Energy Outlook 2025: Oil and Gas

The transformation of the oil and gas industry is picking up speed. We look at issues from shifting LNG demand to increased regulation on emissions and the impact of AI. Furthermore, we explore how the rapid shift towards EVs and the beginnings of a move away from gas stoves are all having an impact on the shape of oil and gas investments.

The future of LNG markets

In recent years, European LNG markets have grown, especially in terms of consumption. Despite the increasing demand for alternative energy solutions, LNG is still expected to play a significant role in Europe’s energy mix for the foreseeable future. However, European gas demand has recently been on the decline, primarily due to the widespread deployment of renewable energy and energy efficiency measures. According to IDDEFA’s projections, the demand for LNG in Europe is set to decrease by 11.2% from 148 bcm in 2024 to 93 bcm in 2030.

Despite the decline in demand for gas in Europe, LNG continues to play a crucial role in the global energy market, and we expect to see this continue in 2025. The United States has emerged as the world’s largest exporter of LNG, while demand in China and India remains strong. The growing interest in Asia can be attributed to the shift from coal to natural gas. With Asia being one of the world’s leading economic regions, the LNG market is poised to attract substantial investments in the upcoming years, including in 2025. For instance, out of the 37 regasification terminals expected to come online by the end of 2024, China is set to commission as many as 13. Furthermore, both the United States and Europe are witnessing a surge in regasification capacity, which is expected to come online in the near future.

The LNG distribution network is playing a pivotal role in the distribution of the emerging low-carbon hydrogen market, which has contributed to keeping the LNG market buoyant. The growth of the hydrogen markets is expected to add up to a remarkable 54% increase in low-carbon hydrogen capacity by 2025, with approximately 35 plants currently in the final stages of development.

The EU's expanding regulatory framework for LNG: Addressing emissions reductions and meeting market demands

In response to the rising demand for LNG, the EU has rapidly expanded its regulatory framework to reduce greenhouse gas emissions, which includes tax and other fiscal provisions aimed at allocating responsibilities between market participants.

These provisions include a regulatory framework for cost allocation and changes to legal provisions that specifically address “clean energy”. For instance, the EU Methane Regulation came into effect on 4 August 2024, as a significant expansion of the regulatory framework. The regulation mandates new requirements for monitoring, reporting, and verifying methane emissions from relevant activities increasing the responsibilities of market operators in the oil and gas industry, affecting especially LNG importers. Furthermore, the regulation establishes a framework for equivalence requirements and sets a methane intensity threshold for LNG production, apart from the obligations to monitor, report, and verify emissions.

In addition to the expanding regulatory requirements, LNG buyers in Europe, and increasingly in Asia and other regions, are now demanding LNG Sale and Purchase Agreements (SPAs) that clearly outline the carbon intensity of the purchased LNG.

The Methane Regulation not only satisfies the regulators’ objectives but also addresses the market operators’ growing demand for coherence and clarity in market practices. As a result, there are now more detailed provisions in LNG SPAs regarding the measurement, recording, and verification of emissions associated with LNG cargoes, reflecting the changing attitudes of market operators and the evolving regulatory framework.

Cyber security gains importance

The oil and gas industry is facing increasingly sophisticated cyber threats, including APTs from state-sponsored actors, hacktivists, and criminal syndicates. However, the industry's cyber maturity is low due to financial considerations, lack of knowledge, and relatively low insurance coverage. The industry's remote operations and complex data processes also make it an atypical target for cyber-security attacks. The industry needs to react now to address these issues as data produced in the industry is growing, and AI solutions are becoming more popular. The revamped directive on security of network and information systems in Europe, known as "NIS2," gives a regulatory push to oil and gas companies to improve their cyber security standards and protection by expanding the scope, strengthening and streamlining security and reporting requirements, and introducing more stringent supervisory measures.

The implementation of NIS2 is at different stages in EU Member States, with registration obligations already in effect in most jurisdictions and reporting obligations to kick in shortly.

Check out how you may be affected by NIS2 here.

Role of AI in the oil and gas industry 

The adoption of AI in the oil and gas industry will continue to grow in 2025 with digitalisation increasing the amount of data produced by operators. This has resulted in the need for AI solutions to manage and analyse this data to grow.

AI offers significant possibilities to enhance operational efficiency, amplify production, optimise operations, mitigate regulatory and protocol risks, and contribute to a safe work environment, saving time and effort from the human workforce. Investments in AI in the oil and gas industry are projected to increase by 14.1% globally from 2024 to 2034, reaching a market value of USD13 billion by 2034.

AI not only reduces costs and time but also maintains product quality. Typical applications in the oil and gas industry include safety and environment compliance, exploration and production, refining and distribution, defect detection, quality assurance, and accessing new sites. Furthermore, as the industry shifts toward cleaner energy, automation plays a crucial role in integrating renewable sources smoothly into existing systems. The use of AI in the oil and gas industry will continue to evolve, providing significant opportunities for growth and innovation.

