2023 Energy Trends Report

IGS

As in the last few years, 2023 will be a year marked by energy market volatility and significant industry change. In this report, we highlight seven trends we believe will impact the energy industry in 2023 and beyond.

At

Energy, we keep an eye on the market for trends we believe will have an impact on businesses and consumers.

Global Energy Demand Continues to Rise, Despite Economic Challenges

As the global population has surged, so has our demand for energy. In fact, in many places around the world, energy consumption is rising even faster than the population.¹

Even though it’s estimated that our energy consumption won’t increase as rapidly in 2023 as it did in 2021 and 2022 — amid a slowing economy and high energy prices — demand is expected to increase rapidly in the coming years.

By 2050, global energy consumption will increase by nearly 50 percent. This increased demand is driven mostly by economic growth in developing non-OECD countries, many of which are now navigating the energyand emissions-intensive period of urbanization and industrialization that the U.S. experienced more than 100 years ago. Today, these developing nations account for more than 100 percent of the growth in global energy demand.²

It’s important to note that, even as renewable energy becomes more cost-competitive and the demand for it increases, fossil fuels will continue to play an important role in meeting our growing energy needs. (Even in the U.S., a significant majority of our energy — about 80 percent — is currently derived from fossil fuel sources.)

BY 2050, GLOBAL ENERGY CONSUMPTION WILL INCREASE BY NEARLY 50%

Overall, energy demand will continue to climb, even as prices do, challenging producers to keep up and leading to greater market volatility.

Another Year of Market Volatility

It will again be a volatile year for the energy sector — which may mean rising prices for consumers. While Russia’s invasion of Ukraine has affected volatility across the globe, leading to an energy crisis in Europe, our domestic turbulence stems from several years of rapid growth that resulted in significant price inelasticity.

In fact, the U.S. energy sector is still bouncing back from production and storage challenges that started even before the COVID-19 pandemic. Additionally, while the industry has grown tremendously, our natural gas storage capacity hasn’t kept up.

The resulting lack of flexibility in the domestic energy sector means we can expect to see a continuation of the market volatility — and price instability — that we’ve seen in both gas and power prices since mid-2021. While the World Bank predicts that global natural gas and coal prices are expected to drop in 2023 — after hitting record highs in 2022 — energy prices this year will still be 75 percent above the average over the past 5 years.¹

Meanwhile, in Europe, natural gas prices could be nearly four times higher.

Ultimately, volatility — and prices — will be impacted by unpredictable weather, and we likely won’t know the true impact on the market until the spring. Wholesale electricity prices at major power trading hubs are predicted to be about 20 to 60 percent higher on average this winter, with the highest wholesale electricity prices likely to be in New England, because of possible natural gas pipeline constraints, reduced fuel inventories for power generation, and uncertainty around liquefied natural gas (LNG) shipments given global supply conditions.

IN 2023, ENERGY PRICES WILL STILL BE ABOVE THEIR AVERAGE OVER THE PAST 5 YEARS

75%

To manage volatility, consumers may want to think long-term when making energy decisions.

The U.S. Solidifies Its Role as a Major Energy Exporter

The U.S. is currently one of the largest producers of natural gas in the world. In the last 10 years, the U.S. natural gas market has increased nearly 50 percent, from producing about 24 to 35 trillion cubic feet of natural gas annually.

We’ve been an annual net total energy exporter since 2019, and just 2 years ago, total energy exports exceeded total energy imports by about 3.82 quadrillion Btu — the largest margin on record. A major driver of our export growth is liquefied natural gas (LNG). Since producers began exporting LNG in 2016, it’s served as a massive driver of the U.S.’ role in the global energy market. And, as of mid-2022, the U.S. has more LNG export capacity than any other country — and has exported more LNG than any other country as well.¹

As Europe’s demand for gas rises in light of the conflict in Ukraine, American producers will continue to export as much LNG as they can, which will impact volatility and prices for consumers in the U.S.²

This year, as the Freeport LNG facility fully returns to service, the EIA forecasts the U.S. will remain the world’s largest LNG exporter. In 2024, U.S. LNG exports will increase further as LNG export projects under construction begin operations.³

50% IN 10 YEARS

In the coming years, American producers will hit LNG export records, impacting prices here at home.

U.S. PRODUCTION OF NATURAL GAS HAS INCREASED NEARLY

The Impact of Commodity Prices on Renewable Energy

In many markets across the U.S., renewable energy sources (like wind and solar) continue to be a cost-competitive choice for consumers — if not the cheapest option — even as the costs associated with producing them have risen.

Of note, community solar — which doesn’t require consumers to make changes to their property — has become increasingly attractive in light of rising commodity prices. It’s similar to rooftop solar in that the amount of solar energy used offsets the amount paid to the utility.

Rising commodity prices have increased the cost of producing solar photovoltaic technology (PV) modules, wind turbines, and biofuels worldwide. This situation has short-term implications for equipment manufacturers, project developers, and policy makers. But the high coal and fossil gas prices that we’ve experienced in the last 2 years could make solar and wind even more attractive to consumers — regardless of their sustainability goals.¹ Also, of note: the growing interest in green hydrogen, which has the potential to positively impact energy-intensive industries like steel manufacturing and ammonia generation. Produced by the electrolysis of water, and with significantly lower carbon emissions than grey hydrogen — produced by steam reforming of natural gas — green hydrogen may be used to decarbonize sectors that will be difficult to electrify. The Inflation Reduction Act’s tax credit for clean hydrogen could make it price-competitive as well, though infrastructure needs mean it’s not quite a viable option in the U.S.

