Top Trends to watch in 2025: Energy Capital

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Hill Vaden:

All right. Welcome back to S&P Global Commodity Insights EnergyCents podcast. This is your host, Hill Vaden, and I'm here with your other host, Sam Humphreys. Sam, how are you doing?

Sam Humphreys:

I'm all right. Thank you, Hill. How are you?

Hill Vaden:

I am doing all right. We are recording this introduction to a great conversation, which we had I guess last Friday. So last week with Justin Jacobs, one of the leads of our investor-focused service here at S&P Global Commodity Insights as part of our top trends to watch. And so this was based on a document that Justin and the team put out called, Top 2025 Themes, trade wars, Trump and the race to power AI. This was a list of six topics that I incorrectly said it was five several times on the podcast.

Sam Humphreys:

That's all right

Hill Vaden:

So correction up front. And we just cherry-picked a few, but what can you tease for listeners to keep an ear out for.

Sam Humphreys:

Well, first off, I think we'll link the document as well, but you contributed to this, so I picked on you as well just for listeners to be aware of.

Hill Vaden:

You hold me accountable?

Sam Humphreys:

No, it was excellent, but it was fantastic. So we picked out, as you said, three key points. The first one being trade, how that will impact the energy transition. I'm not going to go into too much detail because the titles are pretty good, but this is interesting. Again, there was a focus on the US and China, but we did touch on what's going on in Europe as well and the implications of 2025. And then after that we talked about Trump's obviously he'll be coming into power, he may already have taken office by the time this goes out.

And obviously one of his slogans was drill, baby drill and how he's going to champion the oil and gas industry, but that's not necessarily a negative on the clean tech industry. So that's quite fascinating. And then finally we talked about, it's another great title, a build baby, build and the development of infrastructure across the energy space. So whether that's renewable and the investment that's going to go into that. So Justin does a much better job at explaining what's going on, but there's some key things for us to look at. And we didn't talk about AI, which is one of the themes. People will have to read this report to find out what's going on there. But yeah, I think there's quite a lot to unpack really. What about you? Anything you think people should be listening out for?

Hill Vaden:

No, I'll just say that I agree with everything you said and it's always fun to talk with Justin. It'd been a little while since he'd been on the podcast so it's nice to have him back. I guess this is the second in several episodes that we're going to do with energy experts from across S&P Global this month and next month I guess as well looking at the things to watch in 2025. So this is part of our list series and hopefully people are enjoying it.

Sam Humphreys:

Love list. I hope so too.

Hill Vaden:

All right, we'll hand off now. All right, Justin, welcome back to Energy Sense. It's January, 2025 and this is the first time that you've been back on the show in about five years, yeah?

Justin Jacobs:

It has. It's great to be back. Thanks for having me.

Sam Humphreys:

Welcome back.

Hill Vaden:

Yeah. And this is your first conversation with Sam, I guess, because Sam joined afterwards. So this is new for us in 2025 and this is part of our, what do we call this, Sam? The top trends to watch series.

Sam Humphreys:

That's a good description.

Hill Vaden:

We're going to be based in this conversation on a document that Justin helped to lead here on the op 25 themes, trade wars, Trump and the race to power AI, which is wonderfully alliterative. So Tupac would be very proud of the title here, but this is really looking at investments in energy. We will be doing a lot of these trends across the different energy landscape and as evidenced by the title, trade and Trump are a core part of these top five. Trade wars will disrupt the energy transition, a good and succinct first one. So can you elaborate a little bit more on why that made the list?

Justin Jacobs:

Yeah, so I think a lot of 2025 conversations are going to start with Donald Trump because he's going to be a disruptive force in many areas and I think the energy transition is certainly going to be one of them. I think one of the big ways in which that's going to play out is in trade. I think it's pretty interesting. I think if you take a step back and what's different this time around is that China has become a major global force in clean tech and renewable energy and batteries and solar. And then in these industries and they've become very important.

So you really almost have this setup where you have Donald Trump very focused on fossil fuels on maximizing US oil production and putting that at the center of the global energy system. And you have Xi Jinping focused on clean tech and that has become a real big focus of the Chinese economy. So I think if you pull back, I think that's just going to be an interesting setup for the year. And so if we start looking at what Donald Trump has talked about on trade and tariffs, he's obviously talked about a very aggressive agenda of tariffs, especially targeting China. So I think that's going to be very important for clean tech trade and for the global economy and some of the knock-on effects on interest rates and inflation and so on.

