Mercer Capital’s Bryce Erickson and Andy Frew attended the NAPE (North American Prospect Expo) summit on February 5^th and 6^th, 2025 in Houston, Texas.  More than 12,000 primarily upstream oil and gas industry professionals from a wide cross-section of disciplines attended the conference to discuss business opportunities, explore investments, and sharpen their knowledge base.  Four primary themes emerged from our attendance at various panel discussions featuring operational and financial industry participants as well as policymakers from Washington, D.C.

Data Centers Are Spurring an Immediate Need for Infrastructure Development

The demand for data centers has surged with the rapid expansion of artificial intelligence (AI) tools like ChatGPT and Perplexity, which require significant computational power and energy.

Meta is developing a data center larger than New York’s Central Park, requiring 2 gigawatts of power to go online.  Microsoft has committed $80 billion to advance its own AI infrastructure.  Amazon Web Services (AWS) recently announced an $11 billion investment in new data centers in Georgia, following its December commitment of $10 billion for expansion in Ohio.  Alphabet has also signaled its aggressive AI ambitions with a projected $75 billion capital expenditure for 2025.

As demand for data centers grows, so does the need for additional natural gas to support power generation, prompting a response from the North American midstream energy sector.  Low-risk, capital-efficient expansion projects will likely be prioritized to meet this demand, particularly in natural gas fields near key data center hubs in Texas and the Southeast.

The Positive View of the New Administration

The short-term (every two to four years) policy shifts that have been the norm in the recent past have made oil and gas industry investments difficult to make, given many investments require very long runways, some up to 20 years.  The industry’s view has been that excessive and ideologically driven regulations have hindered resource development, restricted the supply of reliable and affordable energy, and burdened Americans with rising energy costs.

The anticipated shift to longer-term, durable policies has industry participants excited about the industry’s growth prospects, particularly in natural gas and LNG.  The shift, however, will not be a cakewalk given the narrow margin of the Republican majority in Congress.

Changing Role of Private Equity

In a panel featuring John Fossum of Petrie Partners, Mohit Singh of Expand Energy, and Tim Pawul of Mineral & Royalties Authority, the discussion turned to the environment and the role that private equity has and may be playing in the energy sector.  John Fossum found today’s environment reminiscent of the late 1990s when the supermajors (Shell, Exxon, BP, etc.) were being formed.

As consolidation continues and shale morphs into more of a manufacturing stage, private equity-backed companies are less likely to be helping to shape and delineate fields.  Gone are the days of an independent private equity-backed company acquiring, say, a 30,000-acre block, drilling it out, and flipping it to a larger competitor.

What is more likely is that these companies will do more joint venture projects with larger players in broken acreage situations and help fill in areas that are not being focused on.  There is currently not very much true exploration-oriented activity anymore.  The oil sector in particular is starting to drift to a declining supply environment, whereby a key question revolves around the replenishment of reserves.  If private equity can help find a solution to that, then their role could expand.

Natural Gas Outlook

One area that is not heading towards a declining supply environment is natural gas.  The panel was clear about that.  What is changing in natural gas is the demand side of the equation for the U.S. in two specific areas: (i) LNG demand and (ii) data center demand from AI.  The bigger, more important aspect is the LNG demand.  The panel mentioned 5.6 Bcfe a day of incremental export capacity coming on in the next 12 months (Golden Pass, Plaquemines, and Corpus Christi/Cheniere) — that is durable demand.  Overall, in the next few years, growth can go from 105 Bcfe per day to perhaps as high as 130 Bcfe per day.

Secondarily, up to five (5) Bcfe a day of new demand could come from data centers by the end of the decade.  In accomplishing this, the electrical grid’s infrastructure abilities will be critical as natural gas and power are viewed more symmetrically, whereby gas molecules and electrons will be discussed symbiotically.   For example, takeaway in the NorthEast is limited, which will need to change soon.

Questions posed by the panel included: how do you get more pipeline capacity in the U.S.?  Can we create in-basin demand by building data centers in-basin?  Can we co-locate in the basin and then lay fiber to get to customers?  All of these questions will need to be addressed.  The re-activation of nuclear plants was discussed, but one point was that only so many mothballed nuclear plants can be re-activated, so everyone was still very optimistic about the future of natural gas demand.

Final Thoughts

It is evident that we are navigating through a potentially transformative era, propelled by both technological advancements and evolving market dynamics.

The professionals of Mercer Capital assist clients with various valuation needs in the upstream oil and gas industry in both conventional and unconventional plays in North America and around the world.

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