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Energy sector risk report

Oil & gas flowing, renewables stalling

MEDIUM RISK FOR ENTERPRISES

Last Update: July 2025

Strengths & Weaknesses

Strenghts
  • High investments in energy transition are a tailwind for renewables.
  • Traditional oil and gas companies continue to benefit from robust cash flows and entrenched market dominance.
  • Solar and wind continue to achieve cost reductions through scale and innovation.
  • Natural gas is viewed as a “transition fuel” and leading producers are positioning to supply gas to increasing larger markets.
Weaknesses
  • The oil & gas sector faces high volatility and long-term uncertainty.
  • Regulatory and ESG pressure mounting on oil & gas.
  • Profitability remains a key issue in the renewables space.
  • Intermittency combined with low storage capacity and grid issues is hurting renewables.
  • High financing requirements for both renewables and oil & gas.
  • Oil & gas highly exposed to geopolitical risk.

Sector Overview

What to watch ?

  • Peak fossil fuel demand: The impending peak in demand for oil & gas, projected to happen in the next decade, is prompting oil & gas companies to reassess long-term strategies, balancing near-term expansion with diversification into low-carbon businesses.
  • Geopolitical tensions in the Middle East: Increasing military tensions between Israel and Iran are posing a risk to global oil & gas supply as well as price stability.
  • Deployment of renewables: As both the wind and solar industry are going through various challenges, the rate/speed of deployment of renewables is going to be a key support factor of the renewable sector.
  • Technological and cost evolution in renewables: After a period of supply-chain-driven cost inflation, the levelized cost of renewable energy is decreasing but this comes with near-term margin pressures.
  • Grid integration and energy infrastructure: Many regions are seeing bottlenecks in connecting and developing new projects.
  • AI & data energy demand: AI and data centers have been fueling electricity demand as capacity and usage are growing steadily.
An industrial food processing

The global energy sector in 2025 is at an inflection point, characterized by both record fossil fuel use and record clean energy growth. Total world energy demand continues to rise, driven largely by emerging economies, and all major energy sources - from coal and oil to renewables - hit high consumption levels in 2024. The world remains in “energy addition” mode rather than a pure transition; new renewables are meeting incremental demand but have not yet substantially displaced fossil fuels.

North America has re-emerged as a major oil & gas supplier: the US is the world’s top oil & gas producer and LNG exporter. Since 2023, it has also become a top destination for solar manufacturing, EV gigafactories and wind farm development due to policy incentives. Nevertheless, the Trump administration's recent policies could bring the renewables push to a halt. Europe, driven by climate goals and the urgency to replace Russian gas, is pushing forward on renewables. Asia, led by China and India, is the biggest growth engine for energy demand. China in particular represents almost half of global energy demand growth and is investing heavily in both fossil and renewable capacity. It installs renewables at world-leading rates (China is on pace to add well over 100 GW of solar PV in 2025 alone) but it also consumes half the world’s coal and is expanding gas use. India and Southeast Asia are similarly expanding solar and wind, but coal and oil use are still rising to fuel their growing economies. In the Middle East, oil-rich states are capitalizing on high oil revenues.

In financial terms, the dichotomy between the oil & gas industry and the renewables sector remains pronounced. Oil and gas companies have enjoyed a windfall in recent years: 2022 saw extraordinary profits on the back of very high oil & gas prices, and although prices moderated in 2023–2024 (Brent crude oscillating in the 70–90 USD/bbl range), companies maintained healthy earnings and shareholder payouts. By contrast, many renewables firms have faced tighter margins and investor scrutiny.

Subsectors

Fossil fuels: This includes oil, gas, and coal operations. Firms can be involved in upstream or downstream processes.
Renewables: Firms in the production/installation of renewable energy/projects.
Power: Firms in electricity generation, whether through fossil fuels, nuclear, solar, wind, hydro or other forms of renewable energy.
Grids and storage: This includes firms managing and building infrastructure needed to distribute and store energy.

Contacts

Ano Kuhanathan
Head of Corporate Research
Send an email

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