The global economy will continue to face turmoil in 2023 in part due to recent underinvestment in energy. The good news is that the issue is now widely acknowledged and both state and private funds are starting to pour into all forms of energy. We expect this year to mark a genuine boom in energy investments in terms of capital allocated to new projects and R&D, government programs, green finance issuances and M&A.
Looking back on Japan NRG’s 2022 predictions from a year ago, we successfully recognized the trend toward more nuclear and fossil fuels in the global energy mix. However, like most everyone else, we didn’t expect such a drastic shift. The speed of change was dictated by a black swan event — the outbreak of full-scale war in eastern Europe. Since then, global energy systems have undergone a real-life stress test as sanctions and geopolitics upended decades-old trade flows.
The 2022 trend that households felt most prominently, however, was a return of high energy prices. That theme will continue this year despite government attempts to use subsidies to shield consumers. Should the IMF’s grim economic outlook for the first half of 2023 hold true, a slowdown in Europe, China and the U.S. will help cool energy prices in the latter part of the year.
Energy pragmatism and security concerns will remain the dominant government and corporate guidance. While the pace of investments in clean energy projects will also rise, their immediate impact will be less pronounced. Most obviously this will put further pressure on state and business leaders to explain how they can reach 2030 emission reduction goals. The answer will increasingly be via some form of carbon credits and/or taxation. The latter assumes a stronger economy, so the former will likely gain more traction in the near term.
Let’s take a look at the major energy sectors and their prospects for 2023.