Global investment in all types of energy is expected to top $3 trillion in 2024, with $2 trillion expected to go into clean energy and $1 trillion to oil, gas, and coal projects, the International Energy Agency stated in its “World Energy Investment 2024” report. However, this record investment in solar, electric vehicles, nuclear power, grids, and low-emission fuels is still not at the level needed to limit global warming to 1.5 degrees Celsius, it said.
In the Middle East, the ratio of renewable energy investments to fossil fuel investments is very low. For every $1 invested in fossil fuels, only $0.20 is allocated to clean energy investments, the report showed. This represents “approximately one-tenth of the average global ratio of clean energy to fossil fuel investment,” the report added. Looking at the broader picture, investments in fossil fuel projects are being driven by the national oil companies.
Investments in oil and gas projects are expected to rise by 7% over 2024 to $570 billion, mainly driven by the national oil companies in the Middle East and China. The report highlighted that, for the oil and gas industry as a whole, only 4% of total capital investments, or $30 billion, was allocated to clean energy in 2023. This, said IEA Executive Director Fatih Birol when presenting the report, does not tally with the oil industry’s pledge to be part of the solution in the effort to tackle climate change.
Furthermore, this level of investments by the oil and gas industry, when there is spare oil production capacity of an estimated 6 million barrels per day and an imminent new wave of liquefied natural gas capacity, runs the risk of being higher than required. If there is an acceleration in the energy transition and countries reach their climate targets in full and on time, the amount being spent today by the oil and gas industry is “one-third higher than would be needed to meet lower oil and gas demand in 2030,” according to Tim Gould, the IEA’s chief economist. If the world was to be on track to limit global warming to 1.5° C, current spending on oil and gas “would be more than twice the amount that would be required in such a scenario,” he added.
Out of the $1 trillion being invested in fossil fuel projects, two-thirds of total oil and gas investments are being allocated to building upstream capacity and the rest for refineries, gas processing, and transportation, including additional LNG export capacity. But the breakdown of investments across regions varies. While the Middle East is a “giant oil and gas producing region,” expansion comes at a relatively low cost, so the share of investments by the region’s energy companies is smaller. While upstream oil and gas investment in 2024 is set to return to 2017 levels, companies in the Middle East and Asia will account for a much larger share of the total.
A new wave of LNG export projects will add 50% to supply capacity, mostly from the United States and Qatar, by 2026. (The data excludes a recent decision by Qatar to add more capacity, as no final investment decision has been made). The LNG market tightened after the Russian invasion of Ukraine in February 2022, which led to restrictions by Moscow on pipeline gas supplies to Europe. Since then, a total 140 billion cubic meters per year of new capacity has been announced, representing around $80 billion in investment. However, a large volume of this additional capacity does not have firm buyers and will likely appear on what could be an oversupplied market. “Additional LNG capacity will come online at an uncertain time for demand and with fewer off-takers for the additional volumes. Of the new capacity coming online, 70 billion cubic meters is to be delivered to fixed destinations; another 100 bcm has been contracted to portfolio players, but the remaining 80 bcm do not yet have offtakers and would have to be sold on the spot market,” the report stated.
Energy investment in all types of energy in the Middle East is expected to rise to around $175 billion in 2024, with clean energy accounting for 15%, the report estimated. When taking into account announced climate pledges, clean energy investment is expected to triple by 2030, with $0.70 going to clean energy for every $1 invested in fossil fuels.
In the section on the Middle East, the report noted that the region’s power sector “holds a distinct opportunity for investment in clean energy technologies, notably for” solar photovoltaic installations. “Harnessing these resources could substantially decrease reliance on both oil and gas in the power sector,” it added. More money is now going into solar photovoltaic than all other electricity generation technologies combined, the report stated. Investment in solar photovoltaic is expected to rise to $500 billion as the declining price of modules spurs new investments, it added. Despite some large solar projects underway in the Gulf Arab states, mainly in Saudi Arabia and the United Arab Emirates, the Middle East does not account for a significant share of total investments in clean energy.
Of total clean energy investments expected in 2024, China will account for one-third at an estimated $675 billion, followed by Europe at $370 billion and the United States at $315 billion. “These three major economies alone make up more than two-thirds of global clean energy investment, underlining the disparities in international capital flows into energy,” the IEA stated.
The most glaring disparity is the small share of investment being directed to emerging and developing economies. Of the $2 trillion of clean energy investment, 85% is going to the advanced economies and China, with only 15% going to emerging and developing countries, which are home to two-thirds of the population and will have dynamic energy demand growth in the years ahead. In sub-Saharan Africa, where there is enormous solar potential, every second person does not have access to electricity, Birol said. Yet the amount of solar electricity generated in the region is less than the amount produced in the Netherlands, he added.
The reason for the low levels of investment in the emerging and developing countries boils down to limited access to affordable finance because of the very high cost of capital, which can be two or three times more than in advanced economies, and higher risk factors. Financing the energy transition will be the main focus of the upcoming United Nations Climate Change Conference, COP29, in Azerbaijan in November.
At the COP28 summit in Dubai in late 2023, an agreement was reached to gradually transition away from fossil fuels, triple renewable energy capacity, and double energy efficiency improvements by 2030. Yet the new report showed that even if two-thirds of the investment needed to triple clean energy investment is achieved, it would still require doublingthe level of investments in renewables, electricity grids, and batteries across all regions. This means there is a gap of around $400 billion in additional spending needs to be filled to achieve the 2030 renewable energy goal.
As renewable energy penetration grows, there is a need to invest in battery storage, where investment levels are still below the required level. Investment in batteries for storage reached $40 billion in 2023 but will need to rise by 25% over the next six years, according to the report.
Alongside renewable energy, the share of nuclear power is also set to grow. Investments in nuclear power are expected to be around 20% higher in 2024, both in terms of lifetime extensions of existing power plants as well as new builds in Europe, the United States, China, and South Korea, among others.
Securing finance for the trillions of dollars that are needed to attain 2030 climate commitments on the pathway to net zero by 2050 is the biggest challenge, while the cost of capital remains high as the era of cheap borrowing comes to an end. As the IEA report concluded, there is still a steep hill to climb.
