2025 Oil and Gas Industry Outlook | Deloitte Insights

Waha woes

Relative strength in crude oil prices—the US oil-to-gas ratio is at a 10-year high of 40:1—has incentivized leading operators in the Permian basin to prioritize oil operations, resulting in an abundance of associated natural gas production.8 Additionally, large shale operators are exploring tier 2 and tier 3 acreage—which are generally much more gas-heavy—to help offset flattening production from their tier 1 acreage, unlock invested capital, and test new productivity and cost-efficiency measures.9 The result: The Permian Basin’s natural gas production has nearly doubled to 25 billion cubic feet per day (Bcf/d) in the last five years.10 However, the takeaway capacity of natural gas remains highly constrained in the basin, with natural gas pipeline utilization exceeding 90% in , pushing regional Waha Hub spot prices below zero.11 As of early September , prices at the Waha Hub were below zero for 46% of trading days in , including every day since July 26.12

Link to Dragon

However, new midstream infrastructure, such as the 2.5 Bcf/d Matterhorn Express Pipeline, which began transporting natural gas in October , is expected to alleviate some bottlenecks.13 In addition to Matterhorn, three new Permian Basin pipeline projects with a combined capacity of 7.3 Bcf/d are in various stages of development and are expected to be completed between and .14 However, any slowdown in shale production growth over the next 6 to 18 months, especially if large shale operators reduce their drilling and completion activity due to weak prices, could lead midstream companies to shift their focus toward optimizing existing pipelines, rather than constructing new ones. Some major midstream companies have already highlighted this cautious investment approach for the Permian Basin.15

Stable production and timely completion of pipeline projects can help reduce volatility in natural gas prices and support the broader liquified natural gas (LNG) export market, but also meet the rising power demand driven by increasing numbers of data centers. It is projected that data centers will consume 9% of US electricity by , driving over 3 Bcf/d of new natural gas demand by the end of the decade.16

Growing responsibly

Over the past decade, US upstream companies have prioritized capital discipline, digital transformation, and strategic acquisitions to grow profitably. This strategy contributed to a 7% rise in their net income from to , despite an 18% drop in oil prices.17 In the coming year, companies will likely adapt their strategy to address challenges including low oil prices, peaking productivity gains (with rigs in the Midland basin having drilled an average of 47 miles of horizontal lateral wells over the year to June ), an all-time low inventory of drilled but uncompleted wells at 4,500, and the forecasted resurgence in global liquids consumption that is expected to increase by 1.5 MMbbl/d (million barrels/day) in .18 Against the backdrop of major acquisitions, eyes will be on US shale majors to share and execute their “what’s next?” strategy for the Permian Basin.

Consolidating acquired assets and leveraging investments in new technologies, while benefiting from strengthening natural gas prices due to new pipelines, will likely support the profitable growth strategy of shale majors in . 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. Development in tier 1 acreage is growing by 5% to 10% annually in the Bakken Shale Play, while tier 2 acreage is growing by 20% annually.19

Additionally, by implementing new water-treatment protocols and oil-skimming technologies, shale majors may also strive to reduce their environmental footprint and costs associated with managing produced water. In fact, the industry’s cost of reusing water now stands at US$0.15 to US$0.20 per barrel, which is cheaper than the disposal cost of US$0.25 to US$1 per barrel.20

M&A frontiers

With nearly US$136 billion in deals since , the upstream sector has seen major M&A consolidation in the Permian Basin.21 However, higher acreage prices and limited high-quality acquisition targets in the basin, combined with favorable financial markets, may lead to increased drilling and buying activities in other basins, primarily Eagle Ford and Bakken. In fact, the availability of acquisition targets and refracturing opportunities, without significant infrastructure constraints, makes these basins strong rotational candidates for the short to medium term.22 In the first three quarters of , these two basins have already seen a buying interest of around US$7.7 billion.23 This competition, or rotation, can be necessary and healthy. Not only can it reduce the concentration risk on the Permian Basin, but it can also bridge the valuation gap across the shale basins, keep the overall production profile of US shale basins stable, and help bring back private equity or venture capital players. This is especially true in the US upstream sector, where public company consolidations offer more favorable valuations for undeveloped inventory, compared to private equity buyouts, with premiums remaining modest at 10% to 15%.24

Innovating the core

The sector’s transformation can be attributed in part to a strategic blend of innovation and cost-reduction measures. Oilfield companies are leveraging their digital capabilities to deliver high-margin, lower-carbon solutions to their customers. For example, SLB is developing an all-electric subsea infrastructure aimed at reducing costs, improving efficiency, and lowering carbon emissions.28 Concurrently, these companies are often implementing various cost-reduction measures, including restructuring operations, exiting nonprofitable business lines, implementing variable cost management programs, and streamlining corporate structures. These initiatives have yielded substantial financial benefits—for instance, NOV Inc. reported US$75 million in annualized cost savings and Weatherford reported a 160-basis-point increase in gross margin.29 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.

