The oil, gas and chemicals sector will face these three trends in 2025

Trump’s return may ease the load for the sector, but global uncertainty, price volatility and regulatory complexity are likely to persist.

In brief

• The oil, gas and chemicals sector will see a friendly regulatory environment during Trump’s second term, but unknowns remain, especially in the global market.
• The industry’s focus on consolidation of core growth areas and improvement of operational efficiency will continue in 2025.
• Further gains may be realized by establishing global capability centers (GCCs) to drive best practices and standardization throughout the enterprise.

Donald Trump’s return to the White House signals an easing operating environment for companies in the US oil, gas and chemicals sector, but the global nature of the industry means that in 2025 companies face a level of uncertainty unseen in several years.

Price volatility, especially in global crude markets, is likely to increase over the coming year as markets are buffeted by bearish risks of an economic slowdown or dwindling OPEC+ effectiveness in managing production as well as bullish sentiment prompted by the prospect of continued conflict in the Middle East impacting supplies. Other commodity markets, including for LNG and commodity chemicals, will also be sensitive to economic prospects as well as to the potential for geopolitical concerns to raise feedstock prices when demand is under more bearish pressure.

The intersection of these two trends defines four zones. Companies that have seen relatively weaker recent performance and that have low firepower are in a zone where active divestments should be part of their strategic thinking. These companies need to undertake a financial realignment to increase their ability to take on longer-term strategic acquisitions. Companies with higher firepower but lagging their peers’ performance populate the active acquisition zone, where companies should be equally focused on organic growth and bolt-on acquisitions. They have the firepower but need growth opportunities. The passive zone contains companies with good performance but weaker firepower. Their balance sheets need to be addressed, but targeted acquisitions to enhance cash flow will especially be sought. And finally, companies with both strong recent performance and high firepower sit in the zone of opportunity, where companies can take advantage of strategic acquisitions that may appear. “There are, of course, situations where, despite having low firepower, firms find themselves in a need to execute large deals. This doesn’t mean they are incapable of making strategic acquisitions, just that they will be challenged to do it from the balance sheet, requiring different deal structures or more complex transactions,” adds Rothman.

For 2025, the EY team sees several key themes driving dealmaking

• For chemicals companies whose firepower lies primarily in the specialized chemicals segment, opportunities to create growth or improve margins through specialized offerings are key triggers. Efforts to improve portfolio resiliency may expand to include interest in acquiring sustainable technology or innovative companies specializing in green chemistry.
• Downstream companies have trended toward consolidation to enhance operational efficiency, but current pressure to refine margins and economics is having a dampening effect on firepower. Deals in 2025 will likely be prompted by moves to adapt to shifting consumption patterns; efficiency; and sustainability.
• Oilfield services (OFS) companies have been tremendously impacted by the consolidation in the US upstream sector, but this has been somewhat offset by stronger performances in offshore and international business. Overall O&G capex in 2025 is expected to rise 4%, further bolstering OFS firepower, and M&A will be driven by the need for scale, competitive cost structures and access to capital.
• Strategic acquisitions in the upstream sector have been motivated by a desire to boost competitiveness, access reserves, focus on operational efficiency, and stakeholder benefits. While dealmaking in the prolific Permian Basin is making this the domain of deep-pocketed large producers, independents are driving a push to increased activity beyond the Permian.

“Discipline has really differentiated this current wave of consolidation from previous merger activity,” explains Sean Heinroth, an EY US partner in the Americas Oil & Gas SaT practice. “This includes discipline about what to retain and what to spin off as non-core, which is allowing other players in turn to consolidate their own positions in those ‘non-core’ areas.”

Various paths and cost reduction strategies

Consolidation is not the only route to cost control, and oil and gas companies will continue to drive toward improved operational efficiency in 2025. Indeed, the prospects of a softening of oil prices could place a higher priority on these measures.

On this front, one emerging trend is a novel utilization of global capacity centers (GCCs). Historically, GCCs have been used primarily for offshoring to lower-cost jurisdictions and for routinized back-office functions. But some companies have begun building GCCs off a Tiger Team type of concept, establishing centers of best practices to centrally coordinate activities throughout the global organization.

By using a GCC to centralize not only expertise but execution capability and capacity in areas such as refinery maintenance, companies can drive standardization in these approaches across their global footprint. This has allowed companies to realize goals around standardization, cost reduction and performance improvement that had long been sought but were undone by previously having multiple global teams involved in the execution.

