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Investment in fossil fuels will fall this year for the first time since the Covid pandemic, according to the International Energy Agency, led by a contraction in the oil sector where a sharp drop in prices is forcing companies to reassess their plans.
In its annual report on money flowing into the energy sector, the IEA predicted a 6 per cent drop in spending on oil production this year. Excluding the Covid-19 pandemic years, it will mark the largest fall since 2016, when oil prices crashed below $30 a barrel.
“This is the first time we have seen such a decline, except for Covid, because of lower prices and lower oil demand,” said Fatih Birol, the head of the Paris-based intergovernmental energy advisory body.
Since hitting $82 a barrel in mid-January, oil prices have fallen to about $65 a barrel after Opec, the oil cartel, started to significantly increase its production. The IEA said US shale oil producers, who account for 15 per cent of global spending on oil production, were the most sensitive to lower prices and would cut their investment by 10 per cent this year.
It also expects international oil majors to slightly reduce their spending, as they prioritise shareholder returns. The pullback means that the giant state oil companies of the Middle East and Asia will account for 40 per cent of all spending on oil and gas this year, compared with a quarter ten years ago.
International oil companies are also continuing to cut their spending on clean energy, with the IEA noting that they had collectively invested $22bn in low emissions technology in 2024, some 25 per cent less than the year before.
Overall, the IEA said the world would spend $1.1tn on fossil fuels in 2025, compared with more than $2.2tn on renewable energy, nuclear, batteries, power grids, low emission fuels and energy efficiency.
While overall spending on fossil fuels will shrink by 2 per cent this year, China and India have both committed to build significant fleets of coal-fired power plants to meet rapid electricity demand growth. By contrast, for the first time on record, the world’s advanced economies placed no new orders for turbines for coal-fired plants.
“The addition of coal is mainly driven by energy security reasons,” said Birol. “China had some bitter experiences when there was very hot weather and hydropower was very weak.”
In the US, where the Trump administration has been plain about its disdain for renewable energy, Birol said the jump in electricity demand from AI and data centres would mean that there would be an additional need for renewables, gas and nuclear.
In a separate report, Enverus, a research firm, said that while there are 517 gigawatts of renewable energy projects in the US that need federal tax credits to be viable, there are 284 gigawatts that do not require such funding.
“If these projects are built at the same pace as last year, that is enough to sustain today’s build-out pace for more than six years,” said Corianna Mah, an analyst at Enverus.
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