America Runs Low on Coal
Coal supply at power plants has reached its lowest point since the 1970s, and the race to build inventory ahead of the heating season has sent domestic coal prices to their highest level in more than a decade. Central Appalachian coal hit $100/ton this fall, which was double its price a year ago and the highest since fossil fuel prices surged in 2008, according to S&P Global Platts. Coal isn’t even available on the spot market, as the commodity has lost market share to natural gas and wind farms, leading miners to sell their output in advance. As the US consumed more renewable energy than coal for the first time in 2019, coal remains an important power source, especially given the recent supply chain logjams.1
Natural Gas Prices Plummet on Bearish Forecasts
On December 31, US natural gas futures were down 11.5% to $3.665/million British thermal units, over fears of unusually warm weather and an uptick in domestic production. The decline represents a fall of more than 40% from October’s peak, and as the heating season continues to be delayed, this is likely to continue. When prices skyrocketed in September, the volume of gas in domestic storage facilities was 7.4% below the five-year average inventory. As of Thanksgiving, the deficit was down to 2.5%, according to the Energy Information Administration. However, weather forecasts predict the warm weather will continue. EBW Analytics Group claims that there will be nearly 35 billion cubic feet less demand this month than expected, and natural gas prices are expected to rise 86% YoY to $5.67 this winter. It seems this rise in price has already started, with futures as of January 10, 2022 reaching $4.146—up 13.2% since the new year.2
Heightened Oil and Gas Demand to Continue for Years
Following the 23rd World Petroleum Congress, leaders of the world’s largest oil companies said that demand for their products would remain “robust for years,” even as we transition to lower-carbon energy. Chevron CEO, Mike Worth, emphasized the importance of addressing risks posed by climate change, yet global economies cannot function without fossil fuels. Executives cite the world’s recent underinvestment in oil and gas—as global spending has been 50% below norms since 2014-- producing demand scarcity. However, as economies rebound from the pandemic, executives are optimistic that the demand will return, noting expected travel increases.3
Opal Fuels Goes Public in SPAC Merger
Opal Fuels LLC, a renewable natural gas producer, is merging with the SPAC ArcLight Clean Transition Corp. II in a transaction valued at $2B to go public. Opal captures methane from landfills and dairy farms and converts that into fuel. The CEO, Adam Comora, said the firm being vertically integrated aids in this merger, as there are not many operational inefficiencies that need to be worked out. Although renewable natural gas is a tiny portion of the energy market, as more countries turn to renewable energy, analysts expect output to skyrocket in the coming years. As Opal looks to expand their operations from 42 states into all 50, a positive outlook for the company and the natural energy sector bodes well.4
Saudi Aramco Sells Minority Stake in Natural Gas Pipeline
In a move to pull cash out of its energy infrastructure, Saudi Aramco agreed to sell a 49% stake in its natural-gas pipeline business for $15.5B to a fund led by BlackRock and Hassana Investment Co. The move follows steps Saudi Arabia has recently taken to raise cash from their vast oil assets. Despite efforts to bring the country’s economy away from oil, Aramco remains Saudi Arabia’s main source of revenue. The company even had to raise debt to pay their $75B annual dividends following the pandemic. As Saudi Arabia continues to extract cash from its assets, it should provide the opportunity for more exciting M&A activity in 2022.5
Largest Transactions Closed
- Enable Midstream Partners, LP
- Energy Transfer LP
- Sempra Global
- KKR & Co. Inc.
- Moda Ingleside Energy Center and Other Assets
- Enbridge Inc
- Dominion Energy Questar Pipeline Services/Dominion Energy Questar Pipeline/QPC Holding Co LLC
- Southwest Gas Holdings, Inc.
- SPX Transformer Solutions, Inc.
- GE-Prolec Transformers, Inc.
- Cameron Highway Oil Pipeline Company
Other Financial Buyer Transactions Closed
- Crockett Cogeneration in California
- Hull Street Energy, LLC
- Steier Oil Field Service Inc.
- Architect Equity LLC
- Two Operating Solar Projects in Massachusetts of EDF Renewables Inc.
- CleanCapital LLC
Other Strategic Buyer Transactions Closed
- Carling Technologies, Inc.
- Littelfuse, Inc.
- Curtis Palmer, a 60 MW run-of-river hydroelectric portfolio
- Innergex Renewable Energy Inc.; Hydro-Québec International, Inc.
- Pioneer Energy Services Corp.
- Patterson-UTI Energy, Inc.
- 100-MW Operating Wind Asset Located in California
- NextEra Energy Partners, LP
- Eight Refined Product Terminals of NuStar Energy L.P.
- Sunoco LP
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.
EBIT - Earnings Before Interest and Taxes