Transitioning into energy technology

Some oilfield services companies are transitioning into “energy technology companies” by diversifying their portfolios to include low-carbon ventures such as carbon capture and hydrogen generation. They are building niche capabilities in these areas and expanding their customer base, thus decoupling their business from the energy industry’s cyclicality. For example, Baker Hughes is developing supercritical carbon dioxide turboexpanders to support NET Power’s low-cost, emission-free, carbon-capturing power system.30 Similarly, SLB is developing an integrated direct lithium-extraction solution that could be significantly faster than traditional methods, while lowering resource usage, thereby possibly reducing operational costs.31 Additionally, cross-sector partnerships are being leveraged to develop advanced technologies—for instance, SLB and Baker Hughes are collaborating with Genvia and Air Products, respectively, to create new solutions for producing clean hydrogen.32 These new technology solutions are expected to drive the long-term growth of oilfield services companies, with companies like Baker Hughes targeting approximately US$6 billion to US$7 billion in new orders by .33

Leveraging M&A offshoots

A period of financial strength amid an easing macroeconomic environment and a highly fragmented sector is generally followed by consolidation. SLB’s acquisition of Champion X in an all-stock transaction valued at US$7.8 billion, the largest deal within the sector, focused on expanding presence within the less cyclical and growing production and recovery space that covers the asset life cycle from completion through decommissioning.34

Similar synergistic considerations were also at play with the acquisition of Parker Wellbore by Nabors Industries Ltd., where Parker’s casing-running business complements Nabors’ tubular services.35 Considering their large upstream customers have completed megamergers in the Permian region in and and will require scalable and tech-powered oilfield services, many small-sized companies could seek exits at favorable valuations, spurring consolidation across the sector. Meanwhile, buyer interest for drilling rigs increased in with deal value reaching US$3.8 billion, its second-highest level since .36

3. National oil companies: Breaking barriers

National oil companies (NOCs), particularly those in the Middle East and members of OPEC, face challenges in the near term, including: 1) balancing crude oil supply and demand and maintaining stability in prices; 2) fulfilling COP28 commitments to reduce the industry’s carbon footprint; and 3) helping to sustain their economies if oil prices remain below their fiscal breakeven for .37

Navigating these challenges is not expected to be easy for NOCs. However, they now operate in a unique ecosystem that may enable them to innovate differently and potentially faster. Many Middle Eastern nations (including Saudi Arabia, Qatar, Kuwait, and the United Arab Emirates) have started to diversify their economies, and their regulatory environments support a balanced energy transition.38 Aligning all stakeholders could be more straightforward for some NOCs than for integrated oil companies (IOCs), as in some cases, governments are both investors and decision-makers for NOCs. Additionally, government-backed financing and vertical integration can help facilitate financial stability and mitigate risks. In fact, over the past three years, Middle Eastern NOCs have entered into at least 20 strategic alliances, including with logistics and technology-related firms; signed M&A deals worth US$4.8 billion for various assets ranging from refining to shipping and retail distribution; and taken equity ownership in cross-border projects, such as LNG export terminals in the United States.39

Strengthening the core

OPEC+ has cut output by a total of 5.86 MMbbl/d, or about 5.7% of global demand, in a series of steps agreed since late .40 OPEC+ plans to restore roughly 2.2 MMbbl/d in monthly tranches in .41 A few NOCs are heavily investing in increasing hydrocarbon production capacity and developing the associated midstream and downstream infrastructure. ADNOC, for example, has set a target to increase crude oil production capacity from the current 3 MMbbl/d to 5 MMbbl/d by , moving up its earlier target by three years.42 Additionally, some NOCs are also making changes in their project, partnership, and go-to-market strategy. Saudi Aramco and ADNOC are investing in mega refining-chemical-low-carbon integrated projects, partnering with technology firms to boost their digital capabilities, and adopting more customer-centric strategies in their operations.43 ADNOC reports generating US$500 million in value by deploying AI solutions through its digital partnerships in .44

