The world is on the brink of channeling an unprecedented sum exceeding $3 trillion into the energy sector by 2024, as per the International Energy Agency’s latest projections outlined in their ‘World Energy Investment 2024’ analysis. Clean energy initiatives are poised to receive $2 trillion, whereas fossil fuel ventures, encompassing oil, gas, and coal, are expected to secure the remaining $1 trillion. Despite these significant allocations, the report emphasizes that investment levels still fall short of the threshold needed to curtail global temperature rise to 1.5 degrees Celsius.
Drilling into regional specifics, the Middle East exhibits a stark imbalance, with a mere $0.20 directed towards renewable resources for every dollar invested in fossil fuels. This ratio is notably a fraction of what is observed on a global scale, where clean energy investments are steadily gaining momentum, predominantly fueled by state-owned oil companies.
Investment in oil and gas is predicted to swell by 7% in 2024, reaching $570 billion, largely attributed to the efforts of national oil enterprises in the Middle East and China. Strikingly, a mere 4% of the oil and gas sector’s capital investments, translating to $30 billion, was dedicated to clean energy in 2023. This modest figure starkly contrasts with the industry’s publicly stated commitment to mitigating climate change, as voiced by IEA Executive Director Fatih Birol.
With an estimated 6 million barrels per day of idle oil production capacity and a looming surge in liquefied natural gas (LNG) capabilities, the industry’s current investment level is potentially excessive. Tim Gould, the IEA’s chief economist, suggests that if global energy transition efforts intensify and climate targets are met punctually, today’s oil and gas investments could be one-third more than what would match the reduced demand by 2030. If the goal is to maintain global warming within a 1.5° C increase, current investment is more than double what would be necessary.
The fossil fuel sector is allocating two-thirds of its funding to augment upstream capacity, with the remainder being channeled into refining, gas processing, and transportation infrastructures, such as expanded LNG export facilities. Regional investment patterns vary, with the Middle East, a powerhouse in oil and gas production, investing relatively less due to the lower costs of expansion. In 2024, upstream oil and gas investment is set to realign with the levels seen in 2017, with a significant proportion of this investment emanating from the Middle East and Asia.
An upcoming wave of LNG export projects, primarily from the United States and Qatar, is forecasted to inflate supply capacity by 50% by 2026. This expansion follows the tightening of the LNG market post-Russian invasion of Ukraine and subsequent European gas supply constraints. Despite the announcement of approximately $80 billion in new projects, a sizable portion of this increased capacity lacks committed buyers, indicating a potential oversupply.
Regional energy investments in the Middle East are anticipated to reach around $175 billion in 2024, with a 15% allocation for clean energy. Projections based on current climate pledges anticipate that investment in renewable energy could triple by 2030, with $0.70 dedicated to renewables for every $1 spent on fossil fuels.
The report identifies a unique investment opportunity in the Middle East’s power sector, particularly in solar photovoltaic technology, which could significantly reduce reliance on oil and gas. With investment in solar photovoltaic expected to hit $500 billion thanks to declining module prices, solar investments are eclipsing those in all other electricity generation technologies. Nevertheless, the Middle East’s contribution to global clean energy investment remains modest, despite ongoing large-scale solar projects in countries like Saudi Arabia and the UAE.
Globally, China is anticipated to constitute a third of total clean energy investments in 2024, amounting to an estimated $675 billion, followed by Europe at $370 billion and the United States at $315 billion. These figures underscore the investment disparities between economies, with the lion’s share going to advanced economies and China, and a mere fraction reaching emerging and developing nations.
These developing regions, which are home to the bulk of the global population and are anticipated to experience dynamic energy demand growth, receive only 15% of clean energy investments. This is attributed to the prohibitive cost of capital and higher risk factors. Addressing the funding needs for the energy transition will be a central theme at the United Nations Climate Change Conference, COP29, in Azerbaijan.
Despite the resolutions made at COP28 in Dubai to gradually phase out fossil fuels and amplify renewable energy and energy efficiency, the investment gap to fulfill the 2030 renewable energy target remains vast. To bridge this divide, an additional $400 billion in investment is needed. Furthermore, as renewable energy penetration increases, there is an urgent necessity to boost investment in battery storage, which is currently trailing behind the requisite level. The report indicates that storage battery investment, which stood at $40 billion in 2023, requires a 25% increase over the next six years.
Along with renewable resources, nuclear power is also forecasted to experience a surge in investment, expected to rise by 20% in 2024, with funds flowing into both extending the lifespan of existing plants and constructing new ones across various nations. Securing the finance for the trillions needed to meet 2030 climate commitments and the net zero by 2050 goal is an escalating challenge, especially as the era of inexpensive borrowing draws to a close. The path ahead, as the IEA report concludes, remains steep and arduous.