The Multi-Trillion-Dollar Energy Race

0:00Patrick Coffey:Welcome back to the Barclays Brief podcast. It's Patrick here. So today I'm very excited to be joined by Harry Mateer, who is one of the key authors of a piece of research that we've just put out entitled The Global Energy Race. And this is one of the biggest themes that shape in the global economy. Harry's going to be talking more about that at our Global Energy Power Conference this week. But for now, we've got him in the studio for just 10 minutes, and we're going to touch on some of the key themes. Harry, thanks so much for joining me today. Hi, Patrick. Thanks for having me. Really excited for this.

0:35Patrick Coffey:So, Harry, in this big research report you've just published, you're arguing that the global energy race could be one of the most important macro themes of the next decade and second only to AI. Why do you think that is? The world isn't just replacing one energy system with another. It's actually building multiple energy systems simultaneously. And so as a result, there's a huge capital need that's associated with that. And we think markets are underestimating it. Let's just look at what's been happening the past few years in terms of energy demand. I think demand is really what matters here. What I think is one of the most surprising things from the report is you look across the board, every major energy source hit record demand last year.

1:15Some of it won't surprise our listeners. Solar, wind, you know, the Barclays view has been for a number of years that renewable energy demand will grow. But as you go down the list, record oil demand, record gas demand, even coal, which I think much of the world left for dead a number of years ago, that was still at a record. And then nuclear is enjoying something of a renaissance as well. So if you go back 10 years, most forecasts assumed a fairly neat transition where renewables would simply replace fossil fuels. The reality has been much messier. And as energy demand keeps growing, renewables are being added instead of simply replacing traditional fuels.

1:50And that's why we think energy is already and is becoming more so one of the biggest capital allocation stories globally. Ultimately, the biggest surprise here isn't that renewables are growing, it's that everything is growing.

2:03Patrick Coffey:Okay. So we're entering this period where it's all about energy addition and not substitution. But the key question, right, is what's driving that massive demand shift in global energy? We think it's three things, energy security, electrification, and then AI. And I'll just touch briefly on each of those. So I think energy security, of course, Russia, Ukraine, that conflict has been going on for a number of years, but that does have global implications for energy. The conflict in Iran, which kicked off earlier this year, has had massive disruptions to global oil flows, LNG, and refined products.

2:38There have been supply chain disruptions associated with a number of these. And increasingly, governments want secure energy, not just cheap energy. On the electrification front, electric vehicles, we think demand for those and adoption of those is going to increase over time. Things like heat pumps, industrial electrification, demand for cooling in a warming world, that's going up as well. Everything is becoming more electricity intensive. And then finally, on the AI front, this is the newest and perhaps the least well understood. But this is a major driver as well when we look out over the next couple of decades.

3:14So investors have been focused on chips already. Barkus has put out a lot of research over the years looking at the effect of AI on the demand for chips and what that ecosystem looks like. In this report, we are just trying to shine even more of a light on the power aspect of it. And we think that could become increasingly even more of a bottleneck in AI.

3:34Patrick Coffey:Okay, so we've got AI, electrification, energy security, all coming together and driving energy demand faster than supply and infrastructure can respond. So this is part of the global energy race, and it's a race for capital as well, isn't it? So can you help our listeners by putting some numbers around this? How big is the growth? How much capital is required to fund it? So let's start with the demand growth. I talked about that earlier. We're looking for 1.9 % annual demand growth through 2050, which might not sound like a big number, but when you compound that over the next 25 years, it's quite sizable.

4:08Just for context, data centers alone, we think could wind up requiring comparable energy to what Russia's current energy consumption is by 2040. EVs, I mentioned those earlier, we think roughly 60 % of the global vehicle fleet could be electric by 2050. And then the capital needs required for this is substantial. And then And in terms of capital needs, we think annual energy investments going to be roughly$3.6 trillion. And again, for context, that's approximately three times the scale of currently planned AI infrastructure spending.

4:40Patrick Coffey:I think this is one of the most interesting points here, isn't it? The AI CAPEX spend is getting all of the headlines. We've talked about it on the Barclays Brief many times. It comes up in many, many headlines talking about one of the key themes in the market. And yet in this sector, which gets, I think, far less coverage, it's more than three times the capital spending every single year with demand growth compounding through to 2050. So you talked a few times about energy security. How has that shift from efficiency to resilience changed the way that governments are thinking about energy then?

5:19So if you look at the old system that's been in place for decades, needs, governments tried to optimize for lowest cost. What's changing is now they're optimizing for reliability, and that means redundancy, right? So one of my old talking points when I would meet with investors was often, what's the value of the marginal barrel of oil, the marginal thousand cubic feet of natural gas, the marginal amount of refining infrastructure? And generally my answer was quite low, right? You need enough to meet demand, but anything beyond that has fairly low value. Now there's option value just associated with a world where we do face more potential for geopolitical disruptions.