Building new capabilities

In the wake of COP28, some Middle Eastern nations are working to scale technologies such as carbon capture and storage and hydrogen (figure 4). The United Arab Emirates, recently approved two carbon capture, utilization, and storage projects designed to capture emissions from gas-processing plants and also aims to produce 1.4 million tons of green and blue hydrogen annually by .45 Oman and Qatar are also advancing in hydrogen production, with Qatar planning the world’s largest blue ammonia plant by .46 The United Arab Emirates announced the world’s largest single-site solar park, and Saudi Arabia’s NEOM project represents a US$500 billion investment in a city powered entirely by renewable energy.47

4. Refining and marketing: Navigating under uncertainty

The refining and marketing sector is at a crossroads, with modest long-term growth projections for traditional fuels and significant profitability challenges in the newly invested renewable fuels segment. Global demand for road transportation fuels (gasoline and diesel) is projected to increase by only 1% between and ; however, is projected to be a year of strong growth following monetary easing worldwide.51 Renewable fuels, on the other hand, are facing an oversupply in the United States, driven in part by lower-than-expected renewable volume obligations set by the US EPA and cheap imports from Europe.52 Additionally, profitability is low due to falling renewable credit prices, with average D4 RIN prices dropping by 63% between January and September .53 The electric vehicle market is facing similar challenges, with growth rate falling from above 30% year over year in to less than 13% year over year in the first half of .54

The result: turned out to be one of the weakest years for the sector. The WTI-US Gulf Coast and Oman-Singapore crack spreads plummeted by 83% and 64% year over year to reach US$12/bbl and US$2/bbl in September , respectively.55 Moreover, the addition of new refineries, particularly in Asia and the Middle East, alongside the completion of refinery maintenance activities, would likely result in higher supply and suppressed crack spreads in the coming year.56 Pure-play independent refiners have reported up to 75% year-over-year declines in their operating profit before tax for their renewable diesel segment in the second quarter of .57 Consequently, some analysts believe that a considerable number of site closures could curb almost 22% of global refining capacity.58 In the face of this uncertainty, refiners may need to adopt a strategic approach to navigate such challenges and transition effectively to low-carbon alternatives.

Optimizing and integrating value chains

Faced with challenges across both traditional and new low-carbon businesses, refiners could boost their resilience and create new value by optimizing their existing hydrocarbon value chains and integrating new low-carbon value chains with the existing business. Optimizing existing hydrocarbon value chains, from feedstocks to final products, may require leveraging digital technologies to integrate people, processes, and assets across an organization’s functions, businesses, and geographies. This is essential to break down functional silos, improve value chain visibility, and minimize value leakage across various functions and processes. For example, an integrated artificial intelligence/machine learning solution could facilitate cross-product, cross-business analytics that shape marketing, supply, and trading decisions in conjunction with operational and commercial constraints to maximize key outcomes.

Integrating low-carbon technologies with traditional operations, where synergistic, rather than treating them differently, is another way to unlock new areas of revenue expansion and cost synergies for companies. To achieve this, companies may need to repurpose their facilities, leverage shared utilities, adapt existing distribution networks, scale demand by targeting large industrial consumers (primarily for hydrogen, ammonia, etc.), and forge new cross-industry partnerships.

Some downstream companies, such as Chevron and Marathon Petroleum Corporation, have formed partnerships with agricultural firms—Chevron with Corteva and Bunge and Marathon with ADM.59 These collaborations can help secure a consistent feedstock supply and strengthen their biofuel supply chains. Meanwhile, policy support can be crucial in stimulating demand for low-carbon fuels. For instance, the United Kingdom and the European Union have implemented a 2% sustainable aviation fuel mandate from onwards.60

Reaching connected customers

Refining and marketing companies have enhanced the efficiency of and sales from their retail fuel and convenience outlets by integrating digital technologies. The integration of AI and the Internet of Things has enabled the development of smart fuel management systems, thereby optimizing inventory, reducing waste, and enhancing supply chain efficiency. Companies are also maintaining a strong focus on customer engagement by leveraging digital technologies and data analytics to understand consumer behavior, optimize pricing, and tailor marketing efforts (figure 5).

Innovations for convenience continue with connected car payment solutions—for instance, Shell’s The Shell App and BP’s BPme app support -based payments from within the car.61 As a result, over half of merchants (53%) that accept payments at the point of sale are planning to implement or are considering connected car payment options.62 These options may also extend to alternative fuels like hydrogen, renewable diesel, and compressed natural gas. However, such increased digitalization necessitates enhanced security infrastructure. In fact, some large oil companies are already testing biometric authentication and implementing robust digital protocols to protect digital payment systems and customer data.63 With electric vehicle consumers spending more time at fuel retail stations compared to their gasoline counterparts, such enhanced convenience solutions can help boost the sale of ancillary products including foods and drinks.64

5. Global energy policies: Government priorities to come into play

The year marked a significant milestone for global policy, with over 70 countries—representing more than half of the world’s population—holding national elections.65 Energy policy emerged as one of the critical issues, with voters assessing the success of their national energy strategies. The outcomes of these elections could influence the pace of the energy transition across various regions, shaping policy approaches to fossil fuels and low-carbon alternatives. What could be the net impact on the energy transition? While it may be too early to provide a definitive answer, analyzing key policies and recent developments across select geographies can offer guidance on the potential direction of energy transition in the coming year.

