U.S. crude and natural gas production reached all-time record highs last year, putting President Joe Biden in a tricky political spot as the 2024 presidential campaign heats up and casting doubt on the industry’s ability to cut emissions.

In 2023, there was a realignment of the U.S. industry following three years of upheaval from Covid-19 lockdowns and a European energy crisis. Now, oil and gas producers are pumping roughly 6 percent more annually than they were a year ago, while average production for natural gas is about 5 percent higher, according to the U.S. Energy Information Administration. As of September, companies were pumping more than 13 million barrels of oil a day.

Record U.S. production is likely to remain a major headline this year, so much so that S&P Global analysts said in mid-December that the country’s output could help offset OPEC+ production cuts slated for 2024.

That creates a somewhat contradictory political argument for Biden, who can push back on Republican charges that he’s stifled oil and gas drilling, but also must appeal to his left flank by saying he’s addressing climate change and moving away from fossil fuels. In the meantime, federal agencies are working on methane emissions regulations for oil and gas that could be affected by who wins the election, although standards in other countries for the greenhouse gas could still influence U.S. company decisions.

Big Oil is facing competing pressures, too. Companies have struggled to meet Wall Street projections for earnings because of high interest rates, elevated capital costs and other issues, despite the sky-high production numbers.

Some European majors, including BP and Shell, have walked back their commitments to their lower-carbon business segments after slumping returns on those investments. U.S.-based oil companies like Exxon Mobil and Occidental Petroleum are investing billions of dollars in carbon capture ventures but are also pouring money into their fossil fuel businesses with huge mergers and acquisitions.

Here are four things to watch with oil and gas in 2024:

Methane rules

New regulations aiming to cut industry methane emissions are slated to be published or enacted in 2024, following the Biden administration’s long-awaited EPA final rules last year, said Jon Goldstein, senior director of regulatory and legislative affairs with the Environmental Defense Fund.

The Pipeline and Hazardous Materials Safety Administration is scheduled to issue a final rule for methane emissions from pipelines in 2024, while the Bureau of Land Management is expected to issue a final rule on limiting venting and flaring on oil and gas facilities located on federal lands.

EPA’s final methane rule also will be published in January, at which point states or companies could file lawsuits to challenge it, Goldstein said. EPA will charge companies methane fees based on their emissions this year.

Industry groups, including the American Petroleum Institute, have said some of the coming rules would make oil and gas more expensive to produce — costs that would be passed onto consumers. Many environmentalists say rules are needed to address climate change.

Goldstein said pressure on industry to cut emissions will push forward in 2024, regardless of who wins the White House. Buyers of liquefied natural gas in Europe, for example, will soon start importing only LNG that meets the continent’s methane standards, which would push U.S. producers to limit their methane emissions, he said.

“No matter what happens in our presidential election, there are going to be global macroeconomic drivers driving industry to reduce methane emissions and show with scientific validity that they are being reduced to the greatest extent possible,” Goldstein said.

Surging production and the climate law

In a December note, S&P Global analysts said that record American oil and gas output has created a “new equilibrium” in international markets that tilts power away from OPEC+. S&P Vice President and head of research for oil markets and energy Jim Burkhard said OPEC+’s supply management keeps prices from falling below a certain threshold, while supercharged U.S. production has helped keep prices from surging too high.

“Not only is the United States producing more oil than any country in history, but the amount of oil (crude oil, refined products and natural gas liquids) that it is exporting is near the total production of Saudi Arabia or Russia,” Burkhard wrote.

While production is forecast to remain at record levels in 2024, sharp growth from that zenith seems unlikely, said Dane Gregoris, managing director of oil and gas research at Enverus analytics firm.

He noted that it takes about 200 days from drilling a well to producing from it. That means that the recent surge in production stemmed from company plans in late 2022, with some actual oil and gas output from drilling not coming online until the third and fourth quarters of 2023. Now, the rig counts are falling — and are down from 779 rigs in late December 2022 to 620 rigs in late December 2023.

Still, Gregoris said he expects oil production to grow by about 400,000 barrels a day in 2024, although at a lower rate than the growth of more than 1 million barrels a day seen last year.

“Maintaining this level of production is a function of price,” Gregoris said. “And prices for oil are relatively robust from a U.S. producer economics perspective. It’s not insanely good — it’s $70 to $80 per barrel of U.S. benchmark West Texas Intermediate crude, but that is very profitable for these businesses to maintain [current production levels].”

Another factor is the Inflation Reduction Act.

Patrick Jelinek, leader of Americas oil and gas with Ernst & Young, said it has spurned significant investment in the industry — including through enhanced oil recovery incentives — even though former President Donald Trump and other Republicans have pointed to the law as a waste of government resources that could hurt oil and gas.

Any Republican efforts therefore could end up hurting the oil and gas industry, he said.

Oil and gas executives also are watching closely whether Congress can pass long-awaited permitting reform that would allow operators to get drilling permits faster, along with the climate law incentives.

“I think that those really become the balancing points: How much does the industry continue to get from a subsidy to drive more scale, more access to markets and then ultimately more commercial incentives to drive lower carbon solutions?” he said.

Mergers and acquisitions

Last year was a banner one for blockbuster mergers and acquisitions, and many oil and gas analysts say 2024 will be just as busy. The mergers have given oil majors more control over some of the most productive U.S. basins.

Among 144 energy executives polled by the Federal Reserve Bank of Dallas in early December, 77 percent said they anticipated more $50 billion-plus mergers this year. Two crested that financial marker last year — the Exxon Mobil acquisition of Pioneer Natural Resources for $59.5 billion and Chevron’s takeover of Hess for $53 billion.

Consolidating to specific regions can give companies more bang for their buck when it comes to capital investments and production, said Jelinek of Ernst & Young. He pointed to the Permian Basin, which in 2023 saw three mega consolidations worth a total of more than $124 billion. Even smaller operators in the Permian are starting to consolidate operations, he said.

“I think what hindered the industry for so long was that when everybody’s spread out across large geographic areas, you have to make trade-offs in capital in terms of where you’re going to put one [infrastructure investment] versus another,” Jelinek said. “I think that there’s the piece of consolidation that makes capital decisions easier.”

The next phase of natural gas

Natural gas prices plunged in 2023 after reaching $9.51 per million British thermal units in 2022, their highest levels in 13 years. Ahead of this winter, when natural gas prices usually rise because of heating demand, they remained below $3 per million Btus.

Those low prices are likely to continue in 2024, even with new liquified natural gas export terminals moving forward and European buyers lining up, said Jelinek with Ernst & Young.

“You’re seeing a lot more import capacity coming online in the coming cycles in Europe specifically, but at the same time, you see production continue to ramp up on the U.S. side as well,” Jelinek said.

Most new U.S. LNG facilities to help offtake some of that supply won’t come online until 2025, even as U.S. production remains historically high at an average above 100 billion cubic feet a day, however.

That will leave producers in limbo as they wait for the market to offtake the record amounts of produced gas this year, said Gregoris with Enverus, especially if prices hover around $2 and $2.50 per million Btus feet. On Dec. 19, the average price was $2.44 per million Btus, according to the EIA.

Gregoris said he expects prices to fall to a point where production will “rationalize.”

“We’ve seen this time and time again: You get prices below $2 or $2.50 in the US, rigs are going to come off, completions are going to get deferred, and you’ll likely have some shut-ins too,” Gregoris said. “You get low prices for a period of time, and it clears up a supply glut.”