Transitioning into 2024, the U.S. oil and gas industry witnessed a whirlwind of activity totaling $250 billion in deals. The latest development in this tale of acquisitions unfolded on March 11 when EQT Corporation, set to become the second-largest natural gas producer in the U.S., announced its acquisition of Equitrans Midstream in a deal valued at approximately $14 billion, encompassing debt. In this transaction, each Equitrans common stock would convert to 0.3504 EQT shares.
Underneath this deal lies a dreary backdrop of a global gas oversupply wreaking havoc on prices. Producers are navigating this storm by scaling back output and drilling investments. EQT, too, is slashing its natural gas production by nearly 1 billion cubic feet per day (bcfpd) this month.
The merger forms a $35 billion natural gas conglomerate, empowering EQT to reduce costs in gas production and transportation significantly. With an additional 2,000 miles of pipelines in its arsenal, EQT will enhance its ability to bring its natural gas products, such as NGJ24, to the market more efficiently. Presently, the company boasts a portfolio of over 4,000 drilling locations in key gas-producing areas of Pennsylvania, West Virginia, and Ohio.
This announcement effectively reverses the 2018 spinoff of Equitrans, a move instigated under pressure from activist investor Jana Partners. EQT foresees improved access to gas markets and anticipates meeting the surge in power demand influenced by the anticipated proliferation of artificial intelligence (AI) in the region.
The Intersection of AI and Energy
Equitrans spearheads the controversial Mountain Valley natural gas pipeline, spanning 303 miles and serving as the sole substantial gas pipeline under development in the Northeast. Despite facing regulatory and legal challenges leading to intermittent construction halts since 2018, the pipeline remains vital for delivering gas from West Virginia to Virginia.
In a conference call discussing the merger, EQT CEO Toby Rice highlighted the pipeline’s strategic importance in catering to the anticipated surge in power demand catalyzed by AI applications in the vicinity, notably in Northern Virginia, which hosts the globe’s largest cluster of internet servers.
Natural gas currently stands as the primary fuel for electricity generation in the U.S. After enduring stagnant demand for decades, electricity consumption projections have recently taken an upward trajectory, catching electric utility providers and regulators off guard amidst the most remarkable demand spike in a generation.
Data centers alone are anticipated to witness a threefold surge in electricity consumption by the end of the decade, scaling up to 390 terawatt hours from 2022 levels, notes the Boston Consulting Group. This figure represents approximately 7.5% of the country’s anticipated electricity requirements.
Moreover, the grid operator for the PJM network, spanning numerous mid-Atlantic states, revised its growth projections threefold earlier this year, attributing the escalation to the proliferation of data centers. The capacity of data centers in the PJM and Southeast markets, key targets for the gas transported through the Mountain Valley pipeline, is projected to nearly double by 2027, heralding a substantial escalation in power demand.
Given the burgeoning demand, Dominion Energy is plotting a near-billion-dollar investment in a new transmission line traversing Northern Virginia’s “data center alley.”
Compelling Reasons to Invest in EQT Stock
As the AI revolution gains momentum and the prospect of surging electricity demand looms on the horizon across various U.S. regions, investing in EQT appears prudent. In January, OpenAI CEO Sam Altman emphasized the escalating energy requirements essential for powering technology advancements.
The proliferation of AI and cryptocurrency, propelling the industry’s electricity consumption to unprecedented levels, is instrumental in bolstering data centers, pivotal components of our digital economy. For instance, ChatGPT consumes nearly ten times the electricity utilized by Google search, a disparity projected to escalate further.
Natural gas, alongside EQT, is poised to contribute significantly to meeting the escalating energy demands triggered by the aforementioned trends.
The Equitrans acquisition is expected to bolster EQT’s profit margins by facilitating better management of pipeline expenses and processing, enabling the company to enhance its global gas pricing exposure in liquefied natural gas (LNG) export markets.
“This vertical integration positions EQT as the lowest-cost natural gas producer in the United States,” remarked CEO Toby Rice, underscoring the strategic advantage this affords the company.
Despite the promising outlook, the Wall Street sentiment towards the deal is less than favorable, driving a decline of over 8% in EQT stock. For potential investors eyeing an entry point, a purchase below $37 presents an attractive opportunity.