Sam Humphreys:

So I want to drill down a little bit more into some of those tariffs, just if we step back outside of the US what that actually looks like. But one thing I want to ask, obviously China is one of the major focus of those tariffs, but they aren't the sole producer of some of this tech for clean tech, for example. So are those same tariffs going to apply to those nations as well? I'm trying to remember which those they are. Is it Korea? But is it going to be the same, distributed evenly across those nations or will they have an opportunity there to reach out to some of those nations for some trade imports?

Justin Jacobs:

Yeah, so I mean I think Donald Trump is going to deploy tariffs quite widely. So I think it's going to be felt across the supply chains and global trade, but I think the focus is really going to be on China and trying to weaken China's economy and try to hit some of this trade flow coming out of China. So I think it will be felt particularly for China. So I think the US feels that through higher cost of either imports from China and from some of these other regions where the US imports things like solar panels and batteries.

And the goal from the Trump administration is going to be to encourage domestic manufacturing investments in the US. So I think that will be the push. I mean there's a big question of does Donald Trump want to encourage investment in clean tech at all or does he want to undermine that? And I think that will play out with what Donald Trump and the Republican Congress does with the inflation reduction act in the US and if they try to undermine that investment or promote it in a way.

Hill Vaden:

So you introduced it, so I'm going to piggyback on it. So the inflation reduction Act is obviously a big part of outgoing President Biden's legacy, I guess. And I know we've done a lot of work across S&P global commodity insights on what the new incoming administration does to the IRA or for the IRA. Can you put a little color on what your thinking happens with the IRA? And specifically from an investor perspective in North America, how should investors react given the uncertainty that we're sitting here with, what is it? 10 or 11 days before the inauguration?

Justin Jacobs:

Yeah, so I think right now it's the uncertainty that is overriding everything and I think has put a lot of decisions on hold for the time being. How it plays out, we will see, I think our view and my view is that the IRA is likely not going to be thrown out as a whole. I think really the core part of the IRA are these tax incentives for renewable power and other low emission power sources. And I think those largely stay in place in the end. These are incentives that have had longstanding bipartisan support. A lot of the investment from these projects goes into Texas, Georgia, rural areas across the country that vote Republican, that have Republican lawmakers representing them in D.C.

So I think there's a pretty strong core of support for those, but there are ways to weaken those. And there are areas like electric vehicles, offshore wind, Donald Trump, within the last week or so when we're recording this, talked about windmills, as he calls them, littered around the country like garbage that's been spilled around I think. And you saw you saw big European wind companies, their surprises [inaudible 00:09:16] on these comments. So it's going to be very disruptive. I mean it's a very uncertain and disruptive time for this industry. But I think a lot of it ends up staying in place, but there's a real risk that big swaths of this get rolled back or significantly weakened.

Sam Humphreys:

Obviously you mentioned the love of wind there by the American president, but other areas that he's or his administration is more partial to so whether it's solar panels for example. And we've talked about maybe not slowing down, I don't know if that's the right term, on building some of this out. But with the tariffs on trade coming in, is the US equipped to meet the demand and supply to facilitate that if it's a slightly slower growth for solar plants, for example? Is that possible?

Justin Jacobs:

I think the US has made some strides in building up domestic capacity, but in certain things like solar panels but in other areas, absolutely not you. I think there's still a very heavy import dependence on not just clean tech, but across the economy, everything from consumer goods to agriculture, importing bananas from wherever. So I think broadly this is one of the big macro effects is that it's going to be very inflationary for the US economy potentially, if this is rolled out in a broad way in which it's been discussed. And that's one of the big questions, right, is does this get rolled out in this broad way if it does have of negative effects, or is that as a barrier or a governor on some of these policies?

So I think that's another really important aspect of this is how it feeds through to these bigger macroeconomic questions around interest rates and GDP growth. Because of course these are also extremely important for clean tech. If interest rates remain high, which we've seen since Trump's election, makes it very difficult to invest in these projects and it really hurts returns. If you're slowing GDP growth because global trade is slowing down that's felt in commodity markets, it's felt in oil prices. So it's very disruptive and very negative for the global economy and for clean tech industries if these tariffs are rolled out in a very blunt and aggressive fashion.

Hill Vaden:

So we talk a lot about China and the US because they're so big in the energy landscape. These tariffs are going to impact other countries in theory as well. So can you give us a little perspective on, I think the article or the report talks about Europe being in a crossroads, and how these tariffs may impact energy investment in Europe and even some of the developing countries who potentially benefit from access to low cost clean tech coming out of China that won't find a home in the US if the tariffs get imposed on the way that they're talking about?

