Analysts predict slower production growth and lower energy prices for 2025. How much slower and how much lower? Those questions will determine the oil and gas industry’s outlook in the year ahead.
Overall, most forecasts call for moderate growth in energy production and only a modest decline in prices. But as the new year begins, the downside for prices and activity appear considerably larger than the potential upside.
In the United States, shale players are digging deeper and expanding into Tier 2 and 3 acreage. Unconventional resources might be nearing the start of an end game, at least in the Permian Basin. Oilfield service companies can look for a rebound after a rough period. Experts expect offshore drilling to dominate international exploration once again.
And a slowdown in the year ahead might actually bring some good news, by ending upward pressure on costs.
Price and Production Forecasts
In early December, OPEC+ announced it would delay any production increases until April and extended its schedule for easing output restrictions until the end of 2026.
“The announcement makes crystal clear that the group is worried about both a potential supply glut and a lack of compliance with production targets among member countries,” noted research and energy intelligence firm Rystad Energy.
Together, OPEC+ member countries might be holding back more than 5.8 million barrels per day of output, analysts estimate – a large overhang of excess capacity and a worrisome sign.
In its December Short-Term Energy Outlook, the U.S. Energy Information Administration forecast Brent crude spot prices to remain close to past-year levels, averaging $74 per barrel in 2025. But many bankers and financial institutions weren’t having any of it.
Bank of America analysts predicted oil prices will average $65 per barrel in 2025, citing an oversupply of crude oil and slowing demand. J.P. Morgan forecast the Brent crude price to average $73 per barrel this year and fall to $61 per barrel in 2026.
Morgan Stanley and HSBC revised their Brent outlook down to $70 per barrel, according to Reuters. Slowing demand, especially in China, and higher non-OPEC production were cited as factors in the reduced outlook.
“China’s marked slowdown has been the main drag on demand, with its growth (in 2024) expected to average just a tenth of the 1.4 million barrels/day increase in 2023,” noted the International Energy Agency.
“Indeed, Chinese demand contracted for a sixth straight month in September – taking the 3Q24 average to 270,000 b/d below a year ago,” it reported.
In light of constrained demand and lower prices, Rystad Energy forecast a subdued year for oil and gas. It projected global upstream investments to decline by 2 percent, plateauing after a period of robust growth.
“We’re moving from a time of energy scarcity to a time of energy abundance. Capacity additions in both fossil fuels and renewables will outpace increases in demand” in 2025, said CEO Jarand Rystad.
“The era of China driving oil consumption growth is over, with the country’s peak diesel in the rearview mirror, gasoline demand plateauing and coal consumption leveling off, as it is globally,” Rystad noted.
However, deepwater will continue to thrive, although at a slower pace, and “deepwater investments are expected to increase by 3 percent, driven by developments in Suriname, Mexico and Turkey.
“Offshore shelf investments are predicted to grow by 2 percent, fueled by activity in Indonesia, Qatar and Russia,” Rystad Energy reported.
It forecast a decline of about 8 percent in shale/tight oil investments in 2025, reflecting lower activity and reduced unit prices. But it projected that production of NGL and other gas liquids will grow this year, adding more than 300,000 barrels a day.
In the United States, the benchmark Henry Hub natural gas spot price should average about $3 per million Btu (MMBtu) for the remainder of the winter heating season, according to the EIA.
“In the long run, futures markets anticipate natural gas prices to oscillate between about $2.50 to $4.50 per MMBtu,” noted the 2025 Gulf Coast Energy Outlook from the Center for Energy Studies at Louisiana State University.
“It is incredible to see how quickly U.S. natural gas prices have converged back to long-term norms in the wake of the global supply disruption that came from the Russian invasion of Ukraine in early 2022 and resulting sanctions,” it observed.
Unconventionals Outlook
In unconventional resources, the ongoing consolidation of acquired assets and benefits from new pipelines “will likely support the profitable growth strategy of shale majors in 2025,” according to Deloitte’s 2025 Oil and Gas Industry Outlook.
“However, a bigger prize could be in how shale majors rethink their Tier 2 and Tier 3 acreage across shale basins. By adopting new refracturing, enhanced oil recovery and innovative completion techniques, they have the potential to enhance their capital returns and well productivity,” Deloitte reported.
“Development in Tier 1 acreage is growing by 5-10 percent annually in the Bakken Shale play, while Tier 2 acreage is growing by 20 percent annually,” it noted.
Brandon Myers, head of research for Novi Labs, sees shale players also testing deeper horizons while expanding out from fairway drilling. He said Anschutz Exploration is now targeting deeper Mancos Shale oil in Uinta County, Utah.
“Maybe the number to take home here is that there are two pretty good wells in the ground already. The first one IPed at about 930 barrels/day,” he said.
Novi Labs expects ultimate recovery of 200,000-350,000 barrels of oil and 4-8 billion cubic feet of gas per well. Myers said another deeper shale play to watch in 2025 is centered on Robertson County, Texas.
