Executive summary

Investors remain focused on the interconnected themes of electrification and digitalisation, with AI representing the latest technological shift. However, a third theme—security—has emerged as a newly urgent priority. This emphasis is reshaping the landscape of energy investing, driving an era that promises higher efficiency and profitability. The global framework established by the Bretton Woods system is fracturing. While the United States previously protected global oil trade, the shale revolution has made the nation a net petroleum exporter, reducing its incentive to protect global sea lanes. Consequently, it is no longer safe for other countries to remain energy dependent. While China has prioritised energy security since 2000, leading its fossil fuel imports to peak in 2019, Europe lags behind, currently importing a record 54% of its energy.

The new joule order

The postwar era was characterised by relative safety and easy access to capital, supported by a framework underwritten by the United States. The Net Zero 2050 narrative gained traction during a predictable zero-interest-rate era, allowing for large investments based on uncertain long-term outcomes. Similarly, AI matured in this environment of abundant liquidity, allowing investors to focus on distant future growth. However, this macro trend is now reversing towards structurally higher interest rates, which increases the financial burden of maintaining the old order. In the new joule order, motivations are shifting rapidly, and investors must make more deliberate allocations as capital and liquidity become scarce. Active management of private markets is once again critical in this normalised rate environment.

The evolution of the new joule order

The energy transition did not begin with the Paris Agreement in 2015; it started in 1973 with the first oil crisis, which prompted a global focus on energy independence. Historically, the security-motivated transition between 1973 and 1993 was approximately 30 basis points per annum faster than the Net Zero-motivated transition of 2010 to 2024. France serves as a key example, having achieved one of the world’s lowest carbon footprints not primarily for climate reasons, but to secure energy independence. In the current era, security premiums are replacing green premiums. Tariffs and border adjustment taxes are increasingly used to encourage local production, functioning analogously to a carbon tax to spur transitions.

From peak oil supply to peak oil trade

Early transition drivers were rooted in the fear of “Peak Oil Supply,” a concept that failed to account for innovation. The shale revolution proved these fears unfounded, with United States petroleum production surging by more than 250% since 2008. While global energy consumption has grown at a steady 2.5% annual pace over the past sixty years, the focus has shifted from supply to “Peak Trade.” The share of global energy consumption from fossil fuels that crossed borders peaked in 2017 and has since declined by 5%. This reflects a move towards the extraction of localised fossil fuels and increased renewables. Although oil and gas remain competitive for moving energy across long distances, the localisation of energy output is rapidly becoming a vital feature of national security.

Investing in the new joule order

Achieving a diversified energy ecosystem requires different regional strategies. The United States will likely remain skewed towards domestic fossil fuels, while Europe and Asia will increasingly focus on nuclear and renewables. The previous divide between “green” and “brown” assets is being replaced by a distinction based on cash flow profiles: “tolling” versus “trading” assets. Tolling assets, such as wind farms, nuclear plants, and transmission networks, require fixed returns and typically carry more debt. Trading assets, including storage and upstream projects, have variable returns and act as a proxy for inflation. Combining these assets creates a counter-cyclical balance that helps investors navigate market cycles. Electrification is essential to this diversification, as the grid allows different fuels to compete to supply the same joules, unlocking the embedded optionality in energy assets.