After recovering to pre-pandemic levels in 2023, global oil demand is projected to peak by 2030. Improvements in energy efficiency and the fast deployment of electric vehicles (EVs) will lead to a slowdown in demand. Despite this decline, sectors such as airlines and chemicals will continue to sustain oil demand due to the current lack of alternatives. Furthermore, emerging economies where decarbonation is too costly will continue to seek out fossil fuels for longer.
The ongoing energy crisis in Europe has boosted clean energy investment. In the US, the Inflation Reduction Act is also fueling investments into renewables and electric mobility and there are a number of other initiatives in Europe, Japan, China and elsewhere. 2023 was the first year on record with more investment in solar energy (about USD380 bn) than in oil & gas (USD370 bn).
Despite strong growth prospects, the wind industry is currently facing significant challenges. Supply-chain disruptions, rising material costs and logistical issues have led to increased project delays and higher expenses. Additionally, financial instability among key players has exacerbated these problems, leading to uncertainty in future investments. Some large wind turbine manufacturers have reported substantial losses, prompting a re-evaluation of project timelines and strategies. The sector is currently going through a recovery phase.
Likewise, the solar industry is not immune to shocks. The solar photovoltaic (PV) sector is currently experiencing a price war, driven by overcapacity and intense competition among manufacturers in China. This competition has led to a significant drop in solar panel prices, making solar energy more affordable but also squeezing profit margins for manufacturers. While this price decline benefits consumers and accelerates the adoption of solar technology, it poses financial challenges for manufacturers who are struggling to maintain profitability amidst rising production costs and supply-chain disruptions. These challenges are particularly acute for European manufacturers.
Against this backdrop, integrated oil & gas companies managed to post an EBIDTA margin close to 30% in 2023 while firms in the power segment had an EBIDTA margin of 15%. Growth prospects for both segments are strong as earnings per share are expect to rise by double digits in the next five years.
