With the new year fast approaching, the upstream energy industry is turning to the market forecast for 2026 and beyond. However, 2026 is set to be a tough year for energy majors, according to several reports and statements from industry analysts. The energy market is changing beyond what anyone could have expected or hoped for, but the new trajectory does not come without some significant challenges for the world’s top companies. Spending cuts and energy transition pressures are the name of the game for the sector in 2026, and some are raising concerns over the profitability of the next few years.
International energy watchdogs are pointing to a troubling 2026 for the upstream sector
Over the past decade, the energy market has seen a shift away from investing in large-scale upstream projects. Some lack long-term financial returns, while others face significant cuts in spending on essential infrastructure. Couple that with increased reliance on the renewable energy sector, and one can foresee a shake-up in the international energy industry over the next few years.
With the end of the year only a few short days away, the upstream sector is not looking forward to the new year, as noted by several reports from industry analysts and organizations. Wood-Mackenzie has released its new Corporate Strategic Planner Oil and Gas 2026 report, and the upstream sector is facing a tough year ahead indeed.
Wood-Mackenzie foresees a difficult year ahead for the upstream energy sector
Wood-Mackenzie’s annual Corporate Strategic Planner Oil and Gas report is a must-have for the litany of energy companies across the world. Each year, thousands of companies await the report that gives them some insight into the future, like a crystal ball. This year, however, the report points to a much more worrying trend emerging in the upstream sector for 2026.
Everything from upstream gas and oil to the renewable energy sector is facing spending cuts in 2026
Spending cuts are a regular occurrence across the business world, but the expected cuts for the upstream energy sector for next year are far beyond what was expected or hoped for. The renewable energy sector has not been spared either, with Wood-Mackenzie noting in its report that low-carbon spending “faces deeper cuts.”
“Most large international oil companies and national oil companies will converge on allocating 10-20 percent of overall budgets to low-carbon initiatives. Capital allocation will swing back towards upstream investments, including exploration and business development.” – Wood Mackenzie’s Corporate Strategic Planner Oil and Gas 2026 report
The increase in AI-driven technology will also impact companies’ budgets for the new year and beyond, with the report from Wood-Mackenzie stating that companies are expected to see dramatic increases in deploying AI-enabled efficiency measures. The report has exemplified the issues the upstream sector is facing at the moment, with production increases expected to be halted at several facilities.
“Near-term price downside risks clash with the need to extend hydrocarbon portfolios into the next decade. Meanwhile, shareholder return of capital and balance sheet discipline will constrain reinvestment rates. Investors will continue to reward near-term priorities such as distributions, stable cash flow and balance sheet strength over long-horizon investments.” – Tom Ellacott, Senior Vice President, Corporate Research at Wood Mackenzie
Several energy majors reported less-than-favorable output in 2025
Shell has noted that it has seen a decline in European output from its facilities, a sign of times to come, it would appear. Market instability, spending cuts to alleviate pressure on investors’ returns, and the new wave of sanctions on Russian energy in all its various forms have placed the energy industry in an exceedingly precarious position. Can the international upstream energy market recover and deliver a positive performance next year? With only a few short days to wait, the answers will come sooner rather than later.
