PESA’s Energy Transition Committee, led by Advisory Board Members Marco Caccavale, Baker Hughes, and Sanjiv Shah, Simmons Energy, A Division of Piper Sandler, hosted a conversation on how capital markets, and mergers and acquisitions will affect the energy transition.
Ira Green, Managing Director, Head of Energy Capital Markets, and Spencer Rippstein, Managing Director, Co-Head of Energy Investment Banking, shared ongoing energy transition research from teams focused on technology, transportation, and energy production.
U.S. ENERGY DEMAND
Rippstein said electricity production and transportation are currently half of U.S. energy demand. Natural gas and renewable sources are winning, and coal is losing, he said. Renewables are expected to outpace broader energy market growth and natural gas is will be a bridge fuel for electric generation.
Transportation will have a bigger effect on the oil and gas sector than electricity generation, Rippstein said. The increase in electric vehicle (EV) adoption is expected to lower demand for crude over the next couple of decades. The research indicates that EVs will reach 40% of vehicle sales by 2030 (40 million vehicles). This represents about 5-6% of all the vehicles on the road today. In 2040, EVs will comprise about 30% of the U.S. vehicle fleet, which will impact global crude demand.
PUBLIC VS. PRIVATE EQUITY INVESTORS
Green focused on capital markets and said that renewable energy has outperformed traditional energy significantly. Public equity investors are increasingly focused on new energy in part because of ESG factors, which are becoming increasingly important. Investors are moving capital into funds that track renewables and oil and gas companies are investing in low carbon technologies. Green expects many renewable companies will ultimately reside in large traditional energy companies, which are innovative and well-stocked with transferrable skillsets.
Green said special purpose acquisition vehicles (SPAC) are focused on the energy transition. The shell company, created to acquire a company in a specific sector, typically with a two-year target, are low risk for investors. Currently, there is $2.5 billion in capital representing up to $10 billion in deals looking for energy transition acquisitions
Green told attendees that energy service companies have to understand the entire energy chain. He said they cannot ignore natural gas, how midstream companies want to transport hydrogen in pipelines, and needs for power fueled by solar and wind.
Rippstein said natural gas will continue to grow because of increased energy demand and its role as transition fuel. Natural gas will be an important fuel source as the world needs more energy to power vehicles, homes and businesses.
If you are interested in joining PESA’s Energy Transition Committee, please reach out to Vice President Government Affairs Tim Tarpley.