US natural gas producer EQT announced that it would purchase a pipeline company it had previously owned. This will create a $35bn fully integrated company. The domestic energy industry continues to be awash with mergers and acquisitions.
In 2018, EQT, a Pittsburgh-based company that is one of the US’s largest natural gases producers spun off Equitrans Midstream under pressure from activist investor Jana Partners. The former focused on producing and exploring gas, while the latter was responsible for storing and transporting it.
Equitrans’ all-stock transaction, which has an equity value of approximately $5.5bn represents a rare example in recent history where an upstream company bought midstream assets. EQT stated that the deal would give it more control over accessing markets for gas, and could also help the company address the expected increase in power consumption by Artificial Intelligence.
The combined entity will add 2,000 miles to EQT’s portfolio, which includes more than 4,000 drilling sites in Pennsylvania, West Virginia, and Ohio. This region is one the US’s main centres for gas production.
Equitrans is the joint owner and operator for the controversial Mountain Valley Pipeline Project, a 303-mile pipeline that would transport gas from West Virginia into Virginia.
The pipeline’s construction has been delayed by years because of legal challenges brought forth by environmentalists. However, EQT CEO Toby Rice spoke on Monday about its potential for meeting the expected increase in power demand in the region due to the use of AI. The world’s biggest concentration of servers is located in Northern Virginia’s Data Centre Alley.
Rice said to analysts that the MVP is “an incredibly important piece” of infrastructure. . . Because it is crucial for the energy security in that region and in the US”.
According to Stratas Advisors’ president John Paisie, the Equitrans acquisition will also allow EQT to “gain more control over accessing markets for its gas”, to meet the demand for fuel as it surges in popularity around the globe. Due to logistical limitations, gas prices in Appalachia have been at a discount.
Natural gas production in the US regularly breaks records.
Rice stated that “as we enter a global era for natural gas, US gas companies must evolve their business model to compete on the international stage.”
Last month, US gas prices fell to a near three decade low. This was excluding the few days of the Covid-19 Pandemic. The reason for this was the surge in production and the unusually warm winter, which lowered demand.
EQT’s acquisition of Equitrans comes after a flurry pipeline deals over the last year. These include Oneok acquiring Magellan Midstream Partners for $19bn and Energy Transfer acquiring Crestwood Equity Partners for $7.1bn. The deal comes as part of a larger surge in mergers and acquisitions in the US oil industry. Companies are betting on the future energy mix, and the appetite to build new pipelines is dwindling amid a difficult legal environment.
Many analysts believe that gas will last longer than oil, despite the fact that the International Energy Agency predicts a peak in global demand for fossil-fuels this decade. This is because it has a reputation as a fuel with lower carbon emissions and can help bridge the switch from coal to renewables.