Investing in Energy - The Changing Face of Global Energy Demand

World economic activity is set to grow at 3.2% in 2024 and 2025¹, which looks to continue to drive demand for energy across the world. Energy is an input for almost all economic activity, and there has been a strong historic relationship between energy demand and economic growth.²

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

There is no guarantee that any forecasts made will come to pass.

Rising demand can to drive investment in new energy sources, with a range of energy sources continuing to play a role in the world’s burgeoning energy needs. On the BlackRock Energy and Resources Income Trust (BERI) we believe it is important to be pragmatic when investing in energy companies to accommodate this changing mix.

Rising Demand Sparks Energy Investment

Global energy investment is set to exceed USD 3 trillion for the first time in 2024.³ The shape of this energy investment is shifting over time but is still balanced across a range of energy sources.

Investment is higher for clean energy vs fossil fuels – with USD 2,003bn³ of investment spread across the following; USD 771bn for renewable power, USD 452bn for grid and storage, USD 669bn in energy efficiency and end use. Fossil fuel investment in 2023 is still significant, at USD 1,116bn, up from USD 1,090bn in 2022.⁴ In particular, outside China, emerging market investment in renewables is very low.⁴

Electricity demand

There is also considerable variation in the sources of energy demand. Demand for electricity, for example, is rising at its fastest rate in years. Global electricity demand is forecast to grow by around 4% in 2024, with growth around 4% again in 2025.³ Solar and wind power generation is expected to make up almost 75% of this increase in energy production.³ Renewable sources of electricity are forecast to rise from 30% in 2023 to 35% of global electricity supply in 2025.³

There are also additional sources of demand. AI, for example, is energy-intensive and growing fast. Goldman Sachs points out that a ChatGPT query requires nearly 10 times as much electricity to process as a Google search.⁴ This has led to significant growth in data centres, which store and interrogate data to generate AI insights. These data centres currently consume 1-2% of overall global power, but this could rise to 3-4% by the end of the decade.²

Nevertheless, there are bottlenecks in electricity production. Electricity grids need to be restructured to cope with demand. In the UK, for example, the ‘great grid upgrade’ started in July but is projected to take six years to be completed.⁵

Fossil fuels continue to fill the gap, but demand is falling. Growth in world oil demand is forecast to slow sharply this year and next, led by weaker demand from China.⁶ The IEA says global demand for oil and gas is expected to peak by 2030. Among other energy options, global nuclear generation is on track to reach a new high in 2025.⁷

On the BlackRock Energy and Resources Income Trust (BERI), we aim to navigate this complex energy market by diversifying investments in various assets and sectors. As at 31 October 2024, we invest 40% in mining, over 30% in conventional energy companies and close to 30% in energy transition. We believe it is vital to be flexible in adapting to the changing energy complex over time.

¹ World Economic Outlook, IMF, 22 October 2024 https://www.imf.org/en/Publications/WEO/Issues/2024/10/22/world-economic-outlook-october-2024
² Energy for Growth Hub - How does energy impact economic growth? An overview of the evidence - 7 March 2023
³ International Energy Agency - World Energy Investment 2024 - June 2024
⁴ Goldman Sachs - AI is poised to drive 160% increase in data center power demand - 14 May 2024
⁵ The Great Grid Update - Powering the things you love - May 2024
⁶ Financial Times - IEA predicts sharp fall in growth of global demand for oil - 15 October 2024
⁷ The Guardian - Nuclear power output expected to break global records in 2025 - 24 January 2024