The global energy mix is comprised of the oil, liquefied natural gas (LNG), coal, renewable energy, and electricity sectors. The landscape of this industry has seen a great deal of change over the years, and is primed for even more change in the future. Five years ago, fossil fuels accounted for 82 percent of global primary energy. This number is targeted to decline, with large growth in the natural gas and renewable energy sectors, especially wind and solar. However, a rising global population and economic growth make it challenging for renewables to keep up with demand, meaning that fossil fuels will remain a primary source as energy demand will rise one percent each year over the next 20 years.
Oil & Gas
Oil output is projected to remain on the rise in the next 10 years, with 85 percent of the production increase coming from the United States. At the same time, oil demand is expected to slow after 2025 due to better fuel efficiency and more electric vehicles, according to a report by the International Energy Agency (IEA).
In 2020, shale production in the U.S. is expected to continue to grow even as growth is slowing due to reduced capital expenditures from drillers. Additionally, exports of U.S oil and LNG are forecasted to grow as infrastructure capacity increases.
As the number of U.S. oil and gas companies in distress grows amid limited funding options, there is an opportunity for smaller firms to be acquired by bigger firms, or for them to merge in order to scale operations and reduce costs. M&A strategies may be more appealing to these companies than the option of restructuring through bankruptcy.
Oil and gas prices should remain range-bound this year as production increases from non-OPEC nations such as the U.S., Brazil, and Norway.
Internationally, oil markets will be affected by the ongoing trade negotiations between the U.S. and China, as well as the result of the March expiration of the OPEC+ pledge between OPEC and non-OPEC partners for deeper production cuts.
The coal industry continues to experience challenges, including declining demand, bankruptcies, climate concerns, ownership changes, and mine closures. Coal production in the U.S. is expected to decline, along with the amount of energy production that relies on coal, which is at its lowest level in more than 40 years. In contrast to the struggling coal industry, increased growth is forecasted in the renewable energy sector. According to the IEA, market share for coal will fall from 38 percent today to 25 percent in 2040, largely due to a surge in more affordable solar power.
The outlook for the renewable energy industry in 2020 is quite favorable. The sector has already seen unprecedented growth propelled by increased demand, competitive costs, innovation, and the uniting of industry forces. Renewables are likely to become a preferred provider in electricity markets this year, as customers are more concerned with saving money and addressing climate change issues. Last year, renewable energy eclipsed coal for the first time ever in the United States, with wind and solar energy accounting for about half of renewable power generation. Companies that are poised to innovate and jump on new opportunities will be in a position to thrive in this new growth phase.
Some key points regarding this sector include the following:
- China has been the largest investor in renewable energy capacity, committing $758 billion over the past decade. The U.S. follows at $356 billion, with Japan third at $202 billion.
- Lower prices for renewable sources and battery storage have helped to drive growth in this industry, making wind and solar more competitive with traditional energy sources.
- Several utility companies have already outlined goals for de-carbonization and more are expected to follow suit.
- Renewable energy will need to be scaled up significantly in order to meet the goals outlined in the Paris Agreement.
- In 2019, 11 of the 28 countries in the European Union already met their 2020 renewable energy targets, but there has been a gradual slowing of the rate of renewable use because costs have fallen and less investment is needed to install the same level of power capacity.
- Grid modernization projects will also contribute to growth, as renewable microgrids are becoming more popular solutions for increased efficiency.
- In the U.S., the Production Tax Credit has been extended for 2020. However, the amount of the Solar Investment Tax Credit will be reduced from 30 percent to 26 percent. Both of these credits have been important drivers of growth in this market.
Power and utility companies will face several priorities and challenges in 2020, but with a balance of careful strategic planning, digital innovation, and risk management, the industry can sustain growth throughout the year.
- Clean energy remains a major priority, as many power and utility companies are setting their own clean energy goals to help customers make the transition.
- Cyber security is an increasing concern, with vulnerabilities being a clear and present danger.
- Preparation and response for natural disasters will be more significant as major storms have become more common around the world.
- Providers will continue to be more focused on improving the customer experience.
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