Energy Insights 2025

Executive Summary

“The energy landscape is constantly changing.” 

It is appropriate to begin “Energy Insights 2025” with the line that opened last year’s edition. Shifts in political leadership in the U.S. and around the world have driven home the stark difference between energy choices rooted in economic fundamentals and those rooted in policy support. This has manifest in a litany of commentary centered on “pragmatism” and invigorated discussions about the future of energy from all sides of the debate on the future of energy. 

Through all the uncertainty, it is important to understand that there is no economic model where adding a constraint lowers cost. Sometimes policy constraints are necessary to deal with non-priced negative externalities, but with every action there is a reaction, so there are always trade-offs. Reality is a binding constraint. This cannot be forgotten in the fervor of trying to exact change through policy.

“Energy Insights 2025” opens with a focus on supply chain resilience and how it is crucial for achieving broader energy and national security goals. In “Energy Security and Supply Chain Resilience,” Kenneth B. Medlock III argues that energy security is best framed in terms of supply chain resilience rather than self-sufficiency. Market depth and fungibility, along with the infrastructure required to connect market participants, have historically been the best harbingers of stability. Moreover, supply chain resilience requires diversified trade networks, redundant supply options that include commercial storage from which customers can pull, and regulatory certainty that enables investment. In short, policy should reduce uncertainty, encourage connectivity, and facilitate investment in infrastructure, as resilience — rather than independence — is foundational for energy security.

Turning to electricity markets and policy, Peter R. Hartley assesses global electricity demand growth given ongoing developments in technological change, digitalization, and climate policy in “Meeting Future Electricity Needs.” While subsidies and mandates have spurred deployment, he argues that a tax (or price) is the most effective mechanism for reducing greenhouse gas emissions. However, the preferred policy approach over the last couple of decades has been to subsidize certain generation sources, like wind and solar. This has introduced unintended issues related to system cost and reliability, given the intermittency of wind and solar, transmission bottlenecks, and low-capacity factors for subsidized electricity sources. Other low CO2 emission sources, like nuclear and hydro, have a potentially large role to play, but new technologies will only succeed if they can successfully integrate with existing systems. Hartley concludes that energy transitions will be slower and more complex than many policy visions suggest.

Extending the discussion on electricity, Medlock examines rising electricity demand from the growth in artificial intelligence and data centers, placing it in a historical context in “AI, Data Centers, and Energy: Oh My!” Intermittency and subsidy-driven distortions in electricity markets have created price volatility and reliability challenges, which have encouraged large load customers to consider behind-the-meter (BTM) generation. Drawing lessons from the Public Utility Regulatory Policies Act of 1978, he argues that data center BTM assets could evolve into a new class of ancillary service providers, supplying the grid during peak stress while insuring their own operations. If market designs appropriately value BTM capacity, data centers could shift from exacerbating reliability concerns to playing a role in alleviating them.

Continuing with electricity market and policy, Todd Moss and Hamna Tariq explore the potential of nuclear power in “The Global Nuclear Energy Landscape and the Critical Role of Development Finance.” They note that nuclear power is a reliable, low-carbon source of electricity, with small modular reactors (SMRs) drawing increasing attention. However, project finance remains a critical constraint. Unless the U.S. government and multilateral institutions increase large-scale finance and export support, the geopolitical balance in nuclear power will tilt toward Russia and China because they are already engaged in serious state-led efforts.

Shifting to oil markets, in “Outlook for Oil: The Search for Market Balance,” Abhi Rajendran and Skip York explore the market influences of changes in OPEC+ production, geopolitical risks, and evolving demand patterns. Increased OPEC+ production limits the risk of oil price rising, but it also adds uncertainty to future oil prices, which complicates non-OPEC+ production outlooks. China’s efforts to electrify transportation along with slowing industrial growth signal a looming plateau in global oil consumption, but developments in India and other emerging economies could sustain demand. U.S. production, supply from new oil fields, refining bottlenecks, and tariffs further complicate how market balance may evolve. They conclude that the global oil market faces not scarcity but uncertainty, with rebalancing hinging on the collective outcomes of multiple factors.

Moving from oil to natural gas, in “The LNG-enie Is Out of the Bottle,” Medlock recaps the evolution of the U.S. natural gas market, emphasizing how transparent, competitive markets and infrastructure have been critical for the shale revolution and U.S. LNG exports. U.S. LNG is sold on flexible terms, which has enhanced global energy security, something that was expounded in Europe after Russia’s invasion of Ukraine. However, future benefits hinge on infrastructure and trade, and barriers to investment, permitting, or cross-border flows undermine market resilience. Medlock argues that market depth, liquidity, and transparency will define the long-term future of U.S. LNG.

