The oil and gas industry stands at a turning point. US oil production will likely drop to half of its 2020 levels by 2050. The industry provides jobs to 1.5 million Americans today. Electric vehicles could cut global oil demand by 32%. Many US oil and gas resources won’t be profitable to extract anymore.
You can still make smart investment choices in this sector despite the uncertainty. The industry will stick around. Companies will still need to produce about 10 million barrels of new oil daily between 2030 and 2050. This piece breaks down what these changes mean for your oil and gas investments. You’ll learn about market trends, policy effects and investment strategies that can help secure your portfolio.
Current State of Oil and Gas Markets
Oil markets face a turning point in 2025. The market shows major changes in global supply-demand patterns. Global oil demand will grow by 1.1 million barrels per day (mb/d) in 2025. This represents an increase from 870,000 barrels per day in 2024 [1]. The worldwide oil supply will reach 104.5 mb/d this year, rising by 1.6 mb/d [2].
Global supply and demand trends
China leads demand growth but its share has dropped to 19% from 60% in the last decade [3]. India and other Asian economies have become important players. They add 500,000 barrels per day to global demand [3].
The supply side shows strength as non-OPEC+ producers will add 1.5 mb/d of production in 2025 [2]. The United States, Brazil, Guyana, Canada, and Argentina lead this growth [2]. OPEC+ keeps its market power by adjusting production to keep prices stable [1].
Key market drivers in 2025
Natural gas markets look volatile in 2025. Cold weather in early 2025 pushed up consumption and drew down inventories [4]. Natural gas stocks will likely fall below 1.7 trillion cubic feet by March’s end. This is 10% below the five-year average [4].
The electric power sector shows strong growth. Electricity sales should rise by 3% in 2025 [4]. This growth comes from:
- Residential and commercial sector expansion
- Data centers using more electricity
- Power plants needing more natural gas
Regional production costs
Production costs vary in different regions, which creates competitive edges. Saudi Arabia, Iran, and Iraq have the lowest production costs worldwide at under USD 10.00 per barrel [5]. Norway and the UK spend more because of tough offshore operations [5].
The Permian Basin remains the U.S. production leader. It makes up 46% of crude oil output and 20% of gross natural gas production [3]. The region struggles with infrastructure limits. Pipeline use went above 90% in 2024, especially for natural gas transport [3].
Experts predict Brent crude oil prices will average between USD 70.00 to USD 75.00 per barrel through 2025 [6]. Henry Hub natural gas prices should average around USD 4.20 per million British thermal units (MMBtu) [4]. These prices reflect the complex balance between supply limits and rising demand.
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Impact of Energy Policies on Assets
“Continued investment in oil and gas supply is needed in all scenarios, but the USD 800 billion it currently invests each year is double what is required in 2030 to meet declining demand in a 1.5 °C scenario.” — International Energy Agency, Intergovernmental organization for energy policy
Energy policies worldwide have altered the map of oil and gas investments. Asset holders now face new challenges and opportunities. Studies show climate policies led to a 6.5% decline in investment among publicly traded oil and gas companies between 2015 and 2019 [7].
Climate policy scenarios
Global demand for oil and gas will likely peak by 2030 under current policy settings [8]. National energy and climate pledges could drive demand down 45% below today’s levels by 2050 if governments fully implement them [8]. The decline would be much steeper at 75% in a pathway that targets net-zero emissions by mid-century [8].
Carbon pricing effects
Investment decisions now heavily depend on carbon pricing mechanisms. The OECD expects a carbon price of USD 147.00 per metric ton by 2030 to achieve net-zero emissions [9]. While over 60 carbon charge systems exist worldwide, few exceed USD 20.00 per ton in major oil and gas producing regions [10].
Carbon pricing brings these effects:
- Carbon taxes raise production costs and affect regional competitiveness
- Higher prices push consumers toward less carbon-intensive options
- Operating costs increase, which particularly affects smaller operators [11]
Infrastructure regulations
New rules continue to reshape infrastructure requirements. Colorado now requires a 22% cut in greenhouse gas emissions from midstream oil and gas operations by 2030 [11]. Some regions speed up infrastructure projects differently – environmental review processes have fast-tracked over 600 pipeline and gas plant projects [11].
