Power & Energy Q3 2021

Mike Rosendahl

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Industry Trends

Europe Faces Energy Shock As Gas and Power Costs Soar

Costs of natural gas and electricity have surged to record highs in Europe, with coal’s price up more than 70%. Gas prices are so high that they are trading at a premium to crude oil. German inflation has spiked to its highest since 2008, with prices rising 3.4% in August compared to the 2% target for the Euro area. A difficult winter is expected, with a decreased spare supply of power. Contributing factors to this problem include scarcity of gas, rising demand for power as people return to the office, and prices rallying in summer when demand is expected to be low.¹

Investors Wary of Allocating Capital to Fossil Fuel Companies

Over 100 years of energy infrastructure will have to be reverse-engineered to support renewable forms of energy rather than fossil fuels within the next 30 years to transition to a net-zero world by 2050. Investors are hesitant to give fossil fuel companies capital to transition their existing infrastructure to forms of clean energy like green hydrogen, which will be produced from renewable electric power. Fossil fuel companies assert that existing natural gas pipelines can mitigate some of the costs of achieving net-zero emissions by repurposing existing infrastructure. Modifying gas pipelines and midstream infrastructure to carry biofuels and low-carbon hydrogen has generated unease among climate activists. They are concerned that hydrogen will prolong fossil fuel use rather than transition as use declines.²

Oil Companies Support Green Energy Startups To Speed Green Transition

U.S. clean energy startups are thriving as oil companies provide investment driven by investors' desire to move away from fossil fuels by selling cleaner energy and developing technology that will eliminate climate-warming gases. Crunchbase, which measures venture capital investments, says clean-energy startups have taken in $11 billion so far in 2021, up from $5.6 billion for 2020. Startup incubator Greentown Labs say 80% to 85% of their startups are still in business after a five-year period - often the amount of time it takes to determine if a startup will be successful - compared to just 20% of startups overall.³

Hurricane Ida Impacts Louisiana’s Power Grid

Hurricane Ida has left several areas in the U.S.’s Northeast and Gulf Coast areas destroyed, most notably Louisiana. Turning power back on in certain parts of the state is estimated to take weeks, as more than 24,000 distribution poles have been damaged or destroyed, along with 5,700 transformers and 29,000 spans of wire being left dysfunctional due to several power lines being knocked out. Louisiana, and the Southern U.S., have experienced more severe and more frequent severe weather, with Louisiana being hit by five hurricanes within the last 368 days. Additionally, demand for gas has skyrocketed due to people needing gas to either drive out of the region, rest in their vehicles with air conditioning, or fuel their generators.⁴

Major Oil Leaks Result In Increased Gas Prices

A recent oil pipeline spill off of the Pacific coast on October 2nd leaked an estimated 144,000 gallons of oil into the ocean. In the Gulf of Mexico, an estimated 55 separate spills were reported due to the damage caused by Hurricane Ida this summer. Millions of people were left without access to gas, causing demand and prices to skyrocket. Aging pipeline infrastructure has been identified as one of the main issues. There have been 5,750 significant pipeline incidents onshore and offshore, resulting in over $10.7 billion worth of damages from 2001 to 2020. Experts predict that stronger and more frequent storms driven by the changing climate will only increase the damage to the Gulf pipelines if the infrastructure issues aren’t addressed.⁵

Pending U.S. EPA Rule Gains Support

When the pandemic caused the economy to dip in early 2020, demand for oil and gas production weakened, resulting in a decline in methane emissions in the Permian Basin, a large sedimentary basin in the Southwestern U.S. However, methane emissions have now returned to pre-pandemic levels as social distancing requirements have eased and people return to pre-pandemic life. The EPA chief, Michael S. Regan, aims for deep cuts in the amount of methane being produced, emboldened by President Biden’s executive order that will bring increased regulation on methane emissions. Royal Dutch Shell, one of the largest gasoline producers globally, recently sold 225,000 acres in the Basin (estimated to produce 200,000 barrels of oil per day) to ConocoPhillips for $9.7bil. The move indicates Shell’s desire to diversify into low-carbon sectors and Conoco’s oil and gas production expansion.^{6 7}

