Mike Rosendahl

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Industry Trends

Natural-Gas Demand and Prices Increase

Natural-gas prices are nearly twice as high this summer as they were one year ago. Rising temperatures and lower production are the primary drivers of the price increases. Natural-gas futures recently ended (6/30) at $3.650 per million British thermal units, representing a 96% increase compared to last year and the highest price heading into summer since 2017. This price increase may lead to higher energy bills for Americans, especially those working from home, as well as a more expensive holiday cookout season. Despite increased demand, drillers have maintained leaner production plans. March 2021 marked the 11th consecutive month in which U.S. natural-gas output in the contiguous 48 states saw a production decline.1

Western U.S. Droughts Strain Power Grid

Western states are at risk of blackouts because of water shortage straining hydroelectric power. The California Department of Water Resources, which operates eight large hydroelectric facilities, expects generation to be about 30% of its ten-year average. Additionally, Utah, Wyoming, Colorado, New Mexico, and Arizona are experiencing the driest streamflow on record. The Hoover Dam’s current generation is down 25% from its peak. Heatwaves in the West put the power grid at risk for rolling blackouts due to significant strain.2

In Effort to Compete with China, First Solar Inc. to Build Factory

First Solar Inc. has committed to building a new $680 million panel factory in Ohio. The company is banking on future Washington subsidies. Currently, Chinese government subsidies and manufacturing of solar panels are undercutting American production. In support of the administration’s efforts to make the U.S electric grid carbon-free by 2035, the Biden administration is already supporting extending tax credits and is planning on requiring federal contractors to purchase solar panels from U.S. suppliers solar panel producers are split between supporting tariffs on Chinese imports to help with competition and opposing tariffs to increase overall panel use. Despite headwinds, solar installations in the U.S. are up 20x in the past decade providing 19.2 gigawatts, or enough power to support 3.7 million homes.3

Investors Bet Big on Renewables, Avoid Fossil-Fuels Causing Possible Oil Shortage

Money managers are investing money in renewable energy products and investing less in oil projects. The lack of investment in new oil projects could lead to a shortage. As oil consumption increases due to lowered COVID restrictions, oil extraction spending has decreased due to limited investment. Some analysts believe the possibility of a shortage is overstated because suppliers are intentionally stockpiling oil due to coronavirus disruptions. U.S. crude prices ($73.52/b at 6/30) have nearly doubled since last October and reached their highest price in more than two and half years, as crude oil is expected to remain in high demand over the next decade, despite the shift in investment strategy.4

Duke Energy to Renew Nuclear Licenses and Consider Splitting Up

Duke Energy plans to renew eleven operating licenses for all of its nuclear reactors. The initial focus will be for the renewal of its largest nuclear plant, Oconee Nuclear Station. If successful, the subsequent license renewal (SLR) approval would allow operations at the plant to contune until 2054. The fossil-fuel-centric company sees nuclear energy as a pathway to the Unites States’ net-zero carbon goals. The company is targeting a 50% reduction in carbon emissions compared to 2005 levels by 2030. One major shareholder, Elliott Investment Management, has publicly pushed for the company to break up into three smaller, regionally focused companies.5

Tax Breaks for Fossil-Fuels to Face Possible Elimination

President Biden’s current tax plan would increase tax benefits for renewable energy firms while eliminating tax benefits for oil and gas companies. The elimination of tax subsidies would increase government income from those taxes by more than $35 billion over the next ten years. The two tax benefits currently in place, intangible-drilling-cost deduction and percentage over cost depletion, help lower taxes for oil and gas companies and mainly benefit exploration and production firms. The combined benefits equate to almost 47% of all fossil-fuel tax benefits.6

Big Tech Moves to Renewable-Energy

Alphabet, Facebook, Microsoft, and Amazon are four of the six largest buyers of publicly disclosed renewable-energy-purchase agreements, accounting for 30%, or 25.7 gigawatts, of the cumulative total purchased by corporations globally. Amazon recently announced a commitment to purchase 1.5 gigawatts of renewable energy production capacity to completely cover its activities by 2025. An increase in data usage has also driven the need for renewable energy, with data centers accounting for roughly 1% of all global electricity usage. Companies are being pressured to show their renewable energy projects add renewable energy to the grid rather than using existing supply.7

OPEC in Deadlock, U.S. Production Limited

OPEC members called off the July 5th meeting, which was scheduled to discuss increasing collective output by 500,000 barrels a day. WTI oil futures to rose to $76.95 a barrel, the highest since 2014 as a result of the cancelled meeting. The U.S. typically responds quickly to price increases, but according to one source, the country’s output will increase by only 200,00 barrels a day this year. The production disparity could mean OPEC members and allies may have greater control over market prices. However, if the stoppage goes unresolved, other producers may be able to step in to satisfy demand and lower prices.8

