Prices of energy

Measuring opportunity and risk in major energy markets

Despite Russia’s invasion of Ukraine disrupting energy markets, EIU forecasts that consumption in 69 of the world’s major economies will increase from 13,470m tonnes oil equivalent (mtoe) in 2021 to 15,109 mtoe by 2031.

In this article we examine the market opportunity and risk outlook for five major economies over the next decade, using EIU’s risk and return energy ratings.

These ratings compare the forecast and business risk for each country’s energy sector against those of 68 other countries in this service, in order to assess the future operating environment for companies. All scores are out of 100, with 100 denoting high risk (bad) or high return (good).

United States

Return: 69 (high)
Risk: 25 (low)

For energy investors, the US offers a mix of low risk and high return over the ten-year forecast period. Energy consumption will expand only slowly, as the US is a high-income, developed economy. The supply of certain forms of energy—notably oil, gas and renewables—will expand rapidly in the long run, making them promising sectors for investment. Furthermore, the US’s role as a large energy exporter opens opportunities amid the war in Ukraine and the quest of many countries to find alternative energy supplies to Russian oil and gas.

The continuing impact of the war in Ukraine, primarily in the form of high oil prices, remains a prominent risk to the US energy sector, with varied implications to different subsectors. A domestic oil production push would raise prospects for the fossil fuels sector, as well as a prolonged period of high oil prices could increase the appeal of investing in renewables.

India

Return: 85 (very high)
Risk: 45 (moderate)

India’s energy market offers very high returns—more than China—for investors in 2022-31, offset by only moderate risks. Electricity will be the most promising subsector, having one of the world’s highest return scores, owing to rapid rises in domestic consumption and government efforts to boost investment. Renewables will be India’s second-most attractive subsector for energy investors, and even the third-placed oil and gas subsector will offer high returns.

Delays in the progress of existing and planned projects will affect investor sentiment. Long-term risks will be moderate, but will include the potential for an economic slowdown if the government fails to execute its reform agenda for a banking sector crisis, for global fossil-fuel price volatility and for domestic socio-political instability.

Saudi Arabia

Return: 83 (very high)
Risk: 40 (low)

Saudi Arabia’s energy sector will offer very high returns, offset by low risks, during the forecast period. Although all subsectors will generate promising returns, oil and gas will be the most attractive for investors. According to our analysis, Saudi Arabia’s return score will be the highest among Middle Eastern countries, followed by the UAE, Qatar and Kuwait. High oil prices since 2021 have increased the returns prospects for the country, galvanising government investment across the energy sector. Investment risks in the sector remain moderate, including regional political instability.

Germany

Return: 36 (low)
Risk: 22 (low)

Germany offers low returns in its energy sector; the score has fallen slightly owing to the country’s high exposure to Russian energy exports, which are currently being curtailed. Renewables and electricity will be the most attractive subsector for investment, while returns from the petroleum sector will be low. This is borne out by the policy agenda of the new coalition government, which seeks to accelerate plans to reduce reliance on fossil fuels and to reduce CO2 emissions.

The low returns in the German energy sector are offset by relatively low risks, owing to general economic stability, coupled with strong financial institutions. However, the most prominent risk remains that of Russian gas cut-offs leading to power rationing for industrial users. A decision to introduce new taxes to fund a shift in energy policy could also negatively affect investor sentiment in the near future.

Brazil

Return: 65 (high)
Risk: 51 (moderate)

Brazil offers a high return and moderate risk scenario, with the highest returns coming from the electricity subsector, followed by oil and gas. Returns are high, as oil and gas can be produced domestically at relatively low cost. Brazil has the highest return scores among its neighbours (including Chile, Colombia and Argentina). It will benefit from increased competition and investment aimed at restructuring the energy sector.

Although we expect energy demand to be strong in 2022, investor sentiment could deteriorate if, as we expect, the recently elected government–led by former president Luiz Inácio Lula da Silva–pauses the push for privatisation amid the energy sector sought by current president Bolsonaro. Other risks are government instability, corruption and potentially unfavourable changes in energy policy. Delays in implementing new tax reforms will also hit investment. A weak pipeline network and tangled regulation will drive down returns from the sector.

Full access to EIU’s risk and return scores for 69 major economies, split by market segment, is available through our Country Analysis service. Alongside risk and return scores, our intelligence platform provides award-winning forecasts, analysis and data of the economic and geopolitical threats facing nearly 200 countries and 95% of world output.

Speak to our team about arranging a personalised look at our intelligence platform here.