As we approach 2025, many of our mineral asset clients are curious about their royalties they could potentially see next year. This is a complex question to answer since myriad factors influence oil and gas prices. At SS&C, we spend considerable time with our clients reviewing global factors at play and ensuring they understand future demand not only for hydrocarbon products, but for the prices tied to these commodities as well.
The global energy landscape continues to evolve, driven by economic, geopolitical, and environmental factors. The demand for oil and gas remains a critical component of this landscape, with significant implications for global markets and energy policies.
Global Oil Demand
According to the U.S. Energy Information Administration (EIA), global consumption of liquid fuels is projected to increase by 1.5 million barrels per day (b/d) in 2025.[1] This growth is primarily driven by economic recovery and increased industrial activity, particularly in non-OECD countries. However, the demand growth rate has been revised downward due to slower-than-expected economic activity in China and OECD Europe.
BP’s latest outlook suggests that global oil demand will peak at around 102 million b/d in 2025.[2] This potential peak marks a significant milestone, indicating a shift towards more sustainable energy sources and the impact of global net-zero targets. Despite this peak, oil will continue to play a vital role in the global energy mix, especially in sectors where alternatives are not yet viable.
Factors Influencing Oil Demand
Factors influencing the projected demand for oil in 2025:
- Economic Growth: Economic recovery post-pandemic is a major driver of increased oil consumption. Industrial activities and transportation are expected to rebound further, contributing to higher demand for crude oil.
- Geopolitical Instability: Geopolitical events, such as conflicts in oil-producing regions, can significantly impact supply and prices, thereby affecting demand.
- Technological Advancements: Innovations in energy efficiency and alternative energy sources are gradually reducing dependence on oil and natural gas.
- Environmental Policies: Stricter environmental regulations and the push for decarbonization are leading to a gradual decline in oil demand in favor of cleaner energy sources.
Global Gas Demand
Natural gas demand is also expected to rise, driven by its role as a transition fuel towards a lower-carbon future. The EIA forecasts an increase in global natural gas consumption, supported by its growing use in electricity generation and industrial applications. The flexibility and lower carbon footprint of natural gas make it a preferred choice for many countries aiming to reduce greenhouse gas emissions.
Regional Insights
- Asia: Asia, particularly China and India, should continue to be significant drivers of global oil and gas demand. Rapid industrialization and urbanization in these countries contribute to higher energy consumption.
- Europe: In contrast, Europe is expected to see a slower growth rate in oil demand due to stringent environmental policies and a strong push towards renewable energy sources.
- North America: The U.S. and Canada should maintain steady demand, with natural gas playing a crucial role in their energy strategies.
The outlook for oil and gas demand in 2025 reflects a complex interplay of economic, technological, and environmental factors. While global oil demand is expected to peak, natural gas will continue to grow as a key energy source. The transition towards sustainable energy is evident, but oil and gas will remain integral to the global energy mix in the near term. Understanding these dynamics is crucial for mineral owners within the energy sector as they navigate the challenges and opportunities ahead.
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[1] U.S. Energy Information Administration: Short-Term Energy Outlook – November 2024
[2] BP: BP Energy Outlook 2024
