Latest news with #PavelMolchanov
E&E News
02-06-2025
- Business
- E&E News
How the AI rush is reshaping electric utilities
As electricity demand from the tech sector and manufacturing skyrockets, utilities are facing a stark reality: We're going to need a bigger fleet. And the pressure to add new generation quickly — and without imposing unrealistic costs on consumers — has the industry thinking about deal-making. 'There is a noticeable acceleration,' said Pavel Molchanov, an investment strategy analyst focusing on the utility sector for Raymond James. 'You can go back as far as you want and there have always been mergers and acquisitions in the electric power industry. But it is certainly accelerated by the universal recognition that the next decade and beyond will be a time of growth in electric power.' Advertisement Already this year, several power producers have reached into the market to vastly expand their gas fleets. Houston-based NRG, for example, said it would add 18 gas-fired power plants to nearly double the size of its current fleet in a $12 billion cash-and-stock deal with LS Power Equity Advisors. That came just months after NRG purchased six gas plants capable of producing 738 megawatts from Rockland Capital. Texas-based Vistra announced just days later its own deal to secure seven gas generators totalling 2,600 MW of capacity across five states from Lotus Infrastructure Partners. 'We believe natural gas fired generation will continue to play an ever-increasing role in the reliability, affordability, and flexibility of U.S. power grids for years to come,' said Vistra CEO Jim Burke in a statement on the $1.9 billion deal. He added that the 'attractive portfolio' of new gas assets would allow Vistra to meet growing power demand. In January, Baltimore-based Constellation said it would acquire Calpine Corp. in a $16.4 billion transaction, combining Constellation's nation-leading nuclear fleet with Calpine's fleet of 79 power generators that total some 27,000 MW of power. Canadian company Capital Power in April purchased two gas plants from LS Power for $2.2 billion, making it one of five North American independent power producers to have more than 10,000 MW of natural gas capacity. Earlier this month, TXNM, the parent company of New Mexico's largest utility, announced its acquisition by private equity firm Blackstone. The move, CEO Pat Collawn said, is designed to use an infusion of private capital to help TXNM build a lot more capacity without forcing customer bills to rise significantly. The operations may all have different details, but they share a common goal: getting as much reliable power on the grid as quickly as possible. And with supply chains for generation of all kinds, but especially gas, running behind schedule, Morningstar utilities analyst Travis Miller said that's forcing utilities to look anywhere they can. 'Utilities that need to serve load right away are going to have to do it with existing assets, whether it's theirs or someone else's,' Miller said. 'The recent moves are an attempt to be one of the first available suppliers for any kind of new load.' Utilities are facing unprecedented demand growth. A May report from consulting firm ICF projects that U.S. electricity demand will grow 25 percent by 2030 and 78 percent by 2050, compared with 2023 numbers. Meeting that, ICF said, would require utilities to double the pace of new generation. Other estimates have similarly said that data centers, electrification and onshoring of manufacturing could cause demand to rise at rates not seen in decades. While some utilities are looking to extend the life of their aging fossil fuel assets, many have had retirement plans in place for years. Building new plants is increasingly expensive and time-consuming as parts suppliers ramp up a supply chain that just years ago was in decline. According to Wood Mackenzie, it can take until 2030 for new gas plants to come online thanks to delays in the market. The analysts predict that about 890 gigawatts of new gas-fired generation will be added between 2025 and 2040, with nearly half of that in the U.S. and China. A May analysis by research firm Enverus notes that amid the 'sharp resurgence' of merger and acquisition action in the gas market, the per-megawatt cost of acquiring gas plants on the market has been running well above the $0.5 million average between 2021 and 2024. Yet the report found they're still cheaper than the estimated $2 million to $3 million it can cost to build each megawatt of new gas capacity. 'AI euphoria' That can be encouraging news to utilities already facing upward pressure on rates from the costs of maintaining infrastructure amid extreme weather and meeting new demand. Nationally, federal data shows that the average electricity price will rise 13 percent between 2022 and 2025, outpacing inflation. ICF says that nationally, rates could jump 15 percent to 40 percent between 2025 and 2030, depending on the market. A February report from consulting firm Deloitte said the growing need for capital combined with already rising utility rates means that regulated utilities are 'facing growing limitations' through the traditional method of raising funds. Retail electricity prices, Deloitte wrote, increased nearly 23 percent from 2019 to 2024 and utility requests for rate increases hit record highs between 2020 and 2024. That could make regulators skeptical of further rate increases. That, in turn, means that utilities are eyeing 'alternative funding avenues' such as mergers and acquisitions or infusions of private capital. Between 2016 and 2024, Deloitte found, the average annual investment in the power sector by private capital was up 113 percent compared with the previous eight-year period. The TXNM deal — which will see Blackstone invest $400 million in the short term while the sale is reviewed by regulators — is just the latest sign that Wall Street sees the electricity market as a growth sector. Earlier this year, private equity firm KKR acquired a stake in American Electric Power. On the renewables side, the climate investing arm of asset firm TPG made a $2.2 billion purchase of Altus Power, the largest commercial-scale solar owner in the U.S. In February, the U.K.'s National Grid divested its 3,100 MW of U.S. renewables in a sale to Brookfield Renewable Partners. Raymond James' Molchanov said that the 'AI euphoria' that has accelerated across the tech sector has reshaped the financial picture for the power sector in just a few short years. 'All generation assets have greater value than they did five years ago, or even three years ago,' he said. 'We understand that power demand is in growth mode for the next decade and beyond, and that means the entire category of assets, regardless of the type of generation, is a lot more in vogue.'