While fossil fuels — specifically, natural gas — are still essential for meeting domestic and global energy demand, cleaner energy sources are becoming a large and economically viable part of the generation and consumption mix

WIND AND SOLAR ACCOUNTED FOR OF CAPACITY ADDED IN 2022

70%

While calls for a shift to renewable energy grow — from consumers, as well as a business’ stakeholders and shareholders — businesses shouldn’t dismiss their costcompetitiveness.

A Push for Electrification Affects Market Volatility

Broad electrification is at the center of global decarbonization efforts, but electrification is likely to have consequences for the cost of power.

The U.S. electric grid wasn’t built to support a mass transition to electric vehicles (EVs) and all-electric homes. As policymakers push for further electrification, we’re likely to experience both a massive increase in electric demand and greater volatility in the power market.

Currently, the most significant shift is happening with vehicles. In 2021, EV sales in the U.S. increased to 4.6 percent — and some analysts forecast that EV sales in the U.S. could reach 40 percent of total passenger car sales by 2030.¹ Dozens of the world’s largest manufacturers have committed to increasing their EV offerings, and more than 10 of the world’s largest manufacturers have declared electrification targets. (Notably, GM plans to offer only light-duty electric vehicles by 2035.)

While an exciting decarbonization trend, recent research has acknowledged that, without enhancements to the grid, the growth of electrification may be costly, slower than initially expected, and affect reliability. And, critically, as more energy generation shifts to electric, consumers will need to better understand their electric usage — notably, peak load — and how focusing on energy efficiency can help mitigate rising power costs.

While policymakers are likely conscious of the economic and infrastructure consequences of broad electrification, 2023 may prove to be an integral year in terms of laying out a realistic, cost-effective plan.

Electrification will result in significantly higher demand for power, which could lead to further market volatility.

EV SALES WENT UP BY 65% IN 2022

A Push for Pragmatic Sustainability Solutions

Organizations across the U.S. continue to set emissionsreduction targets in line with Environmental, Social, and Governance (ESG) goals and influenced by ecoconscious investors. But, despite growing demand (and excitement) for a push toward cleaner energy generation andconsumption, clean energy sources meet just 12 percent of our global energy demand.

To fill the gap in clean energy supply, renewable energy infrastructure needs to grow at a pace much faster than it currently is. In turn, the conversation around our sustainable energy future is expanding to include the lowest-carbon solution that’s affordable, available, and reliable — notably, natural gas, which results in half the carbon emissions of coal. And, as coal production drops, natural gas will serve as an essential part of energy consumers’ net-zero strategies.

Instead of an “either/or” scenario, we can meet some carbon emissions targets simply by moving away from coal consumption. Of course, a growing global dependency on natural gas will require storage growth here in the U.S., as well as support for infrastructure enhancements.

GREEN ENERGY SOURCES CURRENTLY MEET JUST

12% OF ENERGY DEMAND

Natural gas can make a significant impact on emissionsreduction goals.

FROM 2020 TO 2030, BATTERY STORAGE CAPACITY WILL EXPAND FROM

1.5

TREND 07

Tackling the Challenge of Energy Storage

Greater reliance on renewable energy has increased our need for storage solutions that can keep the grid stable.

This means balancing supply and consumption — even when it’s not sunny or breezy enough for solar and wind power to meet demand. And while the cost of lithium-ion batteries has fallen dramatically — about 80 percent over the last 5 years — innovative solutions are increasingly being developed, tested, and put into operation.

While storage capacity was markedly low as recently as 2020, growth in battery storage capacity is outpacing even the early growth of the U.S.’ utility-scale solar capacity. Domestic developers and power plant owners plan to increase utility-scale storage capacity over the next 3 years, reaching 30 gigawatts (GW) by 2025, up from 1.5 GW in 2020. For comparison, U.S. solar capacity grew from 1 GW in 2010 to 13.7 GW in 2015.¹

As more battery capacity becomes available to the U.S. grid, battery storage projects are becoming increasingly larger in capacity. Before 2020, the largest U.S. battery storage project was 40 megawatts (MW). Today, the 409 MW Manatee Energy Storage project in Florida is the largest-operating battery project in the country, and developers have more than 23 large-scale projects scheduled for completion by 2025.¹

As battery storage increases, renewable energy sources will become more accessible, reliable, and even more cost competitive.

GW to 30 GW

SOURCES

TREND 01

Global Energy Demand Continues to Rise, Despite Economic Challenges

1: “Global electricity consumption continues to rise faster than population,” U.S. Energy Information Administration (EIA)

2: “Energy demand: Three drivers,” ExxonMobil

TREND 02

Another Year of Market Volatility

1: “Currency depreciations risk intensifying food, energy crisis in developing economies,” The World Bank

TREND 03

The U.S. Solidifies Its Role as a Major Energy Exporter

1: “U.S. LNG export capacity to grow as three additional projects begin construction,” U.S. Energy Information Administration (EIA)

2: “Made in America: The economic impact of LNG exports from the United States,” Deloitte

3: “Liquefied natural gas will continue to lead growth in U.S. natural gas exports,” U.S. Energy Information Administration (EIA)

TREND 04

The Impact of Commodity Prices on Renewable Energy

1: “2023 renewable energy industry outlook: Growth unleashed amid headwinds,” Deloitte

TREND 05

A Push for Electrification Affects Market Volatility

1: “Charging into the future: the transition to electric vehicles,” U.S. Bureau of Labor Statistics

TREND 07

Tackling the Challenge of Energy Storage

1: “U.S. battery storage capacity will increase significantly by 2025,” U.S. Energy Information Administration (EIA)

Actionable Intelligence by IGS Energy

We believe in smarter energy for everyone — so our experts look ahead into trends, data, projections, and insights to help us all navigate what’s next. See the latest at igs.com.