Nothing like a war to change the future of energy investing

After years of dwindling investment in fossil fuels, Goldman Sachs believes Russia’s war on Ukraine is forcing global producers to hit the reset button with capital expenditures in the energy industry set to climb.

According to the Carbonomics team in Goldman Sachs Research, the recent focus on energy security, resilience and diversification will “drive a new era for energy investments”.

Having dropped 35% during the past decade, the broker expects investment in the production of hydrocarbon, nuclear and renewable power to rise 60% to $1.4tn in the next three years.

Drive to decarbonisation

Despite increased funding for U.S shale and offshore oil projects, Goldman’s expects the drive for decarbonisation to endure, taking investment in liquefied natural gas, renewables, bio-energy and hydrogen to new highs.

To meet the world’s rising energy needs, capital expenditures are expected to rise to about $2tn annually by 2024.

Renewables and bioenergy

But despite the refocus on clean energy — with renewable investment exceeding upstream oil and gas spending for the first time in 2020 — Goldman’s notes capital expenditures in that sector hasn’t made up for the drop in spending in the traditional energy industry.

While Goldman’s expects renewables and bio-energy’s share of total energy supply investing to rise in coming years, the broker highlights the need for investment in other parts of the ecosystem such as natural gas.

While natural gas is needed as a transition fuel and for resilience, and in power networks throughout the decade, the broker reminds investors that investment in clean hydrogen will be needed for the longer-term.

Clean tech infrastructure

Based on Goldman’s estimates, $56tn of investment in clean tech infrastructure is needed by 2050 ($2tn annually) to reach net-zero carbon emissions by that year.

“To have a future built on sustainable energy, a major acceleration is needed in clean-energy investment,” the broker notes.

“These low-carbon technologies require two-times or more of the capital expenditures per unit of energy of the hydrocarbons they are meant to replace.”