Justin Jacobs:

Yeah. I mean, maybe take Europe first. Europe's in a very interesting spot right now, very difficult spot in a lot of ways. I mean, some of the core big European countries are not doing particularly well. Europe has pretty aggressive climate ambitions and carbon reduction goals and wants to promote domestic industries to achieve those goals, but there's a big question about what is the best way to achieve those goals? Do you do it through promoting domestic industry, which can make it more costly, it can slow things down?

Obviously we've seen a Northvolt, a very high profile case of European clean tech champion faltering and failing over the past couple of months, which I think really highlights some of the challenges for Europe. So do they go down that route or do they open up to some of these two Chinese EVs? Do they open up to Chinese solar panels? Do they open up to Chinese batteries in a big way and just accept lower cost supply from China, even if it undermines some of this domestic industry? So I think that it's just a huge question facing Europe and it ties in with a broader question of does the EU in a post-Trump landscape, do they lean more towards the US?

Do they try to forge a more independent path? Do they lean more towards China? Because Trump keeps talking about trying to take over Greenland or whatever. These things are very provocative across the EU so I think it's going to be very interesting to see how that plays out. And then for the energy transition in more emerging markets, I think this huge amount of exports coming out of China is very interesting, especially if they've basically lost access to the US markets already. So far the US has been tightening tariffs and trade restrictions with China. So the practical effect of that is that a lot of the supply gets pushed out to the rest of the world.

And so you see a lot of Chinese EVs across Latin America, you see this huge explosion of imports of solar panels in places like Pakistan, which has completely remade Pakistan's electricity market. So I think you see things like that happening over the next year in some pretty unpredictable ways and in a way that a lot of these places I think it was expected that the energy transition would move slowly in these places because it's more expensive and so on, but I think it could happen, quite frankly, just a lot faster in some of these places because there's so much of this relatively cheap and affordable, high quality Chinese clean tech that is suddenly available to these economies.

Sam Humphreys:

All right. So I want to move on to one of the next points, and it loops in this clean tech outlook for the US. So I think one of Trump's slogans was drill, baby drill. I hope that's right. So obviously his new administration is pretty pro-oil and gas investment, but in this report that you guys have put together, there was emphasis that maybe some areas of clean tech could benefit from this investment uplift, one of those being carbon capture storage utilization. So can you just sort of explain how that works? If you're stepping back and looking at oil and gas investment, you don't necessarily put it together with clean tech. So can you just expand on that a little bit for us?

Justin Jacobs:

Yeah, certainly. I mean, part of this is from a clean tech perspective looking for diamonds in the rough. I think from the administration the focus is going to be on championing and promoting fossil fuel development, LNG exports, gas production, oil production. But there are these technologies that the oil and gas industry has been investing in quite a significant way. And I think there are signs that they will continue to get focus and even promotion from the Trump administration.

So you mentioned carbon capture, I think that's a big one in Texas. There are a number of big carbon capture projects that are still in the early stages but are starting to move forward. And this is something that companies like ExxonMobil, Chevron, big oil companies, see as potential platforms for future growth if the energy transition moves in particular ways. And then they also see it I think as important for investors and for being able to sell gas and oil and fuel to markets around the world that might have stricter carbon rules and so on.

So I think it's important to them, whoever is the administration is in the US. So I think that they will continue to advocate for those technologies. Carbon capture is one of them, hydrogen is another. The industry is very familiar with producing hydrogen. I think they see that in the energy transition as a place of strength for them. They want a broader look at hydrogen. They want access to incentives for hydrogen where they can use natural gas, for instance, and capture the carbon from that process and store it. Blue hydrogen I guess is the sort of jargony industry term for that. So they want incentives for blue hydrogen.

Geothermal is another one where there's a big crossover between drilling technologies in the oil and gas sector where they think they can apply that to advanced geothermal. And the other one that we think is going to get some attention from the Trump administration is nuclear. And especially this new next generation of small modular reactors. It's interesting. If you look at Donald Trump's nominee to be energy secretary, Chris Wright, he runs a big oil services drilling company, but he also sits on the board of a nuclear, one of these SMR nuclear companies. He's been involved in this advanced geothermal industry. So I think that is something that is going to be part of a big part of the picture.

Hill Vaden:

I think we're talking from the third of five forecasts or predictions for us in 2025. Trump 2.0 will champion the domestic oil industry, but there will be clean tech winners too. And those clean tech winners it sounds like are perhaps more focused on decarbonization rather than electrification, with the exception of nuclear. And a lot of the electrification clean tech really reach commerciality in particular solar and batteries, I guess more onshore wind perhaps than offshore wind. There was a question in here. There was a question here somewhere on the oil and gas side. So Trump wants to promote oil and gas. How much more can we push on that?