United States of America

President-elect Trump’s energy priorities include energy independence and lowering energy costs. His proposals seek to increase production of oil and gas, in addition to other energy sources such as nuclear.66 Some of the proposals can be carried out by executive action or through the regulatory process, while others, such as changes to legislation, would require congressional action. Some steps the next administration plans to take include measures to streamline permitting and expedite environmental approvals, in addition to lifting the Biden administration’s pause on new liquified natural gas export permits.67 Other potential policy changes may lead to some uncertainty about the US energy landscape and future regulatory environment.68 Meanwhile, changes in certain tax policies could also impact the industry, particularly by affecting the cash flows available to meet business and shareholder obligations.69

Europe

In Europe, energy policies are increasingly focused on clean energy adoption, with the Renewable Energy Directive III aiming to raise the share of renewable energy in total consumption from 23% in to 42.5% by .70 This directive also targets advanced biofuels, biogas, and renewable fuels of non-biological origin (e.g., hydrogen) to constitute 1% by and 5.5% by of fuel consumption in the transportation sector.71 By October , EU member states are expected to transpose the Energy Efficiency Directive into national legislation, and a 2% sustainable aviation fuel mandate in the aviation fuel mix will commence in .72 The newly elected Labour party in the United Kingdom has announced plans to lift the ban on offshore wind development and has proposed a 78% tax rate on North Sea oil and gas producers.73

Adding to the complexity, certain EU policies, such as the proposed tariffs of up to 45% on Chinese EVs, can increase costs.74 These rising costs could face resistance from customers and contribute to increased uncertainty regarding future hydrocarbon demand. As Europe navigates these shifts, the balance between advancing clean energy initiatives and managing economic and political realities will be crucial.

Emerging economies

Despite concerns over muted hydrocarbon demand in , China’s recent monetary stimulus measures are expected to boost economic growth and petroleum consumption, with Chinese liquid fuel consumption projected to grow by 0.3 million b/d in .75 China’s third plenum session emphasized the supply security of strategic natural resources, likely increasing state purchases of crude oil, natural gas, and strategic metals.76 Additionally, China has doubled its EV subsidy, which could potentially lead to EVs accounting for 50% of new vehicle sales domestically by .77

In India, final energy demand is projected to double between and .78 The country remains committed to renewable energy, ranking fourth globally in renewable power additions.79 The incumbent government’s third term is expected to accelerate India’s energy transition, although challenges remain in phasing out coal-based power plants, with coal consumption expected to increase by 6% year on year in .80

Similarly, Brazil, in addition to being one of the top oil producers in the Americas, continues to lead in renewable energy adoption, generating nearly 90% of its electricity from renewable sources.81 The country is also likely to continue increasing its blending mandates for ethanol and biodiesel, with a 15% target for the latter by .82 Moreover, the New Industry Brazil policy aims to increase the share of biofuels in the transport energy mix to 50% by .83

Put simply, energy policies in some economies are increasingly geared toward creating demand for new low-carbon technologies. Meanwhile, emerging economies are implementing energy policies intended to address both demand and supply to develop comprehensive energy solutions. As a result, energy regulations are increasingly looking at the whole energy basket in totality rather than favoring one energy source over another.

Introduction

Procurement is a mission-critical function in the execution of Engineering, Procurement, and Construction (EPC) projects. It links engineering output with field execution and has a direct impact on project timelines, cost performance, and quality. In major industrial facilities such as refineries, petrochemical plants, LNG terminals, and power plants, delays in procurement are often the root cause of overall project failure.

This article explores procurement from an engineering execution standpoint—focusing on the planning, sequencing, and strategic sourcing of long-lead items across all disciplines including static equipment, rotating equipment, piping, electrical, instrumentation, civil, and structural components.

1. The Role of Procurement in EPC Execution

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Procurement in EPC projects is not a downstream activity—it starts during the early design phases. The entire material supply chain must be aligned with the engineering deliverables, construction sequencing, and client-specific requirements.

