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Adapting to energy's dynamic new normal

The energy landscape is evolving rapidly, with hydrocarbons continuing to fuel global growth and innovation. Even as renewables gain traction, the world’s reliance on oil and gas is far from over — driven by growing populations, industrial advancements and shifting geopolitical currents. Navigating this complex environment will require balancing diversified energy portfolios, smart capital investment and emerging opportunities. These factors will not only shape the industry’s direction but also redefine how organizations and leaders thrive in a changing energy paradigm.

5 key trends for energy companies to watch:

Oil and gas are here to stay
Tracking capital expenditures
Oil demand growth
Hydrocarbons and renewables

Oil and gas are here to stay — and soaring energy demand is only one driver

Hydrocarbons remain a cornerstone of the global energy system, providing essential products and services that underpin modern life and drive technological innovation. Even as global investment in renewables surpassed the trillion-dollar mark in 2022, hydrocarbons may continue to play an important role for decades to come as a primary source of global energy consumption, industrial feedstocks, and overall economic value creation. To sustain current and future energy demand requirements, an integrated portfolio of renewables and traditional hydrocarbons will be necessary.

Energy demand is rapidly growing, based on a variety of factors, most notably population growth and GDP. Beyond that, hydrocarbons are essential to virtually all industries. In addition to manufacturing and transportation, this includes plastics, fertilizers and pharmaceuticals. A confluence of geopolitical factors is reshaping the oil and gas sector’s position in the market, and population growth in developed and emerging economies can necessitate a change in strategic direction relative to global supply and demand considerations.

Tracking capital expenditures

Over the past decade, the oil and gas industry has undergone significant shifts in supply-demand dynamics, driven by market volatility, geopolitical events and global crises. Upstream capital expenditures (CapEx) trends highlight these changes. From the early 2000s to 2014, upstream investments steadily increased, peaking in 2014 during the US shale boom. Then a sharp decline in oil prices during the 2015-2016 downturn triggered a substantial spending reduction. This was followed by a modest recovery between 2017 and 2019 as prices stabilized, in part due to OPEC+ production cuts and pricing cooperation. The pandemic in 2020 caused a dramatic drop in CapEx, hitting a low of $300 billion. We saw a delay of more than 50 liquefied natural gas projects worldwide. As the world emerged from the pandemic, investments surged, with 2024 expected to surpass $600 billion, marking the highest level in a decade.

While annual CapEx is at a 10-year high today, major integrated oil and gas companies have adopted more cautious investment strategies and have announced plans to scale back CapEx in order to prioritize cash flow and shareholder returns. This trend, coupled with oil price stabilization and demand growth stagnation in key markets, may limit future supply growth, particularly as the shift carries implications for exploration and production through refining operations and infrastructure enhancements. Additionally, OPEC+’s recent announcement to prolong production cuts can tighten crude supply and may present obstacles to meet potential demand fluctuation through the industry’s value chain, including refined products.

In 2022, China surpassed the United States as the world’s leading oil refiner, expanding its capacity to 18.4 million b/d versus the US’s 17.6 million b/d. This milestone highlights China’s significant refining investments over the past decades. In contrast, the last major US refinery was completed in 1977. The recent refining profitability slump, due to new capacity and waning post-pandemic surges, emphasizes the need for US companies to invest more CapEx in to modernize facilities, enhance operations and support low-carbon products.

Twenty-five refining projects have been announced globally through 2028, with nine new projects and 16 existing refining facility expansions. No such projects are planned in the United States. Meanwhile, India is set to bring online a refinery with an expected 1.2 million b/d output, nearly double the capacity of the largest US-based refinery. Further, India alone represents about 50% of global net new refining capacity announced.

Oil demand growth: Looking back to predict the future

A retrospective analysis underscores the strong correlation between oil demand and the growth of both population and GDP. In the early 1980s, the world experienced a weakened global oil demand with the introduction of US fuel economy standards for passenger vehicles, industrial efficiencies, and a shift in power generation toward coal, natural gas and nuclear energy. By the early 2000s, oil demand rebounded, mirroring rapid GDP growth, despite technological advancements, shifts toward less energy-intensive service economies in developed countries, and energy-efficient measures. Economic output began to outpace oil demand growth as the developed world’s economy became less oil dependent.