Justin Jacobs:

Yeah, so I think Scott Bessent, the nominee for treasury secretary, I believe has talked about this. He has this 333 target for the US and it's around GDP growth and debt, and the other three is oil and gas production. It's three million barrels of oil equivalent per day, which is a slight of hand there because barrels of oil equivalent counts oil and gas, and that's over the four-year term. And I think that's probably actually quite achievable.

Hill Vaden:

Manageable. Small percentage of growth, right?

Justin Jacobs:

I mean, the US is a very big producer now of both oil and gas and so on. The percentage of terms is very small. So I think the oil industry is in a very different place now than it was during Trump's first term. It is structurally going to grow slower than it did in 2017, 2018. But that 3 million BOE is very achievable. I think you could have three or 400,000 barrels per day of oil growth per year. That depends on oil prices, of course, which is much slower than the million, million and a half barrels a day during Trump's first term. But it still makes something like that three million BOE possible. And you have a lot of LNG exports coming which is going to drive a lot of gas production.

Sam Humphreys:

Just out of curiosity, where is that targeted? Are we still talking about shale or is it heading up towards Alaska? I think Alaska has a little few dry wells last year, but is it just shale? Is it looking at expanding what's already there or is there any more frontier sort of exploration plan?

Justin Jacobs:

Yeah, that's a great question. It's shale primarily. It's still the main driver. The Permian still has a fair bit of growth left in it. The Bakken in North Dakota and the Eagle Ford in a different part of Texas, they were the first shale plays to come out with them. They're still going strong enough. So that underpins it in the Gulf of Mexico. We did have, in the last week or two of the Biden administration, one of the most high-profile energy moves has been blocking large swaths of Alaska and Pacific Coast and the Atlantic Coast to future oil leasing.

Which is an interesting move in part because Trump tried to open many of those areas during his first term and I mean, two main things happened. One was that a lot of the governors in these states, including Republicans in Florida and North Carolina on the East Coast protested quite a lot because they didn't want these big tourism economies and they don't want oil drilling at the coasts. And the industry itself, there's just not a lot of appetite these days for that frontier exploration. So I think Trump will probably move to rescind that action from the Biden administration, but I don't think it will ultimately be very consequential.

Hill Vaden:

I want to touch on one thing before we move on to the next one, but in the waning days of the Biden administration, right around Christmas, New Year seems to be really important to the North America hydrogen business. There was a hydrogen change in terms of the hourly matching. So that may help to, I don't know if kick-start is the right word, but at least remove from the closet the hydrogen business in 2025.

Justin Jacobs:

It will. Yeah, I think it does. I think it's positive in the sense that it opens. There's a big debate about how you do these regulations, whether you very strictly restrict it to green hydrogen which is being powered by renewable energy all the time or if you allow a wider suite of technologies and approaches to lower the emissions from hydrogen production. And this ruling lean towards the latter, which a lot of people, not everybody, but a lot of people in the industry in the hydrogen industry wanted to see happen. So I think that is encouraging. But I think also we have no idea what the Trump administration is going to do with these regulations. So I don't think anybody's really going to act on this until there's more clarity around what Congress is going to do with the IRA to start with, and then how the Trump administration is going to treat the ins and outs of these regulations.

Sam Humphreys:

All right, let's move on to the next point, which is possibly one of my favorite titles so far, which going on drill, baby drill, it's build baby, build. Stars may finally be aligning for an infrastructure boom. Fabulous. So this was off the back of a demand for new energy projects and growth and infrastructure building out. And I believe it's a 200 billion pledge of investment into this area. I may have worded that wrong. Can you explain what that fund is for? Are we talking transmission networks, renewable transmission networks? Just what are we looking at here?

Justin Jacobs:

Yeah, so we're looking at very broadly energy infrastructure. This is transmission, this is I believe even pipelines are included in that, this is renewable installation. So this is a very broad look at energy infrastructure. And there's a huge demand for energy infrastructure across the US. And one of the big issues across the oil and gas industry, one of the few things that unites the oil and gas industries and the clean tech industries and renewable industries is this frustration with the way that the US regulatory system works and holds back construction of large projects and large energy projects. So I think this is one of the big things that we'll be watching this year.

Hill Vaden:

It maybe energy investors.

Sam Humphreys:

Hill.

Hill Vaden:

Yeah, go ahead Sam.

Sam Humphreys:

No, you say your bit and then I'll jump in.

