Power Industry M&A is Just Beginning

The supply of global energy appears to be shifting and the United States is the primary beneficiary. According to the recent International Energy Agency’s (IEA) World Energy Outlook, the world is in the process of significantly changing the countries that supply fuels as well as the types of fuels used to provide power around the world.  The headline from the report states that the global energy map is changing with the primary impetus being unconventional oil and gas production in the United States. Access to unconventional sources of oil and gas has expanded production, which has led to greater resources and better fuel pricing, spurring economic activity and changing the face of global energy trade. As a result, this and related sectors should expect high levels of investment and power industry M&A activity for many years to come.

The IEA estimates that the United States will become the largest global oil producer around 2020 (overtaking Saudi Arabia until the mid-2020s). This, in addition to new fuel-efficiency measures in transportation, will lead to a continued decline in oil imports until North America becomes a net exporter of oil around 2030. Additionally, the U.S. Energy Information Administration expects America to become a net exporter of natural gas in the next four to five years. The net increase in global oil production will be derived from unconventional resources and by natural gas liquids, which is expected to create approximately $4.3 trillion in upstream oil and gas investment in North America through 2035. When downstream investment is taken into account, the potential growth is staggering.

What does this mean for merger and acquisition activity? The United States has only begun to reap the rewards of the plentiful oil and gas deposits that have found in parts of the country. With such high levels of investment projected for only a portion of this sector through 2035, companies that serve these industries should undergo tremendous growth. In the process, creating larger and more profitable entities that will be highly attractive acquisition targets for strategic and financial investors.

If the assumptions in the report are true or mostly true, the power sector’s attractiveness to acquirers and investors should only increase. With such high levels of capital invested over an extended period of time, the fundamentals of the sector are exceptionally positive, creating many opportunities for investment. Fortunately, this level of investment will foster expansion of not only upstream activities, but downstream ones as well. Expansion of the natural gas power industry, increasing exports of liquefied natural gas, exports of oil, growing investment in petrochemicals and the sectors that serve them are just a few of the segments that will benefit from this transition as the power and energy landscape in the United States transforms to absorb the abundant supply available at home as well as feed demand overseas.

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Michael Rosendahl

Investment Banking
mrosendahl@pcecompanies.com
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