After a decade of disruption, the global energy investment landscape has entered a more pragmatic phase. The consensus is that the energy transition remains unstoppable, but the path forward will be driven as much by capital efficiency and policy credibility as by climate ambition, executives say. Investors who once fled hydrocarbons for the promise of renewables are now rediscovering balance — seeking value, stability and credible returns wherever they can be found, whether in oil fields or electrolyzers. Blair Thomas, head of US investment giant EIG Global Energy Partners, stated the challenge bluntly at this week’s Energy Intelligence Forum in London: “We have to acknowledge that our industry is out of favor with investors.” He noted that the S&P 500 Energy index now represents just 2.8% of the total index, down from the mid-teens at its 2014 peak. Valuations tell the same story: “If you were a company that traded at six times Ebitda [earnings before interest, taxes, depreciation and amortization], you’re now at three,” Thomas said. But this also presents opportunities. Since the Covid-19 pandemic, EIG has poured more than $39 billion into energy projects of all varieties across 17 countries. “I think we’re at a cyclical low — and that’s the time to invest,” he said.
From biofuels to LNG, carbon capture to frontier exploration, large investors are trying to profitably balance portfolios to satisfy energy markets’ ongoing need for hydrocarbons with longer-term decarbonization goals. “Decarbonization is going to happen,” Thomas said. “But we’re going to have to retrench, get more efficient and deliver returns. We haven’t yet proven we can do that.” Varo Energy CEO Dev Sanyal expressed a similar sentiment: “There’s been this conceit that if you build it, they’ll come,” he said, referring to some low-carbon fuels markets. But it won’t happen if decarbonization is “too expensive and structurally uncompetitive,” he said. Varo, a diversified firm targeting both traditional and low-carbon fuels, hit its target of balancing conventional and sustainable earnings three years ahead of schedule while tripling earnings and maintaining returns, Sanyal said. He credited a focus on shorter cycle times, capital efficiency and pursuing “practical” opportunities over “perfect” ones.
Pragmatism has become a watchword for investors recalibrating after COP26 in Glasgow in 2021, when enthusiasm around low-carbon investments peaked and fossil fuels lost their appeal. Even as that dynamic eased amid heightened geopolitical and supply fears, low-carbon projects have risen steadily to two-thirds of the $3.3 trillion in expected global energy investments in 2025, according to the International Energy Agency. “If we just keep that up, the energy mix will change,” said Maarten Wetselaar, CEO of Moeve (formerly Cepsa). The challenge is scaling up annual low-carbon investments further, since some new technologies need “a helping hand” from supportive policies. “The next wave — green molecules — still needs mandates or carbon pricing to get down the cost curve,” he said. Southeast Asia illustrates the uneven pace of change around the world. “We’re still transitioning out of coal into gas before we get to even cleaner molecules,” said Marina Md Taib, senior vice president of corporate strategy at Malaysian state Petronas. Solar efficiency is not great in Malaysia because of cloud cover, she said, so Petronas is trying to get the best returns from fossil fuels while preparing for low-carbon technologies in the future.
Still, capital remains highly mobile and policy-sensitive. “Capital goes where it’s welcome and stays away where it’s not,” EIG’s Thomas said, noting that policy decisions have “real consequences.” The broader investment community is also shifting toward nuance and flexibility. Bob Maguire of the Carlyle Group said the past few years have seen a retreat from “axiomatic investing” — the idea that renewables were automatically good and fossil fuels automatically bad. Priyal Maniar, a portfolio manager at investment management firm T. Rowe Price, said energy security, affordability and decarbonization now sit on equal footing. “Flexibility is the new differentiator,” Maniar said, adding that the strongest performers will be those “who can pivot between hydrocarbons, low-carbon, infrastructure investments and use returns from today’s barrels to fund tomorrow’s options.”
For banks, too, flexibility has become essential. That twin mandate — to fund both the present and the future — has given new life to the idea that energy security and net zero are not at odds but intertwined. James Sleeman, managing director at Bank of America, explained why the bank stepped back from the Net Zero Banking Alliance earlier this year: “We need more flexibility to manage the transition within our own frameworks,” he said, adding that the move wasn’t about swapping one energy form for another, but rather about funding the energy system as a whole while driving sustainability. However, a big question looming over the market concerns the durability of policies driven by energy security versus those driven by net-zero ambitions. Maniar believes energy security policies are more durable at the moment: “Once you build domestic infrastructure — terminals, pipelines — it lasts 30, 40, 50 years. [Low-carbon] subsidies can disappear in three,” she said.