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.
- 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.
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.