Explosive Growth Predicted for Energy and Metal Industries in 2023

Increased efforts to speed up the transition to clean energy and ensure energy security are leading to a new upcycle in investment in the supply of oil, natural gas, renewable power generation, and metals essential for electrification. Total investment in supply is expected to reach an eight-year high in 2023 as demand for oil and gas rises during the post-Covid rebound and as the energy transition continues to gain momentum, according to estimates from Wood Mackenzie.

Although the energy and metals industry is not yet in a boom, some critical metals for the energy transition could soon experience a new supercycle, according to the consultancy. However, investments must shift significantly from fossil fuels to renewables and other low-carbon technologies, including small modular nuclear reactors, long-duration battery storage, tidal power, and advanced geothermal, if the world wants to reach net-zero emissions by 2050. According to Simon Flowers, WoodMac’s Chairman and Chief Analyst, the already record investment in low-carbon power must at least double and remain at that level for the foreseeable future. He also emphasized the need for investment in grid expansions to support high levels of electrification.

This year, investment in supply across oil and gas, power generation and renewables, and metals and mining is estimated to rise by 5% annually to reach $1.3 trillion. Although growth will be modest, the level of investment would be 26% higher than the cyclical low of 2020/2021 and the highest annual total for eight years, per WoodMac’s estimates. The modest growth in investment will partially reflect corporate strategies by upstream oil and gas operators and miners to maintain capital discipline, as well as rising costs and supply-chain bottlenecks for renewable power projects.

The share of investment in fossil fuel supply has decreased from 60% of total energy spending in 2015 to an estimated 40% this year. Despite this decrease, fossil fuels still provide 80% of the global primary energy supply mix, proving to be difficult to shift, according to Wood Mackenzie. The share of fossil fuel investments could increase in the coming years as governments seek to enhance energy security following the Russian invasion of Ukraine and the subsequent shift in global energy trade.

Upstream oil and gas investments are expected to rise by 8% annually to around $470 billion this year, continuing their recovery from the cyclical low of $370 billion in 2020, according to WoodMac. Most exploration and production companies are still being cautious with spending due to rising costs and the threat of additional windfall taxes. Nearly half of the increase in spending will be driven by inflation, while only half of 60 large potential project FIDs are expected to proceed this year.

Mining companies are even more cautious with their spending on supply, according to WoodMac. This year’s investment is expected to rise by 3% year over year to $149 billion, with copper leading the growth. There is currently little indication that mining majors are prepared to invest in new capacity critical for the transition, such as copper, cobalt, lithium, nickel, and aluminum, according to WoodMac’s Flowers.

Growth in renewables is expected to see a brief slowdown this year and next due to rising costs, supply-chain bottlenecks, and regulatory obstacles, before a new upward trend beginning in 2025. However, recent policies, such as the Inflation Reduction Act in the U.S., are reasons for optimism in renewables growth this decade, according to WoodMac. The consultancy predicts the IRA will boost annual investment in renewables in the United States from $64 billion last year to nearly $114 billion by 2031.

Despite the growth in renewables, low-carbon energy supply still needs to at least double current investment levels if the global community wants to meet the goals set by the Paris Agreement. This means that the private sector, governments, and other stakeholders must work together to increase the funding and support for low-carbon energy technologies and projects.

With the right policies and incentives, renewable energy sources can become more cost-competitive and accessible, enabling us to transition away from fossil fuels and towards a more sustainable energy future. However, it’s important to remember that this transition will require significant effort and investment, and it won’t happen overnight.

Nevertheless, the benefits of a low-carbon energy future – including improved public health, increased energy security, and a stable climate – are too important to ignore, and the time to act is now.