie Smyth, Myles McCormick, Amanda Chu, Tom Wilson and Malcolm Moore, with support from the FT’s global team of reporters. Reach us at [email protected] and follow us on X at @FTEnergy. Catch up on past editions of the newsletter here.
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