Hartree Acquires Axel Johnson’s Stake in Sprague Resources

Hartree Partners, the energy-focused commodities firm, has announced that it is closing on the purchase of controlling interest in Sprague Resources, the refined petroleum and natural gas company. The purchase price paid to the current shareholder, Axel Johnson, was $290 million. Sprague has invested over $450 million in growth since its 2013 IPO. This transaction signals the value of having an expanded energy supply footprint.9 10

Congress Restores Obama-Era Methane Standards

Congress has approved eliminating eased emissions standards, resulting in a new rule that would bring back Obama-era emissions standards for oil and gas production facilities. President Biden is expected to sign the new measure into law. Oil and gas producers Shell, Exxon, and BP support methane regulations due to shareholder sentiment on climate issues. This new rule and company attitudes signal the movement toward more environmentally friendly oil and gas production.11

Largest Transactions Closed

  • Target
  • Buyer
  • Value($mm)
  • Natural gas transmission and storage business of Dominion Energy, Inc.
  • Berkshire Hathaway Energy Company
  • $8,000.00
  • Cheniere Energy Partners, L.P.
  • The Blackstone Group Inc.; Brookfield Infrastructure Corporation
  • $7,000.00
  • DoublePoint Energy, LLC
  • Pioneer Natural Resources USA, Inc.
  • $6,207.92
  • All Alaska Operations of BP p.l.c. and BP Pipelines (Alaska) Inc.
  • Hilcorp Alaska LLC
  • $5,600.00
  • El Paso Electric Company
  • J.P. Morgan Asset Management, Inc.
  • $4,332.63
  • TC PipeLines, LP
  • TC Energy Corporation
  • $3,938.23
  • Vivint Solar, Inc.
  • Sunrun Inc.
  • $3,638.22
  • Centrica Us Holdings Inc./Direct Energy Marketing Limited
  • NRG Energy, Inc.
  • $3,625.00
  • International-Matex Tank Terminals, Inc.
  • Riverstone Holdings LLC
  • $2,685.00
  • Trippe Manufacturing Company
  • Eaton Corporation plc
  • $1,650.00

 

Source S&P Capital IQ as of 7/14/2021 and PCE Proprietary Data

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Michael Poole

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Michael Rosendahl

New York Office

201-444-6280 Ext 1 |

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Contacts

Michael Poole

Michael Poole

Orlando Office

407-621-2112

Contact Me Now
Michael Rosendahl

Michael Rosendahl

New York Office

201-444-6280 Ext 1

Contact Me Now

Data Assumptions

This report represents transaction activity as mergers & acquisitions, consolidations, restructurings and spin-offs. Targets are defined as U.S. Based companies with either foreign or U.S. based buyers. Transaction information provided is based on closed dates only.

Glossary

EBIT - Earnings Before Interest and Taxes
EBITDA - Earnings Before Interest, Taxes, Depreciation, Amortization
LTM - Last Twelve Months
TEV - Total Enterprise Value

Sources:

  1. Dezember, Ryan, “The Natural-Gas Glut Has Evaporated, Driving Prices Higher,” The Wall Street Journal, Dow Jones & Company, 20 June, 2021
  2. Blunt, Katherine and Jim Carlton, “West Risks Blackouts as Drought Reduces Hydroelectric Power,” The Wall Street Journal, Dow Jones & Company, 18 June, 2021
  3. Davis, Bob, “Can America’s Solar Power Industry Compete with China’s? One Firm Tries,“ The Wall Street Journal, Dow Jones & Company, 21 June, 2021
  4. Ramkumar, Amrith and Joe Wallace, “Oil Price Hits Pandemix High as Investors Bet on Green Energy,” The Wall Street Journal, Dow Jones & Company, 14 June, 2021
  5. Patel, Sonal, “Despite South Carolina IRP Rejection, Duke Energy Seeks 80-Year Operation for Oconee Nuclear Units,” Power Magazine, 22 June, 2021
  6. Lee, Jinjoo, “Big Oil’s Influence Shrinks as Tax Perks Face Axe in Biden Plan,” The Wall Street Journal, Dow Jones & Company, 14 April, 2021
  7. Schechner, Sam, “Amazon and Other Tech Giants Race to Buy Up Renewable Energy,” The Wall Street Journal, Dow Jones & Company, 23 June, 2021
  8. Wallace, Joe, “U.S. Oil Prices hit Six-Year High Amid OPEC Standoff,” The Wall Street Journal, Dow Jones Company, 6 July, 2021
  9. “Hartree Partners Completes Purchase of Controlling Interest in Sprague Resources,” Global News Wire, 28 May, 2021
  10. “Sprague Resources (SRLP) to Sell Controlling Interest in Sprague Resources LP to Hartree Partners, LP,” Street Insider, 20 April, 2021
  11. Ferek, Katy Stech, “Congress Restores Pre-Trump Era Methane-Gas Emissions Standards,” The Wall Street Journal, Dow Jones & Company, 25 June, 2021
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