AI Boom and Trump's Energy Polices
Dealmakers are hopeful that President Donald Trump’s energy policies and the power demands of the AI boom will boost gas drilling and production, accelerate M&A and provide private equity firms with much-needed exit opportunities.
US natural gas deal volume hit a low last year, but changing market conditions are set to rev up the dealmaking engine.
"We’re not seeing a huge frenzy, but I do think we see a lot of optimism that the fundamentals are there …waiting to be unlocked,” said Carl von Merz, head of Hunton Andrews Kurth’s US oil and gas practice.
2024 had 65 M&A deals targeting US natural gas companies, the lowest deal count since 2003, according to PitchBook data. However, deal value totalled about $68.5 billion, only slightly below the average of the past two decades. A number of outsized deals, including ConocoPhillips’ $22.5 billion acquisition of Marathon Oil and Chesapeake Energy’s $7.4 billion all-stock merger with Southwestern Energy, inflated the total deal value.
PE deal activity in the sector also stagnated last year, dropping to 48 deals, the second lowest level in more than two decades.
A departure from the climate-focused policies of his predecessor, Trump’s moves to unleash fossil fuel production have fostered widespread optimism within the industry thus far.
"It was almost taboo to invest in traditional energy sources because there was a bad perception of it,” said Tracy Herrmann, a partner at PwC.
Amid the renewed focus on fossil fuels, British energy giant BP said on Wednesday that it would slash its investments in renewable energy and instead ramp up oil and gas production.
In one of its recent moves viewed as positive for the oil and gas industry, the Trump administration lifted the Biden-era ban on new liquefied natural gas (LNG) export permits in January. On Feb. 14, the administration issued an export license to a Kimmeridge Texas Gas-owned Commonwealth LNG project in Louisiana, marking the first approval granted by the administration since it unlocked the export freeze.
The US is one of the largest exporters of LNG, which is natural gas cooled to a liquid state for transport.
These policies will likely stimulate US LNG exports, increase natural gas extraction and boost gas asset prices. This would prompt natural gas producers to expand their production capacity through acquisitions, von Merz said.
The US Energy Information Administration forecasts the average price for the U.S. gas benchmark will reach around $3.8 per million British thermal units (MMBtu) this year and increase to $4.2 per MMBtu in 2026, compared with a historical low of $2.21 per MMBtu in 2024.
Soaring energy demand from AI data centers will be another driving force for higher gas output. Goldman Sachs forecasts global data centers’ power needs will reach 84 gigawatts by 2027, 50% higher than current levels.
"We need more power generation,” von Merz said. "It’s not going to be powered all by wind and solar, and coal is probably seen as not environmentally sound enough, so that leaves you with natural gas.”
Some market players have already moved ahead in ramping up gas production. NextEra Energy, one of the world’s largest renewable energy producers, will partner with gas turbine manufacturer GE Vernova to develop natural-gas-fired power generation projects, which are aimed at feeding the power demand from data centers, manufacturers and other electricity users, according to an earnings call in January.
Increasing upstream production will also fuel the need for midstream assets—pipelines, processing facilities and terminals used for transporting and distributing natural gas products—potentially driving more M&A activity in the space and allowing PE firms to exit their aging midstream assets.
Inventory has been piling up in PE portfolios. Nearly 60% of all the unsold natural gas assets—excluding utility companies—have been held by their PE sponsors for at least five years, according to PitchBook data.