The oil and gas sector supplies more than half of global energy and employs nearly 12 million workers worldwide. This industry must adapt quickly [8]. Companies would need to direct 50% of their capital spending toward clean energy projects by 2030 in a net-zero scenario [8]. This marks a dramatic jump from the current 2.5% allocation of total capital spending [8].
Investment Risks to Watch
Oil and gas investors face growing challenges as market dynamics experience deep changes. Recent analysis shows that potential losses could reach USD 1.4 trillion in stranded assets throughout the global oil and gas sector [12].
Stranded asset potential
Meeting the 1.5°C climate target by 2050 means 60% of oil and gas reserves must stay in the ground [9]. This creates major risks for asset valuations that affect:
- Upstream exploration and production facilities
- Midstream infrastructure including refineries and LNG facilities
- Pipeline networks and distribution systems
The biggest concern lies with pension funds and individual investors in OECD countries who face the greatest exposure to these stranded asset risks [2].
Market competition factors
The competitive landscape brings tough challenges. Oilfield services recorded their best performance in 34 years during 2023-2024 [3], but risks continue beneath the surface. The sector struggles with:
- Profit impacts from volatile commodity prices [13]
- Supply chain disruptions due to geopolitical tensions
- Heavy investments needed for capital-intensive operations
- Higher operational costs from environmental regulations
Shareholders now prefer capital discipline and distributions over growth investments [14]. Companies have reduced their drilling activities as a result, especially when oil prices drop below USD 45.00 per barrel break-even points [15].
Technology disruption risks
Traditional oil and gas operations face serious threats from technological progress. Recent studies reveal that renewable energy costs have dropped significantly. New renewable power generation proved cheaper than fossil fuel alternatives for 62% of cases in 2020 [9].
The industry faces disruption through:
- Grid-scale energy storage development [16]
- Rising electric vehicle adoption
- Advanced renewable energy technologies
Smart companies now put their capital toward clean energy initiatives. Companies that represent one-fifth of global oil and gas production have set diversification targets [17]. In spite of that, clean energy investments received just 2.5% of total capital spending, about USD 20 billion, in 2022 [17].
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Smart Investment Strategies
“Although energy stocks underperformed in 2024, global supply-and-demand conditions indicate that crude-oil prices are likely to remain in an elevated range in 2025, setting up a positive backdrop for profitability—and potentially stock prices—in the sector.” — Fidelity Investments, Multinational financial services corporation
Smart investment strategies and strong risk management shape successful oil and gas investments. US upstream companies saw their net income grow by 7% from 2014 to 2023, even as oil prices fell 18% [3]. These numbers show how important well-planned investment strategies are.
Portfolio diversification approaches
The right mix of investments across industry segments creates a balanced portfolio. Domestic Drilling and Operating and other oilfield services companies have evolved into ‘energy technology companies’. Domestic Drilling and Operating aims to secure new orders worth USD 6-7 billion by 2030 [3]. Their transformation includes:
- Creating high-margin solutions with lower carbon footprint
- Growing their presence in carbon capture and hydrogen generation
- Developing specialized skills in new technologies
Private equity now leads investment trends while private credit fills traditional energy finance gaps [18]. Family offices play a vital role by offering flexible, long-term investments that help maintain operational stability.
Risk management tactics
Companies achieve remarkable results by combining sophisticated hedging strategies with operational excellence. NOV Inc. saved USD 75 million annually, while Weatherford improved its gross margin by 160 basis points [3].
These proven approaches help maximize returns:
- High-return investments must remain the focus while keeping production efficient
- Digital transformation cuts costs effectively
- Strategic acquisitions in promising basins beyond the Permian create new opportunities
The upstream sector has seen major consolidation with USD 136 billion in deals since 2023 [3]. Rising acreage prices have pushed companies to look at other basins like Eagle Ford and Bakken. This shift helps reduce concentration risk.
Success in portfolio management depends on watching market conditions closely and adapting to new trends quickly. Companies now learn about different financing options, such as public-private partnerships and green bonds [3]. These options ensure enough capital flows into both traditional operations and clean energy projects.
Conclusion
Smart strategies can help protect your portfolio as oil and gas investments will see major changes through 2050. Market fundamentals suggest we’ll still need oil, though at lower levels. The industry will require about 10 million barrels per day of new production between 2030 and 2050.