Business Times
30-04-2025
- Business
- Business Times
Oil settles lower, posts steepest monthly decline since 2021
[NEW YORK] Oil prices settled down on Wednesday (Apr 30) and recorded the largest monthly drop in almost 3½ years after Saudi Arabia signalled a move towards producing more and expanding its market share, while the global trade war eroded the outlook for fuel demand. Brent crude futures settled US$1.13, or 1.76 per cent, lower at US$63.12 a barrel. US West Texas Intermediate (WTI) crude futures dropped US$2.21, or 3.66 per cent, to close at US$58.21, the lowest settlement since March 2021. For the month, Brent settled down 15 per cent and WTI was down 18 per cent, the biggest monthly percentage declines since November 2021. Both benchmarks slumped after Saudi Arabia, one of the world's biggest oil producers, signalled it was unwilling to prop up the oil market with further supply cuts and could handle a prolonged period of low prices. 'It raises concern that we could be headed towards another production war,' said Phil Flynn, senior analyst with Price Futures Group. 'Are the Saudis trying to send a message that they are going to get back their market share? We will have to wait and see.' Earlier this month, Saudi Arabia pushed for a larger-than-planned Opec+ output hike in May. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up Several Opec+ members will suggest a ramp-up of output increases for a second straight month in June, sources told Reuters last week. The group will meet on May 5 to discuss output plans. 'The trade war directly reduces oil demand and hinders travel by consumers. Combined with Opec's unwinding of output cuts, the risk of oversupply is escalating,' said Raymond James investment strategy analyst Pavel Molchanov. US President Donald Trump announced tariffs on all US imports on Apr 2 and China responded with its own levies, stoking a trade war between the world's top two oil-consuming nations. Concerns over the global economy weakening continued to pressure oil prices. Data on Wednesday showed the US economy contracted in the first quarter, weighed down by a deluge of goods imported by businesses eager to avoid higher costs. Trump's tariffs have made it probable the global economy will slip into recession this year, a Reuters poll suggested. US consumer confidence, meanwhile, slumped to its lowest in nearly five years in April on growing concerns over tariffs, data showed on Tuesday. US crude oil stockpiles fell unexpectedly last week on higher export and refinery demand, limiting some price losses. Crude inventories fell by 2.7 million barrels to 440.4 million barrels in the week ended Apr 25, the Energy Information Administration said on Wednesday, compared with analysts' expectations in a Reuters poll for a 429,000-barrel rise. REUTERS
Zawya
09-04-2025
- Business
- Zawya
US producers face tough choices on growth, capital returns as oil falls below $60
A plunge in oil prices below $60 per barrel due to an escalating trade war may trigger anxiety across the U.S. oil patch, likely forcing companies to double down on measures including cuts to share buybacks and capital expenditures, analysts have said. Brent crude and West Texas Intermediate (WTI) futures slid to their lowest since February 2021, as sweeping tariffs imposed by U.S. President Donald Trump sparked concerns of a recession amid signs of higher supply from top producers. Raymond James analyst Pavel Molchanov said some producers might reduce 2025 capex if the downturn persists, though broader cuts will depend on the depth and duration of the slump. "Share buyback is typically the 'flex variable' that can easily move up and down depending on how much free cash flow is being generated." During the COVID-19 crash in 2020, when oil demand collapsed and prices briefly turned negative, Exxon Mobil slashed capital spending by 30%, while Chevron cut its budget by $4 billion and paused its buyback program. ConocoPhillips had also trimmed spending and halted repurchases. Although oil companies are now leaner and more disciplined, higher service costs and energy transition spending have narrowed financial buffers. EXPECTING BREAKEVEN While many operators benefit from low breakeven costs in the Permian Basin - which is expected