Michelle Michot Foss steps into recent political developments and their implications for energy and materials in “‘Energy and Material Realism’ and Its Discontents.” She critiques the notion of rapid energy transitions, noting that consumer sentiment, material constraints, subsidy dependence, and geopolitical tensions all complicate decarbonization pathways. Recognizing ever-present trade-offs, Foss argues that critical mineral bottlenecks will ultimately slow deployment of renewables, hydrogen, and storage. She concludes that forward-looking policy should prioritize resilience, domestic capacity, and pragmatic timelines rather than aspirational scenarios.

Turning to regional energy-related issues, in “The European Energy System’s Conundrum,” Raúl Bajo-Buenestado argues that an energy policy emphasis on renewables and the loss of Russian gas has created a “new normal” of persistently high prices, which has exposed energy system vulnerabilities, eroded competitiveness, fueled social discontent, and triggered political backlash. With EU member states diverging on energy priorities, Europe risks fragmentation of its Green Deal vision. Bajo-Buenestado concludes that Europe should reconcile climate ambition with economic competitiveness and geopolitical reality.

The ongoing attention on energy in Asia has taken a hyperfocus on metals and minerals supply chains through China. In “The China Hangover: Western Market Discipline Meets Mineral Overcapacity,” Ashley Zumwalt-Forbes analyzes how China’s state-backed strategy on minerals production and processing sustains low prices, deters Western competitors, and entrenches market dominance. In contrast, Western firms are constrained by investor discipline, leaving projects stalled despite policy incentives. She suggests several targeted interventions to align market incentives with security needs. Zumwalt-Forbes concludes that without coordinated action, China’s monopolization of critical minerals will deepen, undermining Western energy security and industrial resilience.

Gabriel Collins considers the future of nuclear power in the context of renewed U.S.-China-Russia competition in “Will Great Power Competition Yield a Nuclear Renaissance?” Globally, 90% of new capacity currently under construction is in Eurasia. The development of small modular reactors (SMRs) could open new markets, but Russia and China already lead deployments. U.S. firms face fuel supply bottlenecks and fragmented support. Collins concludes that proactive policy is critical for the U.S. to compete in a global nuclear revival.

Maintaining a focus in Asia, in “Northeast Asia’s Energy Outlook: Potential Through Innovation and Cooperation,” Henry Haggard notes the import dependence of Japan and South Korea for their energy needs, emphasizing the importance of diplomatic ties with the U.S. and a need for a balanced approach. Noting the economic heft of Japan and South Korea, he concludes that each will continue to play an important role in the global energy system. Hence, U.S. firms and the U.S. government should focus on Japan and South Korea as partners in research, investment, and commerce to successfully compete with China while achieving regional security in Asia.

Shifting attention to Latin America, Francisco J. Monaldi evaluates the region’s heretofore limited role in LNG markets, despite having substantial gas resources, in “Can Latin America Become a Relevant Player in Global LNG Markets?” Political and regulatory risks, subsidies, and a lack of infrastructure have constrained development, with only Trinidad and Peru emerging as consistent exporters, despite the relative resource abundance in Venezuela and Argentina. Mexico’s new Pacific Coast LNG projects are built on U.S. gas resources, and they offer a competitive route to Asia. Argentina’s Vaca Muerta shale has potential, but investment risks remain high. Monaldi concludes that while the region has opportunities, above-ground constraints will limit its global impact.

Turning to mining in Latin America, in “Mining, Governance, and Communities,” Tilsa Oré Mónago discusses the growing demand for copper and lithium, which are essential to electrification and AI-driven data center expansion. The requisite expansion of mining activities in Latin American countries is creating conflicts with Indigenous communities. Weak governance and illegal mining exacerbate environmental harm and social conflict. She concludes that sustainable mining requires partnerships, a recognition of property rights, and capacity building to ensure shared benefits. 

Examining Argentina, which is a Latin American economy with tremendous resource potential, Mark P. Jones considers recent political turbulence in expounding on some implications for the Vaca Muerta shale in “Javier Milei’s First Electoral Test and the Implications for Argentina’s Vaca Muerta.” Jones details how political instability, macroeconomic crises, and regulatory uncertainty have constrained development and notes that Argentina illustrates both the promise of resource wealth and the peril of political instability. He concludes that long-term investment depends on fiscal stability and policy credibility, both of which are uncertain.

