Some private equity firms that back oil and gas companies are becoming increasingly vocal about the role the sector can play as the world shifts to cleaner energy, and are using the current crisis to energy to do it.
Energy-focused firms including NGP Energy Capital Management, Pickering Energy Partners and Quantum Energy Partners have sent articles, reports and presentations to investors highlighting the importance of oil and natural gas during the transition to renewables. The effort comes as investors continue to pour less money into fossil fuels.
Private equity firms argue that the renewable energy sector cannot expand capacity fast enough to reach net zero emissions by 2050, a common goal shared by the US government and several big companies.
The world would be better off, private equity firms say, if the US continued to supply much of the oil and natural gas it needs, avoiding a shift in production to countries with looser environmental standards, while investing in systems that capture and store carbon dioxide. to reduce emissions from the sector.
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Relying too much on renewable energy sources has risks, say private equity firms, pointing to how natural gas shortages and weak winds led to high energy prices in Europe last year, even before the Russian invasion of Ukraine this February. Natural gas prices rose further after Moscow last month cut gas flows to Europe, an effort to split the Western coalition that has rallied against the country since the invasion of Ukraine, experts say in energy
“We need to stop focusing on just replacing all hydrocarbons with wind and solar. We need to ask, ‘What is practical? What can we really do?” said Wil VanLoh, CEO of Houston-based Quantum. He added that the world had never experienced a complete energy transition before, adding new energy sources over time.
“It’s kind of mind-boggling to think that we can actually replace three forms of energy this time,” VanLoh said, referring to coal, oil and natural gas.
Pension funds, endowments and other institutional investors are increasingly moving away from fossil fuel assets, often under pressure from environmental activists and their own constituencies. Private equity firms raised a total of $2.98 billion across seven U.S. oil and gas-focused funds in the first half of this year, down 40% from the total of $5 billion they raised in 12 funds of this type in the previous year. period, according to research provider Preqin.
Private equity firms trying to persuade investors not to leave the oil and gas sector are no doubt defending their economic interests as they seek backing for new funds. But its leaders say they are also reacting to what they see as misconceptions about a sector they say is critical to providing the world with the low-cost energy it will need on its path to net-zero emissions.
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Many investors agree that investing in energy assets beyond renewables is still necessary, consultants and investors said.
“I think a lot of investors recognize that the energy transition is going to take some time,” said Matt Garfunkle, a partner at London-based private equity fund Pantheon Ventures. Garfunkle added, however, that appetite for oil and gas funds remains muted, as investors largely prefer to back companies that are expanding their “green side.” He pointed to Pantheon’s recent investment in a fund that backed power company Calpine, which operates many natural gas plants but also builds solar and wind projects.
Private equity firms focused on oil and gas are also increasing their investments in clean energy companies as they try to win over investors while pointing to their efforts to reduce carbon emissions in their portfolios. For example, NGP-backed oil and gas companies saw a 14% drop in direct emissions and a 40% drop in methane intensity last year, managing partner Chris Carter wrote in a recent paper that NGP he sent all his investors.
Other such companies, notably Kimmeridge Energy Management, argue that the oil and gas sector itself must change if it is to continue to attract capital. An important step would be to set its own goal of net zero, according to the New York firm. In a recent white paper, Kimmeridge called for the sector to, among other actions, electrify operations, reduce flaring and use carbon credits to achieve net zero emissions by 2030.
“We don’t have an oil and gas problem. We have a carbon emissions problem,” said Kimmeridge managing partner Ben Dell. “If we eliminate emissions from the oil and gas industry, there’s no reason why we shouldn’t support it.” .
Write to Luis Garcia at luis.garcia@wsj.com
This article was published by Dow Jones Newswires, a service of the Dow Jones Group
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