Key Procurement Functions:

• Material requisition and specification
• Vendor prequalification and RFQ (Request for Quotation)
• Technical bid evaluation (TBE)
• Purchase order (PO) issuance
• Vendor document review
• Inspection, expediting, and logistics
• Site delivery and material tracking
• Equipment preservation management

Procurement delays are directly tied to missed construction windows. Any late equipment delivery can affect mechanical completion, commissioning targets, and ultimately the project's commercial operation date (COD).

2. Long-Lead Items in EPC Projects

Long-lead items are those that have extended manufacturing or delivery cycles and must be identified and ordered early. Late ordering of long-lead items results in construction delays and compressed schedules, often leading to increased cost and rework.

Examples of Long-Lead Items by Discipline:

• Static Equipment: Columns, drums, heat exchangers, pressure vessels
• Rotating Equipment: Gas Turbines (GT), Steam Turbines (ST), centrifugal compressors, pumps
• Heat Recovery Systems: HRSGs, Waste Heat Boilers
• Piping: High-pressure lines, exotic alloy piping, pre-insulated pipe, modular spools
• Electrical: Transformers, HV switchgear, UPS panels, cable drums
• Instrumentation: Control valves, safety shutdown systems, analyzer shelters
• Valves: Forged valves, HIPPS, cryogenic valves, automated valve skids
• Civil/Structural: Precast beams, foundation anchor bolts, steel trusses for pipe racks

Lead Time Snapshot (Typical):

Failure to track these early leads to resource idling, construction resequencing, and cost escalation.

3. Procurement and Engineering Synchronization

To mitigate delays, procurement must integrate closely with engineering progress. Each 3D model milestone—30%, 60%, and 90%—unlocks key procurement actions.

Engineering MilestoneProcurement Trigger30% Model ReviewIssue RFQs for long-lead static/mechanical items60% Model ReviewFreeze routing; release piping/electrical RFQs90% Model ReviewFinalize instruments, electrical skids

Essential Deliverables for Procurement:

• Datasheets, spec sheets, and interface control documents (ICDs)
• Finalized vendor lists and inspection class requirements
• MTOs, BOQs, and RFQ packages approved by disciplines
• Construction schedule-driven delivery plans (reverse-calculated)

Procurement must also participate in constructability reviews to flag site limitations and delivery risks.

4. Preservation Procedures for Early-Delivered Equipment

Early procurement, while necessary, creates a storage burden if installation is delayed. Robust preservation is vital.

Preservation by Equipment Type:

• GT/ST/Compressors: Oil misting, shaft locking, dry gas blanketing
• HRSG/Drums: Corrosion inhibitors, flange sealing, desiccants
• Switchgear & MCC Panels: Indoor dehumidified storage, energization every 45–60 days
• DCS/Control Cabinets: Shielding from dust and EMI, firmware updates maintained
• Valves & Actuators: Anti-seize reapplication, actuator cycle checks

Failure to preserve leads to:

• Void of warranty
• Additional FAT/inspection scope
• Delays in commissioning readiness

Preservation should be embedded in vendor contracts with logs maintained through the EPC's materials management system.

5. Case Studies: Project Failures Due to Procurement Issues

1. Middle East Gas Plant (USD 2.1B)
2. North Sea Offshore Platform
3. Combined Cycle Power Plant (Asia)
4. South American Refinery Upgrade
5. African LNG Terminal

6. Integrated Procurement Control Framework

Key Control Elements:

• Weekly procurement look-ahead aligned with schedule
• Discipline-wise procurement leads embedded in engineering meetings
• Live vendor document status tracking (linked with EDMS like Aconex)
• Early freight strategy tied to Incoterms and sea voyage durations

Milestone-Based Tracking Table:

7. Recommendations for Future EPC Projects

• Adopt Integrated Engineering-Procurement Systems: Tools like AVEVA or SmartPlant enable visibility of both drawing and supply chain progress.
• Define Procurement KPIs: Lead time adherence, TBE turnaround, PO placement vs. plan.
• Plan Preservation at Contract Stage: Make it a vendor obligation with built-in hold points.
• Train Engineering Teams on Procurement Dependencies: Design freezes must consider vendor feedback timelines.
• Use Procurement Dashboards for Site Leadership: Visual tools support early resolution of bottlenecks.

Conclusion

Materials truly make or break EPC project success. Procurement, when treated as a strategic project delivery driver rather than a back-office support function, ensures smoother construction execution, mitigates costly delays, and enhances stakeholder confidence.

Putting procurement on the critical path—with early engagement, discipline integration, and preservation excellence—is the only way forward in today’s risk-sensitive capital project environment.

References

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