Turning to the Middle East and North Africa (MENA) region, Jim Krane considers the risks and opportunities associated with East Mediterranean gas resources in “Peril or Promise in East Mediterranean Natural Gas?” Krane highlights the complex relationship among Egypt, Israel, and Cyprus, alongside Turkey’s enduring role as transit state and veto player. Despite the promise of resource wealth, unresolved territorial disputes and fragile alliances have constrained energy diplomacy. He concludes that while Eastern Mediterranean gas could underpin cooperation, geopolitical rivalries and structural barriers have limited its potential.

In “Progress in Power Grid Interconnection in the GCC and MENA Region,” Salem Alhajraf evaluates the rapid growth of electricity demand in the MENA region and the development of cross-border grid interconnections. He argues that the GCC Interconnection Authority has enhanced regional stability, facilitated trade, and generated billions in savings, and there is potential for further integration. However, technical risks remain significant. Alhajraf concludes that interconnection is critical for energy security and renewable integration, but success depends on effective market design and implementation.

Moving away from a regional focus and turning to the future of the transportation sector, in “Fuels: The Intersection of Energy, Climate, Transportation, and Policy,” Edward M. Emmett considers the intersection of fuels, transportation, and climate policy. He notes that transitioning away from petroleum-based fuels presents economic and technical challenges, including high capital costs, fuel infrastructure replacement, and uncertainty in the economic and technical efficiency of alternatives like hydrogen and biofuels. Emmett emphasizes the importance of coordinated policy, supply chain development, and global standards, and he concludes that the future of fuels in transportation will have broad ramifications.

Looking at the future of innovation and policy, Ted Loch-Temzelides highlights the critical role of research and development (R&D) in shaping the future energy and economic landscape in “R&D Funding and Future U.S. Economic Growth.” He argues that breakthroughs in storage, advanced nuclear, carbon capture, and alternative fuels are necessary to meet climate and economic goals. However, Loch-Temzelides stresses that innovation requires stable funding, supportive policy, and public-private collaboration. Absent such collaboration, investment can falter, and transitions risk stagnation. He concludes that R&D is vital for long-term energy transformation and healthy economic growth.

On the topic of sustainability and resilience, Rachel A. Meidl traces the evolution of sustainability from visionary ideals to politicized practice in “Sustainability in Transition: From Ideals to Implementation.” She critiques reliance on narrow metrics like carbon footprints, arguing for systems-based approaches that account for full life cycles, resilient supply chains, and trade-offs. Sustainability, she stresses, is not an endpoint but a dynamic balance of economic, social, and environmental imperatives. Meidl concludes that recalibrating sustainability requires realism, accountability, and alignment with long-term resilience.

In “An Enduring Emphasis on Resilience,” Medlock and Miaomiao Rimmer reframe the risks associated with climate-related natural disasters through the lens of resilience. They show that damages from natural disasters are an increasing part of the reporting and social media narrative, which drives perceptions, despite the fact that historical data reveal that increasing damages are driven less by disaster frequency and more by population growth and urban expansion. Highlighting case studies and utilizing the “Natural Disaster Resilience” dashboard, they argue for adaptive measures — such as stronger building codes, more diligent land-use planning, and commercially sustainable insurance frameworks — that reduce vulnerability regardless of climate outcomes. They conclude that resilience should complement decarbonization because disasters will persist even in a zero-carbon future.

Center for Energy Studies (CES) fellows and scholars will continue to advance research in an effort to elevate discussions about the future of energy. Rarely are things cut and dry, especially when trade-offs are involved. But a solid grounding in data and fundamentals can help to navigate uncertainties and the winds of change that will inevitably blow. To that end, the briefs contained in “Energy Insights 2025” offer a glimpse of ongoing research and CES initiatives.

View the full report. 

This publication was produced on behalf of Rice University’s Baker Institute for Public Policy. Wherever feasible, the material was reviewed by external experts prior to its release. Any errors are the responsibility of the author(s) alone. 

This material may be quoted or reproduced without prior permission, provided appropriate credit is given to the author(s) and Rice University’s Baker Institute for Public Policy. The views expressed herein are those of the individual author(s) and do not necessarily represent the views of Rice University’s Baker Institute for Public Policy.