Global Gas Market Set For Bullish 5-Year Outlook

Global gas prices are at extreme highs at around $26 per million British thermal units due to low inventories and strong demand in Europe and China. Additionally, the frigid weather last year thinned natural gas stocks that have not been properly replenished. Weather is the single dominant factor affecting supply and demand this winter. The market anticipates a few more months of volatility as the Northern part of the world prepares for winter. The oil market was said to have had a ‘pretty orderly’ 2021, thanks to supply management by Russell Hardy, chief executive officer of Vitol. However, overall demand was still 4 million barrels per day behind the pre-COVID-19 levels in 2019.⁸

Demand For Cogeneration Equipment Spikes

Cogeneration systems will reduce carbon emissions and help conserve energy, which government bodies in many countries have been focused on. Cogeneration equipment can simultaneously generate heat and electricity from a single fuel source, making it a more sustainable form of energy production compared to production methods using fossil fuels. An analysis from Allied Market Research highlights that the cogeneration equipment market would expand at a CAGR of 9.4% between 2020-2030, with a market value estimated to be $51.9bn by 2030, up from $21.2bn in 2020.⁹

Largest Transactions Closed

Target
Buyer
Value($mm)

Stagecoach Gas Services LLC
Kinder Morgan Operating LLC “A”
$1,225.00
Diamond S Shipping Inc.
International Seaways, Inc.
$1,101.54
Constellation Energy Nuclear Group, LLC
Exelon Generation Company, LLC
$885.00
Pine Prairie and Southern Pines Natural Gas Storage Facilities of Plains All American Pipeline, L.P.
Hartree Partners, LP
$850.00
391-Megawatt Portfolio of Four Operating Wind Assets of Brookfield Renewable Partners L.P.
NextEra Energy Partners, LP
$733.00
Aria Energy LLC
Archaea Energy Inc.
$693.16
Portfolio of Four Wind Facilities in Texas
Algonquin Power & Utilities Corp.
$600.00
Mountaintop Energy Holdings LLC
UGI Corporation
$540.00
Clenera, LLC
Enlight Renewable Energy Ltd
$390.00
Two Contracted Geothermal Assets in Nevada
Ormat Technologies, Inc.
$377.00

Other Financial Buyer Transactions Closed

Target
Buyer
Value($mm)

Digital Lumens, Inc.
Skyview Capital, LLC
n/a
Electro-Mechanical Corporation
Graycliff Partners LP
n/a
Sonic Systems International, Inc
Boyne Capital Partners, LLC; Breakwater North LLC
n/a

Other Strategic Buyer Transactions Closed

Target
Buyer
Value($mm)

LNG Indy, LLC
Kinder Morgan, Inc.
$310.00
Alamo Pressure Pumping, LLC
NexTier Completion Solutions, Inc.
$238.10
Effingham Energy Facility in Sabannah, GA
Oglethorpe Power Corporation
$232.51

Served as advisor to Zak Incorporated on their acquisition by LAI International and RLJ Equity Partners

Served as advisor to E Energy Adams

Served as advisor to Crane Rental Corporation on their recapitalization by Hammond Kennedy Whitney

Contacts

Michael Poole

Orlando Office

407-621-2112 | Email me now

New York Office

201-444-6280 Ext 1 | Email 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:

Dezem, Vanessa et al. “Europe faces energy price shock with gas and power at records.” Bloomberg, Bloomberg L.P., 6 September 2021.
DiChristopher, Tom. “Financing of hydrogen, low-carbon fuel pipelines faces hurdles in ESG era.” S&P Capital IQ, S&P Global Market Intelligence, 4 Oct. 2021.
Hampton, Liz. “Big oil courts U.S. clean-energy startups in bid to speed green transition.” Reuters, Reuters, 5 Oct. 2021.
Elamroussi, Aya. “It could be weeks before some parts of Louisiana have power restored.” CNN, Cable News Network, 6 Sept. 2021.
Nilsen, Ella and Stark, Liz. “America's offshore oil infrastructure is aging. 'We don't know there's a problem until there's a problem.'.” CNN, Cable News Network, 5 Oct. 2021.
German, Ben. “Making sense of Shell's exit from the Permian Basin.” Axios, Axios Media, 21 Sept. 2021.
Rives, Karin. “New Permian Basin methane emissions data add support for EPA rule – researchers.” S&P Capital IQ, S&P Global Market Intelligence, 7 Sept. 2021.
Aizhu, Chen. “APPEC Vitol CEO sees global gas market set for reasonably bullish 5-year outlook.” Reuters, Reuters, 27 Sept. 2021.
Danekar, Rutuja and Prasad, Eswara. “Cogeneration Equipment Market Growth-2030.” Allied Market Research, Allied Market Research, Aug. 2021.