The 2008-2009 financial crisis and the 2020 pandemic further highlighted oil demand’s sensitivity to economic disruptions. The financial crisis resulted in global GDP contraction and an oil demand recession. The Covid-19 pandemic created a larger wake, with oil demand falling 8.7% year over year as global GDP contracted 2.7%. After 2020, oil demand and GDP rose sharply as economies reopened globally. This unprecedented event emphasized the disproportional impact of global, economic and societal disruptions on oil demand.

While oil demand and GDP are correlated, an analysis of global oil intensity — defined as a million barrels per day per trillion dollars of GDP — can tell a different story. Global intensity over the past four decades has declined significantly, dropping from about 5.4 million b/d per trillion dollars of GDP in 1980 to around 1 million b/d in 2023. This steady decline of oil intensity is representative of the economic growth and oil consumption decoupling, supporting the concept that the global economy, as a whole, is shifting toward less energy-intensive economic activities. This trend is better observed in developed economies, but less so in economies that rely on industrial and energy-intensive sectors.

Oil demand was on track to grow by 1 million b/d in 2024 and is projected to grow another 1.2 million b/d in 2025, a slower pace than the pre-pandemic 1.5 million b/d average. Non-OPEC+ supply is expected to increase by about 1.5 million b/d annually over the same period, potentially resulting in a well-supplied market. Population growth, particularly in emerging economies with limited energy alternatives, can remain one of the key demand drivers that could stabilize pricing.

Hydrocarbons and renewables: Finding balance

Hydrocarbons account for approximately 80% of today’s global energy consumption, and oil alone accounts for 30%. From a US perspective, about 60% of the 4.18 trillion kWh of electricity generated in 2023 came from fossil fuels, with natural gas accounting for over 43%. Total renewables, on the other hand, only amounted to 21% of total generation. In 2022, the oil and gas industry contributed $3.3 trillion to GDP and supported more than 80 million jobs worldwide. It helps drive the global economy, supporting 102.2 million barrels of daily oil consumption in 2023, with demand projected to exceed 120 million b/d by 2050. This economic reach, fueled by population growth and urbanization, underscores its pivotal role in energy generation, industrial growth, global stability and consumer markets.

However, policies aimed at reducing oil and gas dependence are accelerating the energy transition and incentivizing cleaner energy adoption. In this context, liquified natural gas (LNG), as a transitional fuel, can undoubtedly bridge the gap between conventional fossil fuels and renewable energy sources. While global LNG trade leveled off at 401 million tons, a 2.1% YoY increase (compared to the faster 5.6% growth in 2022), the industry did welcome four new importers (Germany, Hong Kong, Philippines and Vietnam), now totaling 48 new import markets. From an export lens, despite its late start in 2016, the United States became the largest LNG exporter in the world at the end of 2023, exporting a total of 84.5 million tons. Coupled with its No. 1 position as the top crude oil producer in the world, it’s safe to say that the United States will continue to play an important role in global energy markets. Australia and Qatar, once the prominent economies in this industry, now follow closely behind with 84.5 million tons and 79.6 million tons, respectively.

Energy companies in today’s evolving market must adopt dynamic strategies that are flexible to shifting regulatory landscapes, technological advancements, and fluctuating supply-demand conditions. Strategies should prioritize the following:

High-grade assets: To improve cash flows, profitability, and resilience.
Diversified portfolios: To meet varied demand profiles, capitalize on traditional and emerging markets, and hedge against energy regulations.
Strategic CapEx allocation: To expand supply, build out refining capabilities, and secure supply chain.
Technology investment: To enhance operational efficiency, reduce costs and enhance agility.
Policy alignment: To remain compliant in an increasingly regulated environment.

Follow us as we dive deeper into many of these trends. Next up: the important role LNG will play in the global economy.

Pablo Peralta also contributed to this article.