Get free updates on the Energy sector
Sign up to receive a daily email digest of the latestEnergy sector news.
The North American fossil fuel sector is experiencing a surge in transactions related to changes in the energy mix, as companies bet on the values of oil, natural gas, and clean power.
These moves are occurring as electricity consumption increases due to demand from sources like electric vehicles and data centers. As EV usage rises, there may be a decrease in gasoline consumption in the future.
One of the recent deals was the $18.8 billion sale of pipeline company Magellan Midstream Partners to rival Oneok. Magellan focuses on oil while Oneok has more natural gas assets. Magellan’s management justified the deal by citing experts’ predictions of a more than 50% decline in US gasoline demand by 2050, stating that the company “could face long-term risks as a standalone company.”
However, Energy Income Partners, an investor against the deal, highlighted the management’s change in perspective, as Magellan previously had a positive outlook on the industry. Despite this opposition, 55% of Magellan unit holders approved the transaction.
Energy companies like Magellan are reassessing their futures amidst efforts to decarbonize the economy. The International Energy Agency recently stated that global fossil fuel demand is likely to peak in the coming decade, with natural gas potentially having a longer lifespan than oil due to its role in power generation.
Canadian company TC Energy, known for the abandoned Keystone XL crude oil pipeline project, is spinning off its oil business to focus on natural gas. This split aims to position TC Energy to meet the increasing demand for reliable, lower-carbon energy.
In another deal, Canadian pipeline company Enbridge announced the $14 billion acquisition of the natural gas distribution business of US utility Dominion Energy. Dominion sees this as an opportunity to focus on state-regulated electric utilities and renewables, meeting the growing demand for power.
“They’re taking bets on different things,” said analyst Raoul LeBlanc. “Utilities believe in the success of renewables, while those in the gas and oil business see potential in gas if renewables fall short.”
While gas pipelines can emit methane, a potent greenhouse gas, oil spills are more visible and costly to clean up. Increasingly, investors consider environmental, social, and governance (ESG) factors when deciding where to invest, making it more challenging for fossil fuel businesses to secure capital.
Moreover, there is a decline in new pipeline construction due to legal battles and environmental concerns, leading to an increase in mergers and acquisitions.
“If you can’t build, you buy,” said Keith Fullenweider, chair of law firm Vinson & Elkins. “Construction costs, permitting, and interest rates make new projects less attractive and encourage consolidation.”
Energy Income Partners expressed disappointment with the Magellan vote, commenting on the company’s previously strong assets and management.
Denial of responsibility! Vigour Times is an automatic aggregator of Global media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, and all materials to their authors. For any complaint, please reach us at – [email protected]. We will take necessary action within 24 hours.
