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According to the International Energy Agency (IEA), investment in fossil fuels will be declining for the first time since the Covid pandemic.
In its annual report on money flowing into the energy sector, the IEA predicts spending on oil production will fall by 6% this year. Excluding the Covid-19 pandemic year, it marks its biggest decline since 2016, when oil prices fell below $30 a barrel.
“This is the first time we’ve seen such a decline, except for Covid, due to lower prices and lower oil demand,” said Fatih Birol, head of the Paris-based intergovernmental energy advisory body.
Oil prices have fallen to around $65 per barrel after OPEC, a petroleum cartel, has increased production significantly since reaching $82 per barrel in mid-January. According to the IEA, US shale oil producers account for 15% of global spending on oil production, and are most sensitive to lower prices, saying they will cut their investments by 10% this year.
It also hopes that international oil majors will cut their spending slightly as they prioritize shareholder returns. Pullback means oil companies in the Middle East and Asia giant states account for 40% of oil and gas spending this year compared to 10 years ago.
The oil major also continues to cut spending on clean energy, noting that the IEA raised $22 billion in low-emissions technology in 2024.
Overall, the IEA said the world will spend 1.1tn on fossil fuels in 2025, compared to over 2.2 tons in renewable energy, nuclear power, batteries, power grid, low-emission fuels and energy efficiency.
While overall spending on fossil fuels will shrink by 2% this year, China and India are committed to building a critical fleet of coal-fired power plants to meet the rapid growth of electricity demand. In contrast, for the first time in record time, the world’s advanced economies did not place new orders for turbines for coal-fired power plants.
“The addition of coal is driven primarily for energy security reasons,” Birol said. “China had a bitter experience when it was very hot and hydroelectric power was very weak,” Villor said.
In the US, when the Trump administration was obvious about the light-heartedness of renewable energy, Birol said that a jump in electricity demand from AI and data centers means there is an additional need for renewable energy, gas and nuclear power.
In another report, research firm Emberus said there is a 517 gigawatt renewable energy project in the US that requires federal tax credits to be viable, but there is a 284 gigawatt that does not require such funds.
“If these projects are built at the same pace as last year, that’s enough to maintain today’s build-out pace for over six years,” says Collianamar, an analyst at Embelus.