Challenges of AI roll-out for the oil and gas industry

Although the adoption of AI in the oil and gas industry continues to grow, challenges and limitations must be addressed for full AI adaption in the industry to be possible, and we expect these challenges to continue into 2025.

The adoption of new technologies requires significant investment, and the industry has traditionally struggled with data quality rather than quantity, limiting the full adoption of AI in the industry. As AI algorithms demand high-quality data, companies must invest in producing data that matches the algorithms' needs as AI applications increase. Process variability in the industry can lead to incoherent data, hindering AI's efficiency across different processes.

Furthermore, the industry faces difficulties in finding competent professionals to leverage AI systems efficiently, and cybersecurity issues need to be addressed for successful implementation. These challenges must be overcome to fully realise the potential of AI in the oil and gas industry.

Transport electrification: Opportunity or threat for the oil and gas industry?

As the world embraces more sustainable practices, electric vehicles (EVs) are revolutionising the energy landscape, significantly impacting the oil and gas industry. The declining demand for refined oil products traditionally used in transportation is forcing oil companies to expand into renewable energy, hydrogen fuel and energy storage solutions.

Experts predict that global EV sales could reach 10 billion in 2025, reducing oil demand by 350,000 barrels of oil daily. This is prompting oil and gas companies to invest in EV charging infrastructure, diversify retail sales services, and reconsider their refining strategies. We expect to see more oil and gas majors announce new investments in 2025.

As a result, the oil and gas sector is prioritizing non-transportation applications, such as optimising operations for plastics and industrial uses. The growth of EVs is compelling companies to rethink and revitalize their strategies, leading to a shift towards renewable energy and other sustainable solutions.

Phasing out gas stoves

The environmental and health impacts of gas stoves are sparking a growing debate over their ban. These appliances emit harmful pollutants such as nitrogen dioxide (NO2) and carbon monoxide (CO), which have been linked to respiratory issues. As a result, electric alternatives are gaining popularity for being safer and more energy-efficient. While no federal plans in the U.S. exist to ban gas stoves, states such as New York are limiting their installation in new buildings starting in 2025.

In Europe, several countries are already phasing out gas stoves to reduce fossil fuel use and improve indoor air quality. France, for example, plans to ban gas stoves and boilers in new buildings by 2025, with existing appliances phased out by 2040. The Netherlands and Denmark are following suit with similar restrictions, aiming to reduce gas consumption in homes over the next decade. These measures demonstrate a growing awareness of the environmental impact of gas stoves and a commitment to a cleaner, healthier future.

Geopolitical tensions and supply chain challenges for oil and gas

Geopolitical tensions and supply chain disruptions will continue to shape the global oil and gas industry in 2025. Ongoing conflicts, such as the Russia-Ukraine war, have already resulted in significant changes in oil and gas flows, with many countries imposing sanctions on Russian energy exports. The impending expiry of gas contracts will also add to the demand for replacing imports, further complicating the overall gas markets. These circumstances have forced a global reorganisation of energy trade, with Europe seeking alternative suppliers and Russia redirecting its exports toward Asia.

Rising tensions in the Middle East, a crucial region for global oil production, pose an additional challenge. Any disruption, particularly along key shipping routes like the Red Sea, could have serious consequences for global energy security. Oil‑producing nations are also feeling the pressure to diversify their economies and energy sources as the global shift toward cleaner energy accelerates. For example, countries like Saudi Arabia are increasing their focus on natural gas production to offset declining oil revenues.

Furthermore, supply chains are under pressure from rising material costs, logistical bottlenecks, and changing trade routes as countries adjust to geopolitical shifts. Oil and gas companies are rethinking their strategies, focusing on building more resilient supply chains and diversifying their energy portfolios to reduce risks. Navigating this increasingly complex geopolitical landscape is essential for companies to remain competitive in the global energy market.

Conclusion – onwards and upwards for the oil and gas industry

The oil and gas industry is at a critical juncture, facing major disruptions such as the growing reliance on LNG, the rise of electric vehicles, rapid digitalisation, and geopolitical challenges. These changes are compelling companies to rethink their strategies to meet sustainability goals, keep pace with the evolving energy market, and comply with regulations.

With demand for traditional oil expected to drop, the industry is exploring new opportunities in areas such as renewable energy, retail services, and petrochemicals to stay competitive.

As global pressure to cut emissions intensifies, innovation and adaptability will be crucial for the future success of oil and gas companies. To remain relevant and meet the growing demand for sustainable energy, companies must be proactive in embracing change and developing new solutions that align with the changing market landscape. The industry must continue to evolve, leveraging new technologies and strategies to meet the demands of a rapidly changing energy market while maintaining a commitment to sustainability.