Hill Vaden:

Okay. I was going to say maybe energy investors want to put their money in law firms. That might be a good place because it sounds like some of the regulations that have been, I'll say influencing energy development, may change over the course of the four years the Trump administration.

Sam Humphreys:

Well Hill, I know you wrote some of this so I want to ask you there's some more granular detail on this. The report talks about the Chevron doctrine, which in the US Supreme Court is talking about overturning. People outside of the US, what is that?

Hill Vaden:

Of course you ask me the question about legal.

Sam Humphreys:

Absolutely.

Justin Jacobs:

Thank you. Appreciate that.

Hill Vaden:

I mean, I think the big thing with the Chevron doctrine is that what it did is that it defers forever or for many years since what Justin? The '70s or whatever, the government has deferred to agencies expertise for regulation. And what the Chevron doctrine does is that empowers the agencies too much. And now it will be up to, I guess congress to make rules for a lot of these things, for a lot of these whether it's EPA or some of these other agencies that have limited energy investment or non-energy investments that already been used to challenge activities outside of energy.

But now that that has been overturned then you will see some challenges that if a project was held by an EPA environmental concern or something like that, that can be challenged, that restriction. And so you would in theory be able to cite more infrastructure projects more quickly because in the long run I think this empowers Congress to make rules for all of us, in the short run it empowers lawyers and judicial decisions on which rules. Because it does get very complicated. I think that, for example, help me out here, Justin, but FERC has jurisdiction over LNG, and that is part of the Energy Policy Act of 2005. So the Energy Policy Act of 2005 is a statute from Congress that empowers an agency. So how does one interpret that?

Justin Jacobs:

Right. And that's where judges are going to have a lot of discretion to decide where these agencies have been empowered and where they've gone beyond their mandate. And this has been the big legal debates and the conservative judges on the Supreme Court have ruled that basically these agencies like the EPA, the SEC, the FERC, have just gone way beyond what their constitutionally mandated abilities are to make rules and they've outran what Congress has empowered them to do. So this ruling came out last year going into 2025 what we expect to see is quite frankly a lot of lawsuits going to the lawyers being a good year for lawyers.

Because a lot of these regulations are going to be challenged and we know we'll have to see how courts around the country decide on various issues. And so it has the potential to be extremely disruptive for a lot of existing environmental and energy regulations, which are often blamed for holding back energy projects and just making it very difficult to build things like transmission lines and pipelines and so on. So it has the potential to be a year where a lot of long-established regulations and kind legal precedents can be rolled back.

Hill Vaden:

So I'm going to summarize briefly and ask you another question right before we sign off. So for the three of the five, there are two others, but the three of the five that from an investor perspective, you're going to have a potentially a flood of clean tech moving into non-US markets because China has all this capacity to do something with. So that's going to affect investor behavior. On the infrastructure side that there is potential opportunity for one, their infrastructure investment is needed, particularly in the US and two, some of the regulations could speed that up.

And then on the domestic energy perspective even if one wants to push oil and gas harder there's less room for it to move because it's already so big, but maybe some of these decarbonization projects find new life. So there's a summary of what we've talked about. And then just to wrap up, Justin, was there anything... Lists are always hard because something always has to get left off. So of the things that we left off this list, what is the one that you would've most wanted to include?

Justin Jacobs:

Well, I will go with one that we discussed a little bit, and that is, I mean, I think AI that. We haven't discussed here, but I mean AI is going to be the other big theme, which is Trump and AI 2025 is going be the year of talking a lot about Trump and talking a lot about AI.

Sam Humphreys:

It's amazing we didn't get that in.

Justin Jacobs:

It is. I'm sure it will come up many times over the next many years. But yeah, I think the way the AI is affecting energy investment really has come on very quickly and is really interesting because it's driving interest in technologies that can provide 24/7 low-emission power. And it's really throwing a lifeline to things like nuclear, geothermal, and some of these frontier technologies that we're really struggling to raise funding and just find a footing because they're expensive and they're not proven.

And when you have a flat growth power market there's just not a lot of room for new technologies to come into play. But it's really driving a huge amount of interest and money into these sectors. So I think that's going to be the big one. And the other side of it is how AI gets deployed at energy companies to make the system more efficient and solve grid problems, many, many other things that the AI industry has promised that the technology will be able to do. So I think we'll see how much of that becomes reality.

Hill Vaden:

All right, well that seems like a good-

Sam Humphreys:

Sounds good.

Hill Vaden:

... place to leave it partly because we're out of time. So Justin, thank you. It's been a pleasure and hope to have you back again soon.