Executive viewpoint: Five trends to watch in 2025

JEFF ROBERTSON, MANAGING DIRECTOR, NATURAL RESOURCES, WATER TOWER RESEARCH   

Jeff Robertson, Managing Director, Natural Resources, Water Tower Research

Supportive federal policies, growing LNG exports, and the energy transition will set the stage for strategic decisions across the U.S. oil and gas sector in 2025. There are five trends that we have identified as key forces shaping the oil and gas landscape for the year. They are as follows: 

• Pro-growth U.S. policies aim to support supply expansion. The new administration plans to ease regulations, expand access to federal leases, and streamline permits for wells, pipelines, and LNG exports. Production expansion will depend on commodity prices and costs, Fig. 1.
• Natural gas optimism grows amid oil market caution. OPEC+ production cuts and muted demand forecasts keep oil prices subdued, while natural gas prices are projected to rise to $2.90/MMBtu, supported by growing LNG exports. 
• M&A activity shifts to portfolio optimization. After $250 billion in M&A deals since 2023, companies are now focused on divesting non-core assets and improving capital returns. 
• Capital discipline prioritizes shareholder returns. With free cash flow expected to exceed $100 billion in 2025, operators remain committed to dividends and buybacks, prioritizing shareholder value. 
• Traditional energy advances decarbonization projects. Tax incentives are driving investments in carbon capture, methane reduction, and renewable energy, with EPA permits and state policies shaping project approvals. 

What follows are more in-depth examinations of these key points. 

Fig. 1. U.S. Lower 48 oil production, MMbpd. Chart: EIA.

White House policy changes. The new Trump administration has repeatedly indicated that it will favor policies that support U.S. oil and natural gas supply growth, Fig. 2. Policies will likely include regulatory changes to increase access to onshore and offshore federal leases and streamline the permitting process for new wells and offshore facilities. We also expect the administration to streamline the permitting process for new interstate transmission pipelines and LNG export facilities. The operators’ decisions to develop new supply will depend on commodity prices and costs, which determine their expected return on capital.  

Fig. 2. U.S. Lower 48 dry natural gas production, Bcfd. Chart: EIA.

According to the latest FERC data, capacity at operating LNG export facilities in the U.S. was ~14.4 Bcfd, and ~16.9 Bcfd of capacity additions are under construction across seven facilities. The U..S Gulf Coast is home to ~13.1 Bcfd of existing export capacity, plus all of the capacity under construction. U.S. LNG exports averaged 12.5 Bcfd in October and are projected to increase to 16.2 Bcfd in December 2025 according to the EIA’s latest Short-Term Energy Outlook, Fig. 3. Increased export capacity could tighten the U.S. natural gas market and positively affect natural gas prices. The EIA’s January 2025 Short-Term Energy Outlook forecast for Henry Hub spot natural gas prices is $3.10/MMBtu for 2025.  

Fig. 3. U.S. LNG exports, Bcfd. Chart: EIA.

Uncertain commodity prices. Near-term caution in the oil markets and longer-term optimism in the U.S. natural gas market could cause upstream operators to run multiple capital allocation scenarios. OPEC’s latest (November 2024) 2025 global oil demand forecast is 105.57 MMbpd, a 0.6 MMbpd decrease from its January 2024 estimate. OPEC’s latest estimate for the call on OPEC+ production in 2025 is 43.01 MMbpd, down from 43.96 MMbpd in May 2024 (data were reclassified into DoC [OPEC+] in May 2024). Markets are mindful of the group’s decisions to continue extending voluntary production cuts to help balance the market. The EIA’s January 2025 Short-Term Energy Outlook forecast for WTI spot prices is $70.31/bbl for 2025. 

M&A wave may subside a bit. The corporate consolidation wave that swept through the U.S. upstream industry over the past couple of years could transition to a cycle of asset portfolio rationalization. We have tabulated more than $250 billion of announced M&A deals since the beginning of 2023. Transactions can re-rank assets and lead buyers to consider divesting assets that become non-core. 

Capital discipline/operator conservatism. The industry remains committed to capital discipline. Preliminary outlooks for 2026 capital plans suggest the industry is committed to generating free cash flow that can be used to reduce leverage and return cash to shareholders through dividends and share buybacks. Through the first nine months of 2024, the upstream oil & gas industry returned ~$67 billion to shareholders through dividends and buybacks and a group of oilfield service providers returned ~$6 billion.   

As 2025 budgets crystalize in the coming months, we expect returning cash to shareholders will remain the centerpiece of capital allocation for many companies. FactSet consensus free cash flow for the U.S. upstream sector exceeds $90 billion in FY24 and $100 billion in FY25. As always, commodity price expectations will dictate how companies balance priorities between investing in their asset bases and returning cash to shareholders. 

Decarbonization projects. Traditional energy companies are expected to remain active participants in energy evolution projects, including decarbonization, methane capture, and renewable fuels/energy. Increased tax credits in the 2022 Inflation Reduction Act (IRA) incentivized companies to pursue projects to capture CO₂ for storage in underground geological formations. As of Nov 22, 2024, the EPA was reviewing 154 permits for Class VI wells related to 55 CO₂ injection projects in states that do not have primacy. Louisiana, North Dakota and Wyoming have primacy over the Class VI approval process.   

In Louisiana, project operators have applied for about 75 injection permits. Many of the project operators are large fossil fuel companies that can leverage skillsets in complex engineering solutions and subsurface reservoir management for carbon sequestration. We expect traditional energy companies to continue evaluating projects where they can apply their skillsets to participate in an evolving energy landscape that seeks expanded sources of energy. 

JEFF ROBERTSON is an analyst and managing director of Natural Resources at Water Tower Research. Prior to Water Tower Research, he was an 18-year equity research veteran at Lehman Brothers / Barclays, where his coverage concentrated on mid- and small-capitalization companies in the oil & gas E&P sectors. He also covered master limited partnerships (MLPs) and royalty companies. Previously, Mr. Robertson worked in similar industry roles at Salomon Smith Barney and Wasserstein Perella. He has worked on the sell-side for 28 years, gaining exposure to all facets of the oil & gas industry, and his tenure spans multiple industry cycles. Mr. Robertson holds a BS degree in geology from Centenary College of Louisiana, an MS degree in geology from Texas A&M University, and an MBA from Southern Methodist University.