Asset values will shift due to climate policies and carbon pricing mechanisms, which makes strategic portfolio management crucial. You should think over spreading your investments in different industry segments instead of avoiding the sector completely. Keep a close eye on clean energy opportunities that emerge. Companies that show they can adapt to environmental regulations and excel operationally often make the best investment targets.
Your success in oil and gas investing now relies on grasping both traditional market dynamics and energy transitions. Look for companies that invest in budget-friendly technologies and run efficiently – these firms usually handle market swings better than others. The sector also offers opportunities beyond traditional areas, with regions like Eagle Ford and Bakken providing alternatives to heavy Permian Basin exposure.
The oil and gas sector keeps adapting and evolving despite challenges from stranded asset risks and tech disruption. Your investment choices should match this reality by finding the right balance between quick returns and long-term sustainability. Call Sean at Domestic Drilling and Operating
FAQs
What is the projected outlook for oil and gas markets in 2025?
Global oil demand is expected to grow by 1.1 million barrels per day in 2025, with worldwide supply increasing to 104.5 million barrels per day. Natural gas markets may face volatility due to weather-related consumption increases and inventory fluctuations.
How are energy policies impacting oil and gas investments?
Energy policies are causing significant shifts in the industry. Climate policies have led to a 6.5% decline in investment among publicly traded oil and gas companies. Carbon pricing mechanisms and infrastructure regulations are also reshaping investment decisions and operational costs.
What are the main investment risks in the oil and gas sector?
Key risks include stranded asset potential, with potential losses exceeding $1.4 trillion globally. Market competition factors, such as volatile commodity prices and geopolitical tensions, pose challenges. Additionally, technological disruptions, particularly from renewable energy advancements, threaten traditional operations.
What strategies can investors use to manage risks in oil and gas investments?
Effective strategies include portfolio diversification across different industry segments, focusing on high-return investments while maintaining production efficiency, and implementing digital transformation initiatives. Exploring opportunities beyond traditional production areas and monitoring market conditions for swift adaptation are also crucial.
Are there any major oil and gas projects expected to start in 2025?
Yes, four significant oil and gas projects are lined up to begin operations offshore Norway in 2025. These projects are expected to boost production for companies like Vår Energi to exceed 400,000 barrels of oil equivalent per day.
References
[1] – https://www.iea.org/reports/oil-market-report-february-2025
[2] – https://www.lse.ac.uk/granthaminstitute/explainers/what-are-stranded-assets/
[3] – https://www2.deloitte.com/us/en/insights/industry/oil-and-gas/oil-and-gas-industry-outlook.html
[4] – https://www.eia.gov/outlooks/steo/
[5] – http://graphics.wsj.com/oil-barrel-breakdown/
[6] – https://www.woodmac.com/blogs/the-edge/five-themes-shaping-energy-in-2025/
[7] – https://www.imf.org/-/media/Files/Publications/WP/2023/English/wpiea2023140-print-pdf.ashx
[8] – https://www.iea.org/news/oil-and-gas-industry-faces-moment-of-truth-and-opportunity-to-adapt-as-clean-energy-transitions-advance
[9] – https://www.unepfi.org/wordpress/wp-content/uploads/2023/04/Oil-and-Gas-Sector-Risks.pdf
[10] – https://www.woodmac.com/news/opinion/how-carbon-pricing-could-reshape-upstream-oil-and-gas-economics/
[11] – https://www.constructable.pro/whats-new-in-oil-gas-february-2025-edition/
[12] – https://www.nature.com/articles/s41558-022-01356-y
[13] – https://energiesmedia.com/six-risks-and-challenges-in-investing-in-oil-and-gas-companies/
[14] – https://www.woodmac.com/news/opinion/corporate-oil-gas-2025-outlook/
[15] – https://www.forbes.com/sites/forbesbooksauthors/2020/09/11/current-market-factors-impacting-economic-performance-of-oil-and-gas-investments/
[16] – https://www.fuld.com/understanding-the-risk-of-disruptive-technology/
[17] – https://www.iea.org/reports/the-oil-and-gas-industry-in-net-zero-transitions/executive-summary
[18] – https://www.akingump.com/en/insights/blogs/speaking-energy/oil-and-gas-in-2025-pursuing-capital-for-growth
