Global oil and gas markets are delivering a paradox, record production alongside deteriorating fundamentals. The United States exported 111 million metric tons of LNG in 2025, the first country to breach 100 million annually. US crude output hovers near 13 million barrels daily. Yet beneath these headlines lies an industry running faster just to stay in place, trapped in what veterans call the Red Queen syndrome with shale wells depleting 70-90% within three years, forcing continuous drilling merely to maintain flat production.

The Permian’s Diminishing Returns

The Permian Basin produces 46% of US crude oil and 20% of natural gas, yet productivity gains that drove the shale revolution are flattening. New well oil production per rig increased less than 2% between June 2024 and June 2025, a rounding error compared to 15-20% annual gains achieved in the previous decade.

Operators have exhausted tier-one acreage. Now they’re drilling tier-two and tier-three formation, deeper, hotter, more gas-heavy, and fundamentally less profitable. Tier-one Bakken acreage grows 5-10% annually; tier-two grows 20% because operators must drill exponentially more wells to offset depletion from premium inventory already drilled.

The USGS recently announced 1.6 billion barrels of technically recoverable oil in the Permian’s Woodford and Barnett shales, roughly 10 weeks of US consumption. These formations lie up to 20,000 feet below the surface. At current $60 pricing, extraction is economically marginal.

Texas oil rigs declined nearly 15% in 2025 as Brent hovered around $65-68 per barrel, enough to service debt but insufficient to justify aggressive expansion. Capital discipline has become a straitjacket as depletion accelerates.

The $136 Billion Consolidation

Since 2023, the Permian has witnessed $136 billion in mergers and acquisitions. ExxonMobil’s $59.5 billion Pioneer acquisition, Chevron’s $53 billion Hess purchase, and the $12.8 billion SM Energy-Civitas merger demonstrate the sector’s endgame: scale to survive.

But these aren’t growth acquisitions, they’re defensive maneuvers to acquire declining inventory at distressed valuations. Deloitte analysis projects only 15-25% of listed US oil and gas companies will achieve revenue growth above 5% in 2026. Nearly 70% plan portfolio restructuring and divestment, corporate-speak for managed decline.

The LNG Tsunami

Between 2025 and 2030, global LNG export capacity will increase approximately 300 billion cubic meters annually, a 50% rise. The United States and Qatar will provide two-thirds of this capacity.

US LNG infrastructure is set to nearly double from 15.5 billion cubic feet daily to over 30 Bcf/d by 2030. Plaquemines, Golden Pass, Corpus Christi, Cameron, Rio Grande, Port Arthur, and CP2 will add 15+ Bcf/d, assuming construction proceeds on schedule.

This expansion creates acute upstream pressure. Permian associated gas production averaged 20 Bcf/d in 2025 but faces chronic pipeline constraints. Waha Hub gas pricing has traded at or below zero—producers literally paying to dispose of gas. The Matterhorn Express Pipeline (2.5 Bcf/d) helped, but another 7.3 Bcf/d won’t complete until 2026-2028.

The Haynesville Shale has emerged as the strategic gas basin for LNG exports given Gulf Coast proximity. But even Haynesville faces infrastructure bottlenecks and must compete with data center demand domestically.

Global Pricing Convergence and Investment Discipline

The LNG supply surge is compressing regional price differentials. The JKM-TTF spread (Japan-Korea-Marker minus Title Transfer Facility) nears zero, eliminating arbitrage profits that incentivized flexible cargoes between Asian and European markets.

Europe imported roughly 9 million tons of US LNG in December 2025 alone, continuing displacement of Russian pipeline gas. But European gas demand is structurally declining as renewable capacity expands. Asia presents mixed signals—India expanding, Japan declining 20% since 2018.

Global upstream oil and gas capital expenditure reached approximately $630 billion in 2025—barely above 2019 levels despite inflation and well below the $869 billion deployed in 2015. The IEA projects upstream oil investment will fall 6% in 2025 to around $420 billion.

Approximately 73% of global spending targets upstream activities, but 40% goes solely to maintaining production at existing fields—fighting natural decline. This maintenance-heavy allocation reflects transformation from growth to cash flow preservation.

Yet cumulative investment of $4.3 trillion between 2025 and 2030 is required simply to offset natural decline as peak oil forecasts diverge by 7 million barrels daily for 2030. BP pushed peak oil demand from 2025 to 2030. Vitol extended to mid-2035. The IEA and OPEC see demand growing until at least 2035.

This persistent demand creates the paradox: underinvestment today plants seeds for supply shortages tomorrow. The $2-3 per barrel buffer OPEC maintains through production management could evaporate if decline rates accelerate faster than new supply materializes.

What 2026 Reveals

The oil and gas sector faces structural crosscurrents transcending cyclical volatility. Record US LNG exports and continued shale production obscure deteriorating well productivity, exhausted tier-one inventory, and capital discipline constraining replacement drilling. The $136 billion Permian M&A wave represents consolidation of a maturing industry, not growth sector exuberance.

LNG supply expansion of 300 bcm annually through 2030 will depress prices, potentially creating a glut that discourages the upstream investment required to supply it. Data center electricity demand introduces wild-card competition for gas molecules, bidding supply away from LNG exports.

The industry is running the Red Queen’s treadmill at maximum speed while investors demand it simultaneously slow down and generate cash. This is the upstream crisis beneath record production numbers—a treadmill that eventually stops, regardless of how fast you run.

*Chloe Maluleke

Associate at BRICS+ Consulting Group

Russian & Middle Eastern Specialist

**The Views expressed do not necessarily reflect the views of Independent Media or IOL.

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