This type of GCC can also deliver these gains, as it is entrusted with upholding the best practices of the enterprise. The rationale for the center is delivery expertise and excellence, and cost improvement is a result of this approach. This centralization drives standardization around the core competency of the GCC while still allowing for local exceptions where necessary.

“GCCs can act also as hubs for adopting new technologies such as predictive maintenance, IoT monitoring and data analytics,” explains Sherry Allen, an EY US managing director in Technology Consulting. From GCCs, these technologies can be rolled out across the global network more efficiently, helping to predict failures, optimize schedules and extend asset life. “The GCCs can also act as a single point of coordination for all vendors, overseeing alignment of efforts in designing, developing and implementing these new technologies,” adds Allen.

Indeed, the scaling of AI and automation is increasingly a lever companies reach for to reduce the number of tasks and improve quality. Oil, gas and chemicals companies have focused in recent years on standing up the data foundations necessary to enable digital platforms and AI to improve overall analytics and decision support. The challenge is scaling beyond the pilot project to develop data-driven analytics support across the enterprise, accelerating value realization in back-office functions as well as in front-office assets such as well, refinery, plant and more.

Scaling AI or other emerging technologies is a constant challenge in oil, gas and chemicals. Chief innovation officers (CIOs) in the sector not only face constant demands to develop new tools and platforms, but also see costs to run existing systems continually rise and then have their budgets cut or at best hold steady. Incorporating the end user and the expected outcomes into the design and development process more immersed from the outset can help overcome some internal challenges by better illustrating the value these investments derive for the business and the employee. “It’s not enough to just build or invest in technology tools,” said Swapnil Bhadauria, an EY US partner in Americas Oil, Gas and Chemicals Consulting. “To safeguard that the technology is aiding in critical decision-making and that users and companies realize the greatest returns from their technology investment, we have to bring those using the technology and responsible for the processes into the journey from the outset.”

The rise in M&A activity, however, may itself be a contributor to difficulties in scaling AI and other emerging technologies. As noted above, consolidation has been a key driver of efficiency in the US sector over the past several years, and a focus on foundational data and digital operations is moving artificial intelligence (AI) to a lower priority. The challenges of integrating systems and other elements of the new combinations may be fueling a sense of change fatigue, impacting the appetite for ambitious scaling of AI in the short term.

Inconsistency in environmental requirements impedes market opportunities

As oil, gas and chemicals companies continue to focus on cost, efficiency and value-generation, the industry will have to simultaneously fend off continued regulatory and societal pressures.

Though climate-related disclosure requirements continue to spread across the globe, there has been no corresponding drive toward a consensus on the standardization of measurement and reporting. Companies with a global presence could find themselves subject to a myriad of reporting and disclosure requirements with often contradictory approaches. Even if the Trump administration should ease or simplify US emissions reporting requirements, US companies operating in Europe would need to comply with the Corporate Sustainability Due Diligence obligation set to come into force in 2026. This law mandates a range of reporting on the elements tied to sustainability, including greenhouse gas emissions, and potentially covering companies’ supply-chains as well as their own operations. This lack of consistency creates additional complexity for an industry that is already challenged by a steep cost of compliance. Ultimately, companies that take a short-term view of any US relaxation of environmental policies will be disadvantaged in the long term as global markets continue to focus on the energy transition, decarbonization and circular economy progress.

Jay Finnane, EY Americas Chemicals Leader, sees this playing out on smaller scales as well and impacting not only reporting but also project execution. In his view, the dilemma places the sector between the aspirational goals of certain governments and consumers and the market realities.

“The lack of reporting standards has been well publicized for many industries, but for plastics in particular, a corresponding lack of standardization for plastic collection, sorting and recycling is seriously compromising progress toward sustainability and circularity objectives,” Finnane says.

This begins with a lack of a consistent regulatory framework to drive plastic waste collection and sorting. It is further affected by inconsistency in sorting and recycling approaches, which ultimately adversely impacts the availability, cost and quality of recycled materials, especially packaging for consumer products.

This has led to not only buyers of these plastics revisiting their targets for the use of recycled plastics, but also the chemicals sector revaluating the ability to realize clear benefits from a circular supply chain or see a viable path forward to create one. 

Given limited prospects for an immediate wider agreement on environmental requirements, oil, gas and chemicals companies will have opportunities in limited areas. Scaling successful pilot projects will continue to be difficult until these wider limitations from regulatory, market and technology approaches can be resolved.

A portion of this article originally published in Hart Energy.