- Over the past decade, oil and gas stocks have badly lagged the broader market, with recent outperformance largely tied to one-off supply shocks.
- Most major energy outlooks expect oil demand to peak or flatten in the late-2020s to 2030s, with gas holding up longer but offering limited growth.
- Renewables are scaling far faster than fossil fuels, now providing the vast majority of new global power capacity additions despite grid and policy bottlenecks.
- The investment implication is to reduce long-term exposure to fossil fuel producers and tilt toward scalable clean-energy and transition enablers within a diversified portfolio.
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The primary article argues that while fossil fuel companies, especially oil and gas producers, enjoyed large near-term profits, their long-term financial returns have been weak. It holds that investment in energy over the past 10 years has delivered only ~0.61% annually vs about ~10.95% for the S&P 500. 3-year returns appear strong, driven by crises (e.g., energy shocks from Russia-Ukraine), but the 1-year returns lag substantially. This suggests the recent rally may be cyclical, not structural.
Corroborating this, most major scenario analyses (McKinsey’s Global Energy Perspective, BP’s Outlook, ExxonMobil’s Global Outlook, BloombergNEF’s New Energy Outlook, and the IEA’s World Energy Outlook) agree: fossil fuels will maintain a significant share of global energy demand through 2050, but demand will plateau (coal earlier, oil and gas later) and decline under policy or technology-driven scenarios. Natural gas emerges as a likely “bridge fuel” with more persistent demand due to its flexibility and role in industrial processes, though its prospects are far less robust than renewables under ambitious decarbonization pathways.
In contrast, clean energy solutions are scaling at an exponential rate. According to IRENA, renewables made up 92.5% of net power capacity additions in 2024 globally, a record 585 GW of new capacity, led by solar (452 GW) and wind (113 GW). Yet even this progress, though rapid, is falling short of the aggregate scale needed to meet targets like tripling renewable capacity by 2030. Key constraints include supply chain, policy, and grid/infrastructure limitations, as well as regional disparities in deployment.
For investors, the transition suggests a three-pronged strategy: divest from fossil fuel assets with weakening long-term growth trajectories, reinvest in scalable, cost-competitive clean technologies (especially renewables, storage & firms enabling electrification), and hold resilient businesses with diversified exposure and ability to adapt (tech, industrials, consumer). Key questions remain: how fast demand for oil & gas declines under more aggressive policy; whether carbon capture can meaningfully extend the fossil sector’s growth; and whether physical, regulatory, and capital constraints will bottleneck renewable expansion.
Supporting Notes
- Energy sector 10-year annualized return ≈ 0.61%, vs ~10.95% for S&P 500 over same period.
- Energy 3-year annual returns (~16% annually) largely driven by 2022 energy supply shocks; 1-year returns (~4.5%) lag S&P 500’s ~36% during same past year period.
- IRENA (2024) reports total global renewable power capacity reached ~3,870 GW by end-2023, with 473 GW added in 2023, representing 86% of all power capacity additions; solar alone contributed ~345.5 GW new in 2023.
- In 2024, renewables accounted for ~92.5% of global power expansion (~585 GW of capacity added), with solar & wind comprising ~96.6% of renewables additions; solar grew ~32.2%, wind ~11.1%.
- McKinsey’s 2025 outlook forecasts fossil fuels still supplying ~41-55% of global energy demand by 2050 under most scenarios, but with demand plateauing in the early-to-mid 2030s.
- ExxonMobil projects oil demand rising modestly to ~105 million barrels/day by 2050 from ~100 today; natural gas demand to increase ~20% over current levels; coal expected to shrink significantly.
- BP’s outlook foresees oil demand peaking ~2030 under current trajectory; under Net-Zero scenario, oil could fall to ~25-30 million bpd by 2050; gas rises ~20% under current trajectory.
- BloombergNEF sees oil demand peaking ~2032 in its base-case, with coal steadily declining; natural gas demand rising ~25% by 2050 under that scenario.
- Wood Mackenzie base case sees oil demand plateauing in the 2030s; coal remaining entrenched in developing markets; strong continued demand for gas especially in Asia and Middle East.