2025 was expected to be a new golden age for traditional energy sources: the era of “drill, baby, drill,” under an administration intent on removing hurdles for producers. Yet even as oil and gas production holds at historic levels, several factors, including a softening of prices caused by the industry’s own robust supply, are creating an atmosphere that rewards discipline over aggressive expansion.
As the year comes to a close, we expect 2026 to look and feel much the same, with continued volatility due to shifting geopolitics and production outside the U.S. impacting domestic markets. For oil and gas companies, the opportunity ahead lies not in pumping more barrels but in operating more efficiently while keeping a close eye on cost uncertainty and regulatory shifts. In short, this is the year to lead with optimization and innovation, staying agile with targeted investments that can improve results—and profitability.
U.S. oil and gas production plateaus at record highs
Representing 19% of global fossil fuel investment, the U.S. remains the world’s largest oil and gas producer, having surpassed Russia in natural gas more than a decade earlier and Saudi Arabia in petroleum in 2018. In 2026 the U.S. is set to retain its record-setting dominance as a “swing exporter,” largely thanks to its flexible, private liquefied natural gas (LNG) market.
In October, the U.S. became the first country to export 10 million tonnes of LNG in a single month. This surging LNG export capacity—boosted further as new terminals ramp up—is reinforcing U.S. export leadership, and capacity is set to reach roughly 16.3 billion cubic feet per day (Bcf/d) by 2026. Major new export facilities, including Plaquemines LNG and Golden Pass LNG, are key drivers of this growth, adding several Bcf/d of capacity and increasing U.S. feed-gas demand. It’s worth noting, however, that China is emerging as a secondary swing LNG supplier, adding a new, demand-side balancing force for the global market.
U.S. crude oil output is also at historic production levels. Production averaged 13.8 million barrels per day (b/d) in August 2025, the highest monthly output on record. This strength stems from faster-than-expected ramp-up of Gulf of Mexico projects and sustained shale efficiency. This rate is expected to plateau at this level, with a 13.5 mb/d average forecasted through 2026, roughly the same as the 2025 year-to-date average.
Abundant supply softens prices
With robust output putting a damper on prices, producers have little incentive to boost production. Robust output is putting a damper on prices and disincentivizing increases in production. These conditions could therefore be working against the industry, with prices likely subdued through early 2026.
It’s a similar story with natural gas, as higher-than-expected domestic production expands storage and tempers price pressure. Henry Hub prices are expected to strengthen slightly as we head into winter, from just below $3 per million British thermal units (MMBtu) in September 2025 to $4.10 /MMBtu in January 2026. This is nearly $0.50 lower than previous forecasts, due to robust supply.
Energy prices aren’t just soft. They’re also volatile, with factors including U.S.-China trade policy, European demand and shifting tariffs all influencing market sentiment from week to week. But because operators are working on long-term timeframes, there may not be much strategic adjustment responding to these short-term swings.
In this environment, strategic planning becomes more complex, and success may depend on getting the most oil out of the ground for the least amount of money.
Regulatory uncertainty and cost pressures
U.S. energy companies have benefitted from the current administration’s focus on increasing production and reducing the industry’s regulatory burdens. Case in point: the end of the “methane fee” imposed on oil and gas producers, a signature Biden administration climate measure included in the 2022 Inflation Reduction Act that took effect in 2024 but was repealed in early 2025.
Even so, uncertainty persists. The Inflation Reduction Act provision authorizing the fee is still on the books, even if the fee itself is no longer collected. This leaves upstream operators exposed to possible future reinstatement.
Even with short-term relief, prudent operators are staying proactive on emissions to preserve market access. Many firms continue to invest in leak detection, continuous monitoring, and certification despite the repeal, as global rules continue to tighten. The E.U. Methane Regulation and other jurisdictions’ stricter methane-reduction targets are forcing U.S. producers and LNG exporters to meet new monitoring and verification standards to maintain market access, particularly important as Europe was responsible for almost 69% of U.S. LNG exports in October.
Domestically, companies need to keep an eye on all regulatory bodies for shifts in emissions regulations and permitting changes. Several U.S. states continue to adopt stricter methane rules, including Colorado, with a 60% below-2005-levels target by 2030 for oil and gas methane emissions. Twenty-four states and the District of Columbia have adopted specific greenhouse gas emissions targets of various levels, reflecting commitment to 2030 goals and support for climate action. Producers on federal land also have to consider guidelines from the Bureau of Land Management. U.S. upstream and midstream firms continue to prepare for methane-fee escalation and new climate-disclosure rules—factors that will influence capital-budget planning and operational technology investment in 2026.
Operational costs may also be affected by shifting trade policies, with the price of steel a potentially significant strategic risk given its heavy use in oil and gas production. Roughly a fifth of steel sold in the U.S. is imported, and prices have been volatile amid Trump administration tariff policies and countermoves from other global steel producers. Steel tariffs doubled in June to 50% from 25%, raising import prices and giving American steelmakers leeway to also charge more, impacting operational costs upstream and midstream. Additional volatility in 2026 could have significant consequences for U.S. oil and gas companies in the continental U.S., with cost inflation in materials potentially eroding margins.
Innovation and efficiency are the 2026 growth stories
As oil and gas producers move past the era of “growth at all costs,” efficiency has become the new benchmark for performance. In 2026, the companies that innovate fastest—and most effectively—will define the next phase of productivity gains.
This is accelerating the energy sector’s ongoing digital transformation. Energy companies are recalibrating their operations to improve efficiencies and reduce the number of days to drill. Operators are also investing in technologies aimed at boosting precision and safety. For example, wearables like smart helmets and biometric sensors can track worker fatigue and detect safety risks, helping head off incidents that could slow or halt production.
Key areas in the near future include AI and deployment of the Internet of Things (IoT) across upstream operations to improve uptime, optimize production and manage costs more precisely. Using AI to analyze IoT sensor data can detect early signs of equipment failure—predictive maintenance—and help operators adjust drilling parameters and balance production across assets. Other promising innovations include on-site additive manufacturing and the use of robotics for inspection or maintenance, as well as digital twin modelling of assets and increased automation across drilling and production workflows.
Conclusion
U.S. oil and gas operators are entering 2026 from a position of strength but tempered ambition. Record production levels and global export dominance provide a solid foundation, but subdued prices from abundant supply are dampening expansion.
For energy companies, 2026 isn’t about chasing a new boom—it’s about running the business like a business. That means investing smartly, managing volatility, and refining what already works to improve efficiency. While price pressures and regulatory uncertainty create headwinds, smart investments aimed at optimizing performance will define success in this plateau.