As we near the end of 2025, we look now to the year ahead. Energy is one topic that is front of mind for many, as the currently evolving landscape presents both challenges and opportunities. While traditional petrostates face mounting fiscal pressures, Europe stands poised to benefit significantly – from lower energy costs to enhanced industrial competitiveness. At the same time, the clean energy transition continues its steady advance, increasingly powered not by political mandates but by compelling economics.
Why is energy entering a new era?
The great trends on oil and natural gas markets have remained unchanged for a while but tend to get lost in the everyday noise. Energy prices continue to consolidate amidst a market that is moving into supply abundance. Geopolitics and Western sanctions did not cause meaningful supply shortages as the trade of such barrels and cubic metres flourished in the so-called pariah market. This re-routing comes with costs for sellers rather than buyers. The petro-nations began undoing their supply cuts this year to regain market shares. In addition, there are large projects ramping up operations, which include the various liquefied natural gas terminals along the US Gulf Coast and elsewhere, or the different floating platforms offshore from Brazil and Guyana.
Meanwhile, demand remains comparably soft. Road fuel use, which is the core of oil demand, is eroding in the western world and China as electrification progresses. Gas substitutes oil use for power generation and is itself under pressure by the growth in solar, wind, and grid battery storage capacities, a technology combo that is highly competitive. In this broader setting, oil and natural gas prices should remain under pressure for longer. For oil, China is absorbing some of the surplus into its massive and still-expanding inventories. However, it likely needs a decline in US shale output to prevent an even greater surplus, forced by prices dropping below USD 60 per barrel. For natural gas, the dynamics could become fiercer. A supply expansion equal to Europe’s entire demand seeks buyers over the next three years. In order to absorb such volumes, it needs substantial coal-to-gas shifting within power generation in Europe and Asia, incentivised by prices declining towards EUR 25 per megawatt hour.
Europe – and, to a lesser extent, Asia, due to partially politically protected and, thus, rigid coal markets – stand to benefit most. The talk about Europe’s energy cost disadvantage is already overblown today and should get a reality check in 2026. On the opposite side, the petro-nations’ cash flow erosion creates economic challenges, which could culminate in a storm in Russia. Geopolitical fallouts are possible. Another element of uncertainty is the US shale business, and more specifically the oil-associated gas production. The US already experiences notable energy reflation for various reasons, and this situation could escalate should any shale oil slowdown tighten domestic gas supplies.
Why clean energy remains attractive for investors
Given the US government’s energy policies or, more generally, the green agenda de-prioritising, one could think that the clean energy business is struggling. However, this is not the full story. The green politics of the early 2020s were overly bloated and misaligned with economic dynamics. The energy transition’s key technologies, including solar, wind, grid batteries, and plug-in vehicles, have become cost-effective solutions that save money and reduce emissions as an added bonus. The transition is driven by markets, not politics.
Clean energy spending dominates power plant additions and currently accounts for around 85% of new capacity. Today’s electrification boom is a combination of the spending spree in clean energy and data centres. The business experienced economic challenges over the past years, rooted in its very own characteristics, including low entry barriers, scalability, and fast-paced innovation. Even though we are approaching the limit of how many solar and power plants markets can absorb, various trends support the underlying profitability. Ample solar module supply kept installation costs in check while triggering a boom in emerging markets. China’s ‘anti-involution’ campaign partly brings clean energy equipment makers’ consolidation process closer to an end. The diffusion of battery storage smoothens the power price swings, especially the depression around sunny middays, and supports cash flows. This innovation is fast paced, as a closer look at the front-runner markets in California, Texas, or Australia shows.
In fact, with gas and power reflating in the United States for various reasons, clean energy remains competitive and in high demand, despite policy headwinds. The market mood has brightened and should see further optimism momentum. We reiterate our Constructive view.
What this means for investors
Energy markets are entering a new phase defined by lasting supply abundance, ensuring continued downward pressure on oil and natural gas prices. This environment particularly benefits Europe, which stands to gain from lower energy costs, challenging narratives around its long-term industrial competitiveness.
While climate politics has taken a back seat in key regions, including the US, the clean energy transition continues to progress – driven not by policy but by strong fundamental economics. Solar, wind, and grid battery storage form a technologically synergistic and cost-efficient combination, securing dominance in new power capacity additions globally.
Given that clean energy now accounts for around 85% of new power plant capacity and maintains strong demand despite policy headwinds, the thematic investment case remains intact. We maintain our Constructive view on clean energy, while noting increased challenges for sectors sensitive to persistently lower oil and gas prices.