If 2020 was a year overshadowed by the covid pandemic, then 2021 was the year that climate change made its reappearance on the global stage. In late October, world leaders gathered in Glasgow for the COP26 climate summit, aimed at navigating a path towards net zero and long-term global temperatures rising no higher than two degrees above pre-industrial levels.
Several deals were inked during the conference. Notable pledges included phasing out coal, limiting methane emissions and more than 100 countries promising to end deforestation by 2030. But even with the raft of promises achieved in Glasgow, the International Energy Agency acknowledged that global temperatures will likely rise by 1.8 degrees by the end of this century, within the Paris Agreement but above the recommended 1.5 degrees.
Kicking the world’s fossil fuel addiction is the name of the game, but 2021 was also a bumper year for oil and gas. Economies tentatively reopened as governments stockpiled vaccines, causing the average oil price to almost double from 2020. Gas prices in Europe and Asia also hit record levels as the lack of global supply and storage sent prices skyrocketing.
This year, the Energy Information Administration expects oil prices to hold firm at roughly $70 per barrel. In 2021, public operators used cautious production guidance, but private firms face little reason to hold back production.
Dealmaking also benefitted from the bearish market. In December, one of the largest energy infrastructure deals of the year was completed by a consortium led by BlackRock for an equity stake in Saudi Arabia’s natural gas network. With Saudi Arabia-based asset manager Hassana Investment Company, the consortium bought a 49 percent stake in the newly formed midstream subsidiary, Aramco Gas Pipeline Company, for $15.5 billion.
Mild wind speeds in Europe also highlighted the importance of building renewables storage capacity to pivot away from fossil fuel consumption. However, in 2021 utilities were forced to redirect cash to more expensive natural gas imports and coal, only adding to the continent’s electricity price crunch. The energy transition may mean greater renewables capacity, but it will also add greater price volatility with the weather playing a more decisive role.
Nevertheless, renewables fundraising continued to build on the strong performance of 2020, particularly for hydrogen. Paris-based investment firm Ardian teamed up with FiveT Hydrogen to launch the world’s largest hydrogen infrastructure investment platform. In December, the newly formed GP held its first close for €1 billion.
Some of the largest funds were directed to renewables last year. Across the first nine months, fundraising for the sector comprised 27 percent of all capital raised. And dedicated renewables funds covered 61 percent of all sector-specific vehicles that closed between Q1 and Q3, showcasing the long-term appeal of sustainable infrastructure assets.