5:56So that option value needs to be reflected in those marginal parts of the energy value chain. So that means, yes, more redundancy, but just more LNG terminals, more storage, more pipelines, more domestic production. So in a world, again, where you can't necessarily rely on international trade flows, you need your own sources of energy. So when we think about it, the premium product within energy is actually becoming reliability.

6:23Patrick Coffey:And if that's the case, if that premium product is reliability, it's going to have quite a profound impact on the sort of global trade flows and how, you know, we might think about a sort of global energy map. What characteristics do you think are going to define the countries that are best positioned for this new era? So when we walk around the world, we look at things through, I think, four lenses. So just energy resources, their infrastructure, technology, and then capital, of course. So in the US, massive resource base, very deep capital markets, clear leadership in AI and scaled infrastructure.

6:58So I think the US is set up very well. China, dominance in renewables, manufacturing. You see that potential, particularly on the solar front. Leadership in critical minerals, especially on refining. And just generally, China has fantastic scale across a number of different products. The other thing I would say about China is, and we've seen this in 2026, they do have the ability to moderate their demand as needed. And so with oil, for example, as oil prices have gone up this year in the aftermath of the Middle East conflict, China has actually been able to rely less on international sources of oil and contain the impact to their economy.

7:36Europe, very much rich in capital, less well positioned in terms of domestic energy resources. And we do think they have a major infrastructure challenge. So there is significant investment needed there. Gulf states, clearly leaders in hydrocarbons. They are investing on their own in AI and data centers. From an energy security standpoint, clearly volatility in the region, which does pose some risk. And then lastly, we would just highlight Latin America, Africa, and Australia, which may not be on many investors' radar as an opportunity in energy, but Australia has tremendous domestic resources, well-developed capital markets, and we think could play a leading role in future decades as energy demand continues to grow.

8:17Okay.

8:18Patrick Coffey:So if we start trying to pull this all together, we've got big differences in the countries here. How do you think it's going to impact the broader economy? And what I mean by that really is I'm thinking about inflation. Do you think energy could become a larger driver of inflation than the market currently expects? Potentially. And we do think the market's underestimating that risk. AI gets most of the inflation discussion. And you're right. A lot of times it's talked about in the context of being disinflationary. But think about what AI needs. It needs power plants, grids, transmission, transformers, data centers, and then of course, commodities themselves to power all this.

8:55all that needs capital and energy. So then, you know, if we walk through sort of three-pronged framework, demand is growing faster than supply. So that in and of itself should imply higher baseline inflation. We see potential for more volatility. So you have a tighter energy system, and that means you can absorb shocks less easily. And then lastly, just asymmetry in terms of inflationary impulse. Geopolitical disruptions mean more upside shocks rather than downside shocks. And so when you put all those three things together, we do think markets are underestimating the amount of energy required to unlock the productivity benefits of AI, and that could mean higher inflation risk.

9:33Okay.

9:34Patrick Coffey:So we've got a world where energy demand is growing at nearly 2 % compound annual growth rate through to 2050. We've got massive capital requirements. We've got government policies shifting and changing because of all of these dynamics. We've got inflation risk. What does that mean then for investors? How are they positioned for this new energy addition era that we're talking about here? I think the biggest takeaway is that we need to reframe how we talk about energy. And we don't think it's a value sector. It's actually a growth sector. so when you think about how investors should be set up for this certainly look at energy producers right the demand for their product is going up energy infrastructure of course lng investment in grid whether it's through independent producers as well as utilities energy services going to play a major role in unlocking all this resource not just fossil fuels by the way but energy services companies are very active across the energy value chain and then storage in a world where you need more redundancy and more ability to deal with shocks, I think storage is going to be a very important part of it as well.

10:38Patrick Coffey:What I think matters less is picking specific commodity winners. So when you think about record demand across every form of primary energy, what matters less is picking oil or gas or a type of renewable technology. I think you need to focus on strategic assets, companies with strong balance sheets, access to capital, and then ultimately the ability to execute on long duration projects. Well, indeed. And a lot of those companies will be at the Barclays Energy Power Conference that's kicking off today. Harry, I know you've got a busy day ahead. Thanks so much for being here. It's a really interesting topic and a great piece of research you've just published as well.

11:15I appreciate it, Patrick. Really enjoyed doing this.

11:18Patrick Coffey:So as I reflect on this conversation with Harry today, it's clear to me that markets continue to underestimate both the scale of future energy demand and the amount of capital required to meet it. And the result of that is we're looking at a more capital intensive, strategically important and potentially more inflationary energy system than many expect. The good news for our listeners is that if you enjoyed this conversation, you can read a lot more about it by clicking into the show notes and reading the research, and that's called the Global Energy Race. do hit subscribe and we'll be back at the same time next week.