to contribute nearly all of the U.S. Lower 48's production growth this year - paying high dividends can put financial pressure on companies working in costlier, less profitable oil fields. Rystad Energy estimates many U.S. oil producers now face all-in breakeven prices above $62 a barrel, including dividends, debt service, and return targets. "Some combination of near-term activity levels, investor payouts or inventory preservation will need to be sacrificed in order to defend margins," said Matthew Bernstein, vice president at Rystad. The crude slump has cast fresh scrutiny on how U.S. oil and gas firms plan to maintain shareholder returns amid tighter margins. RBC Capital Markets estimates Exxon's breakeven to cover both dividends and buybacks is $88 per barrel for 2025. Chevron's is even higher, at $95 per barrel. "The corporate reality for public players means that already modest growth could be at risk if prices remain near $60 per barrel," Bernstein said. Earnings reports later this month will offer insight into whether producers will stay the course or pivot toward cash preservation. "We'll see where we are at the end of April and early May as to whether companies would cut capex or buybacks ... I'm sure we'll get cautionary language about the outlook if weakness were to persist," said Arjun Murti, a partner at energy consultancy Veriten. (Reporting by Arunima Kumar in Bengaluru; Editing by Arpan Varghese and Anil D'Silva)
Reuters
09-04-2025
- Business
- Reuters
US producers face tough choices on growth, capital returns as oil falls below $60
April 9 (Reuters) - A plunge in oil prices below $60 per barrel due to an escalating trade war may trigger anxiety across the U.S. oil patch, likely forcing companies to double down on measures including cuts to share buybacks and capital expenditures, analysts have said. Brent crude and West Texas Intermediate (WTI) futures slid to their lowest since February 2021, as sweeping tariffs imposed by U.S. President Donald Trump sparked concerns of a recession amid signs of higher supply from top producers. Raymond James analyst Pavel Molchanov said some producers might reduce 2025 capex if the downturn persists, though broader cuts will depend on the depth and duration of the slump. "Share buyback is typically the 'flex variable' that can easily move up and down depending on how much free cash flow is being generated." During the COVID-19 crash in 2020, when oil demand collapsed and prices briefly turned negative, Exxon Mobil (XOM.N), opens new tab slashed capital spending by 30%, while Chevron (CVX.N), opens new tab cut its budget by $4 billion and paused its buyback program. Although oil companies are now leaner and more disciplined, higher service costs and energy transition spending have narrowed financial buffers. EXPECTING BREAKEVEN While many operators benefit from low breakeven costs in the Permian Basin - which is expected to contribute nearly all of the U.S. Lower 48's production growth this year - paying high dividends can put financial pressure on companies working in costlier, less profitable oil fields. Rystad Energy estimates many U.S. oil producers now face all-in breakeven prices above $62 a barrel, including dividends, debt service, and return targets. "Some combination of near-term activity levels, investor payouts or inventory preservation will need to be sacrificed in order to defend margins," said Matthew Bernstein, vice president at Rystad. The crude slump has cast fresh scrutiny on how U.S. oil and gas firms plan to maintain shareholder returns amid tighter margins. RBC Capital Markets estimates Exxon's breakeven to cover both dividends and buybacks is $88 per barrel for 2025. Chevron's is even higher, at $95 per barrel. "The corporate reality for public players means that already modest growth could be at risk if prices remain near $60 per barrel," Bernstein said. Earnings reports later this month will offer insight into whether producers will stay the course or pivot toward cash preservation. "We'll see where we are at the end of April and early May as to whether companies would cut capex or buybacks ... I'm sure we'll get cautionary language about the outlook if weakness were to persist," said Arjun Murti, a partner at energy consultancy Veriten.
