28/05/26
Energy security fears drive diversification spend: IEA
London, 28 May (Argus) — The war in the Middle East, the subsequent de facto
closure of the strait of Hormuz, and resulting concerns over energy security are
prompting countries and companies to invest in energy diversification and
electricity, energy watchdog the IEA said today. The IEA projects that global
energy investment will reach $3.4 trillion in 2026, a slight lift on the year .
Of this, around $2.2 trillion is set to go to power grids, storage,
"low-emissions fuels", nuclear, renewables, energy efficiency and
electrification, while around $1.2 trillion is expected to be invested in fossil
fuels. "We are in the midst of the largest energy security crisis the world has
ever faced", IEA executive director Fatih Birol said. The war is "expected to
reinforce a strong prioritisation of energy security amongst decision-makers",
as well as a "renewed focus on resilience and diversification", the IEA said.
"Electricity-related investment remains the dominant theme in global energy
spending trends", the IEA said. Investment in electricity supply and
infrastructure is set to reach nearly $1.6 trillion in 2026, and increase to $2
trillion if end-use electrification is included, the report found. "Electricity
is going to make even stronger inroads in the total energy mix as a response to
this crisis", Birol said. The watchdog expects renewables spending to reach
around $665bn in 2026, with $365bn going just to solar power, $200bn to wind and
$75bn to hydropower. The annual growth in renewables spending "has moderated",
in part because of declining technology costs, but also policy changes in China
and the US. But "low-emissions sources" still make up more than 70pc of global
power investment, the IEA said. Investment in fossil fuel supply in 2026 is set
to hit just over $1 trillion, returning it "to the 2024 level", the IEA said.
Oil investment is expected to drop for a third consecutive year in 2026 to below
$500bn. "Uncertainty over the duration of the price spike, long project lead
times, supply chain constraints and tighter offshore rig markets are limiting
near-term spending responses outside the Middle East" for oil, the IEA said. But
investment in natural gas is projected to grow to $330bn, the highest in a
decade, driven by new LNG export projects and demand from data centres, the
report found. Coal investment is also set to rise, to the highest level since
2012, at $180bn, the IEA said. The bulk of spending, at around 70pc, is in
China. Some countries in Asia "may seek to keep existing coal-fired power plants
operating for longer to bolster energy security", the IEA said. But it is "too
early to say" what the net emission effect of this may be, Birol said today.
Investments in renewables, nuclear, energy efficiency and electrification in the
past decade "have tangibly improved energy security in major fuel-importing
regions and reduced emissions", saving China, the EU, Japan, South Korea,
southeast Asia and India around $260bn from avoided fossil fuel imports in 2025,
the IEA said. The conflict "has already sparked a search for new energy export
routes to reduce excessive reliance on the strait [of Hormuz]", the IEA said.
And repair bills for damage to energy infrastructure are "difficult to
establish" but are "set to run into tens of billions of dollars", the
organisation added. Oil companies are "recalibrating their expectations for
upcoming years, on the assumption that oil prices will settle back above the
pre-conflict baseline as countries replenish their inventories", the IEA said.
"Trust will be an important element in the energy world", in coming months and
years, as governments seek reliable energy partners, Birol said. By Georgia
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