Outlook 2014: Energy will continue to dominate

Kaye Scholer’s Joel Moser foresees M&A activity in the energy sector going strong in 2014, particularly in the unconventional space.

As 2013 draws to a close, Infrastructure Investor sought the perspectives of various industry experts in terms of what they expect to see unfold in the new year.

Joel Moser, partner and head of the Energy and Infrastructure Group at law firm Kaye Scholer, expects a continued trend toward energy mergers and acquisitions (M&A), particularly in the unconventional energy space.

“This is the major US economic story of the decade, if not the century,” he said.

Moser is not the only one taking that view. Discoveries and developments in the US energy sector, particularly in shale oil and gas, have really changed the rules of the game, with the International Energy Agency (IEA) expecting the US to become the world’s largest oil producer by 2015 and becoming self-sufficient in terms of meeting its energy needs in the next two decades.

“The net North American requirement for crude imports all but disappears by 2035 and the region becomes a larger exporter of oil products,” the IEA stated in its 2013 World Energy Outlook.

The McKinsey Global Institute (MGI) also identified shale gas and oil production as one of the five game changers regarding US growth in a report it published in July 2013.

“The shale boom could add as much as $690 billion a year to GDP and create up to 1.7 million jobs across the economy by 2020. The impact will extend to energy-intensive manufacturing industries and beyond,” MGI said in its report “Game changers: Five opportunities for US growth and renewal.”

Moser agrees: “There is bountiful opportunity for investors, developers and entrepreneurs in this boom and it’s just a matter of finding the right way in for infrastructure risk investors.”

These developments in the US energy sector are also one of the reasons energy-related deals have dominated the public-private partnership (PPP; P3) space in the US.

However, Moser points to the continued growth of PPP transportation projects as being “a bit of a surprise.”

“While not a groundswell by any measure, it may be time soon to stop describing these [P3 projects] as ‘serial pilot programmes’ as I have, and consider the possibility that a US PPP market has finally emerged,” he said.

Increased investment in infrastructure is another game changer the McKinsey Global Institute identifies in its report. “The backlog of maintenance and upgrades for US roads, highways, bridges, and transit and water systems is reaching critical levels. The United States must increase its annual infrastructure investment by one percentage point of GDP to erase this competitive disadvantage,” MGI stated.

Unfortunately, a catalyst that could drive the infrastructure market in the US – regulatory reform – does not seem likely to happen any time soon.

“The US sorely needs Federal regulatory reform, particularly in the area of the tax code in the infrastructure space but I do not expect action,” Moser said. “It’s enough to wish that Congress acts in the debt ceiling in a timely fashion,” he concluded.