Energy icons

Analysis

Energy M&A update: Q4 2019

The pace of use of renewable energy is not expected to be fast enough to offset the effects of economic and population growth, and countries like the United States and China are showing renewed interest in coal. On the other hand, crude prices rose to above $60 a barrel in December, rallying over 10 percent, primarily driven by a Saudi-led effort among OPEC, Russia, and other allies to scale back output. This energy mergers and acquisitions (M&A) update provides Deloitte Corporate Finance LLC insights and market data analysis that shed light on M&A trends in the energy industry.

Energy trends

  • Renewable energy lagging global demand:1 According to the International Energy Agency, while growth in renewables is forecasted to continue, the pace is not expected to be fast enough to offset the effects of economic and population growth. Global oil output is expected to continue to rise over the next decade, but slow markedly after 2025. By 2030, oil demand growth is expected to flatten due to rising fuel efficiency and a transition to electric vehicles.
  • Solar and wind power growing rapidly in the United States:2 According to projections from the Institute for Energy Economic and Financial Analysis, in 2021 the United States is expected to generate more power from renewable energy than from coal. In 2020, US power plants are expected to consume less coal than at any point since 1978, dropping coal’s market share to below 22 percent. The shift comes as US power companies rapidly retire old coal plants and replace them with wind and solar energy farms.
  • China showing renewed interest in coal:3 At the United Nations Climate Summit from December 2 to December 13, 2019, world leaders shifted their attention to China, the world’s top emitter of greenhouse gases. In light of its slowest economic growth level in 25 years (6 percent), policy makers are doubling down on support for coal and other heavy industries. Recent satellite images suggest that China is planning to complete a 148-gigawatt coal plant⁠—nearly equal to the entire coal-power capacity of the European Union.
  • Crude prices rise late in 2019:4 Crude prices rose to above $60 a barrel in December, rallying over 10 percent, primarily driven by a Saudi-led effort among OPEC, Russia, and other allies, known as OPEC+, to scale back output. The rally was also supported by the easing of the US-China trade war, which has weighed on the global economy and energy demand. The US crude benchmark began 2019 at just $45 per barrel. Despite the rally, a sizable global oil supply has kept prices low, compared with historical levels.

This newsletter is a periodic compilation of certain capital markets information. Information contained in this newsletter should not be construed as a recommendation to sell or a recommendation to buy any security. Any reference to or omission of any reference to any company in this newsletter shall not be construed as a recommendation to sell, buy, or take any other action with respect to any security of any such company. We are not soliciting any action with respect to any security or company based on this newsletter. This newsletter is published solely for the general information of clients and friends of Deloitte Corporate Finance LLC. It does not take into account the particular investment objectives, financial situation, or needs of individual recipients. Certain transactions, including those involving early-stage companies, give rise to substantial risk and are not suitable for all investors. This newsletter is based on information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as such. Prediction of future events is inherently subject to both known risks, uncertainties, and other factors that may cause actual results to vary materially. We are under no obligation to update the information contained in this newsletter. We and our affiliates and related entities, partners, principals, directors, and employees, including persons involved in the preparation or issuance of this newsletter, may from time to time have “long” and “short” positions in, and buy or sell, the securities, or derivatives (including options) thereof, of companies mentioned herein. The companies mentioned in this newsletter may be: (i) investment banking clients of Deloitte Corporate Finance LLC; or (ii) clients of Deloitte Financial Advisory Services LLP and its related entities. The decision to include any company for mention or discussion in this newsletter is wholly unrelated to any audit or other services that Deloitte Corporate Finance LLC may provide or to any audit services or any services that any of its affiliates or related entities may provide to such company. No part of this newsletter may be copied or duplicated in any form by any means, or redistributed without the prior written consent of Deloitte Corporate Finance LLC.

References

1 Pippa Stevens, "Global energy demand means the world will keep burning fossil fuels, International Energy Agency warns," CNBC, November 12, 2019, https://www.cnbc.com/2019/11/12/global-energy-demand-will-keep-world-burning-fossil-fuels-agency-says.html, accessed January 14, 2020.
2 Matt Egan, "Solar, wind and hydro power could soon surpass coal," CNN, November 26, 2019, https://www.cnn.com/2019/11/26/business/renewable-energy-coal/index.html, accessed January 14, 2020.
3 Christina Larson, "As World Leaders Meet to Fight Climate Change, China Adds Coal Plants and Cuts Renewable Funds," Fortune, December 2, 2019, https://fortune.com/2019/12/02/china-coal-plants-renewable-energy-funds-cop25/, accessed January 14, 2020.
4 Jordan Blum, "Crude's late year rally masks difficult 2019 for oil industry," Houston Chronicle, December 31, 2019, https://www.houstonchronicle.com/business/energy/article/Crude-s-late-year-rally-masks-difficult-2019-14942101.php, accessed January 14, 2020.

Did you find this useful?