The Texas Oil & Gas Association and Enverus Intelligence Research say the expansion of multiple sources of energy is encouraging because it will take the fullest use of all of them to meet the world’s future demands.
Citing the U.S. Energy Information Administration, TXOGA President Todd Staples said, “As the world moves toward a population of 10 billion by 2050 and global energy demand grows by 36.5 percent, oil and natural gas will continue to play an important role that is necessary to meeting the world’s energy needs.
“Ongoing mergers and acquisitions activity in power and broader energy uses reinforce natural gas’ criticality in maintaining grid reliability,” Staples said from Austin. “Existing and emerging energy sources must work together to ensure a secure, reliable, and affordable energy supply for the future.
“Energy transition is not a simple replacement of one energy source for another but is rather an expansion of multiple sources to meet growing global demands.
“And Texas is at the forefront,” Staples said.
Based in Calgary, Alberta, Canada, Enverus Intelligence Research has tracked $79 billion in power asset and energy transition M&As through the first half of 2024 across 234 deals with a reported value slightly ahead of 2023’s pace of $74 billion in the first six months, although the count for deals with a disclosed value declined by 35 percent.
Including those where no value was disclosed there were 540 announced deals in the first six months of this year compared to 877 deals in the first half of 2023.
“Recording nearly $80 billion through the first six months of 2024 plus an additional $26 billion so far in the third quarter is a showing of strength for power and energy transition deal markets despite multiple challenges including macro-economic factors like sustained higher interest rates that have raised financing costs,” said EIR Head of Energy Transition Ian Nieboer from Calgary.
“Industry-specific challenges have included weakening pricing for renewable fuel credits as well as lithium carbonate equivalent pricing.”
Nieboer said a volatile environmental credits market sparked uncertainty in investors’ minds leading to a compression in deal flow in alternative fuels in the United States.
“Other power markets, particularly generation and storage assets in North America and Europe, have been a primary driver of energy transition deal value with $32.5 billion transacted through the first half of 2024,” he said. “Europe led all regions with $17.1 billion in generation deals followed by North America with $7.4 billion transacted.”
Nieboer said the heightened activity in Europe is driven by the continent’s aggressive carbon reduction goals and efforts to pivot away from Russian natural gas.
“Within the U.S. the Electric Reliability Council of Texas, the Mid-Continent Independent System Operators and the PJM independent system operators have been the primary drivers of deal activity in 2024. U.S. total load is forecast to grow 42 percent by 2050 from today driven by population growth, increased data center demand and electric vehicle adoption.”
Nieboer said overall growth in the load combined with greater integration of renewable generation assets is creating unique opportunities in both generation and storage for nimble buyers.
“Within generation deals, solar deals led through the first half of 2024 with $8.2 billion in announced deal value closely followed by offshore wind at $8 billion and onshore wind with $5.3 billion in announced deal value,” he said. “Despite offshore wind leading in recently announced deals, markets have historically been cool to the idea of companies adding more offshore wind exposure with buyers declining on average 1.9 percent after announcing offshore wind acquisition while acquirers of onshore wind saw an average 1.3 percent gain.
“That is likely related to apprehension about high capital costs, long project timelines and regulatory risk for offshore wind. While renewable penetration into power markets is increasing, some buyers see the value in owning existing gas assets that will provide reliability to the grid.”
Nieboer said the largest decline in deals associated with energy transition has been in raw materials with mining sector deals falling from $11 billion in the first half of 2023 to just $1.7 billion in the first quarter of this year.
“That tracks a precipitous decline in pricing with lithium carbonate equivalent declining in the second quarter to sub-$12,000 per ton after hitting a peak of $81,000 in December 2022,” he said. “Alternative fuel deals were similarly challenged due to the decline in credit pricing in the U.S., which had been a primary focus of transactions in this space.”
He said other energy transition technologies like hydrogen and carbon capture utilization and storage remain at a less commercial stage of development and investment there is still largely focused on asset development and partnership rather than mergers and acquisitions.
“According to EIR data 96 percent of tracked U.S. clean hydrogen capacity skewed to early development stages,” Nieboer said. “However, deal activity should accelerate as more companies look to speed up exposure to these technologies by buying in to existing projects.
“Hydrogen M&A have increased sevenfold in deal value so far in 2024 compared to 2023. Looking forward toward 2025, we see continued strength for power market deals on the back of U.S. load growth and potential tailwinds from the macro-economic environment as the Federal Reserve pivots to rate cuts.”