“The counties we’d be looking at here are Robertson, Leon and maybe even Freestone,” Myers noted. “This is the very far western extent of the Bossier, which sits on top of the Haynesville. The numbers on this guy are pretty crazy.”
Initial well production has come in at 20-35 million cubic feet per day, and recovery on one of the recent wells has been estimated as high as 70 Bcf, he said.
Comstock Resources and Aethon Energy are in the play, where high-pressure, two-mile lateral wells can cost $30 million each, according to Myers. And Augusta Energy Resources has an almost 19,000-foot test in Houston County, Texas, which borders Leon County.
Operators can’t automatically assume they hold the deep rights, Myers said. For instance, deeper rights are typically separated in the Woodford-Barnett play, he noted.
“There’s a reason we didn’t drill all these formations in the first round,” Myers said. “It comes with knock-on costs that can increase your non-producing capex.”
In the Midland Basin, “operators have 8-12 more years of remaining inventory with Exxon taking the top spot. In the Delaware there are 11-12 years, upward to two decades plus,” he observed.
“The Midland is more than 50 percent drilled up. That matters because we are now on the backside of Permian Basin positions, in this case,” he said.
After a recent period of intense mergers-and-acquisition activity, acquirers are shedding some properties and adjusting their portfolios. “I think it will spur on a new generation of start-ups that will go after that stuff,” Myers said, “but there’s not a lot of guys in that bucket.”
Especially in the Permian Basin, companies find it challenging to expand their positions without sacrificing acreage quality, possibly indicating reduced M&A action in 2025. Some analysts expect buying action to move from the Permian to other plays, primarily the Eagle Ford and Bakken.
“Every operator is asking, ‘Who has property with rock quality at least on par with what I have already?’ And there’s not much to pick from,” Myers noted.
“It’s a big game of musical chairs to make sure they’re there for the long run,” he said.
Oilfield Services Rebound?
Oilfield services slipped into a funk starting with the 2015 industry downturn and stayed economically depressed through the pandemic. Deloitte reported the sector lost $155 billion between 2015 and 2021.
“However, there are visible signs of a reversal in fortunes. Over the last three years, the sector’s net income has cumulatively exceeded $50 billion. Currently, its capex is at the highest level, while net debt is at one of its lowest points since 2016,” Deloitte noted in its 2025 outlook.
“Similarly, oilfield services M&A deal-making within the first nine months of 2024 reached $19.7 billion, the highest since 2018. In fact, oilfield services companies seem to be repeating what their upstream shale customers did years ago – growing profitably without a commensurate increase in capex,” it observed.
Deloitte attributes the turnaround to “a strategic blend of innovation and cost-reduction measures.” Service companies are restructuring operations, exiting nonprofitable lines, implementing cost-management programs and streamlining corporate structures, it found.
“By recalibrating its strategies, the sector has navigated the challenges posed by reduced demand for certain services, while continuing to drive efficiency and maintain capital discipline,” Deloitte reported.
Other Major Developments
Offshore Namibia has provided the biggest recent headlines in exploration with significant discoveries in the Orange Basin. Energy data and analytics firm Wood Mackenzie noted that oil majors and other players are now considering the Walvis Basin to the north, and hoping to extend Orange Basin success south into South African waters.
“But the net will now be cast far and wide for similar targets all around the margins of the southern Atlantic,” Woodmac predicted.
“On the West African side, southern Angola, Sao Tome, Cote d’Ivoire and Liberia have all been brought into play. South American plays include the Pelotas basin, in the extreme south of Brazil, Uruguay and Argentina,” it reported.
An overall softening in the offshore rig market seems likely to bring relief from double-digit price increases in both rig rates and the broader drilling and completion (D&C) area, according to Devin Thomas, Wood Mackenzie vice president, supply chain data & analytics.
“The floater market has been a bull one the last few years, and rig rates are at decade highs. But the market is showing signs of cooling as operators show capital discipline and appetites for risky projects diminish.
“Accordingly, Wood Mackenzie has revised our offshore well demand and rig rate forecasts downwards,” Thomas said.
Rig rates are projected to grow at a modest 2 percent this year, while D&C costs should increase by only 2-3 percent in both 2025 and 2026, according to Wood Mackenzie’s Deepwater Drilling Service.
Industry forecasts for 2025 should come with a warning sticker, because the year begins with an unusually large chaos factor.
Oil and gas prices might sink further than expected. President-elect Donald Trump has threatened to impose punitive tariffs on several countries, and vowed to cut the price of U.S. energy and electricity in half within 12 months after taking office.
Unexpected geopolitical events in 2024 included the death of Iran’s president in an air crash, political upheaval in South Korea and France and the overthrow of the ruling regime in Syria. An unforeseen international crisis could cause oil prices to soar.
Put briefly, things happen. And nobody knows what unanticipated events and pressures will affect the energy industry in 2025. To slightly alter a popular poster phrase: Keep Calm. And Hold On.