Increased risk in markets

Reducing reliance on imported Russian gas

Russia is the world’s second-largest gas producer [5], supplying up to 40% of Europe’s gas [6], and is now creating huge uncertainty in the region’s energy security. While Europe looks at ways to reduce its reliance on imported gas, the perceived instability is beginning to have an impact on M&A and investment appetite [7].

We are already seeing live examples of the uncertainty stalling M&A transactions for assets with links to Russian gas. Germany was due to complete certification of the Nord Stream 2 pipeline to increase share of Russian gas in Europe, however this came to a halt resulting in the sale of Uniper’s stake in Opal, a 473km natural gas pipeline with an annual capacity of 36 billion cubic meters [8], to be placed on hold [9]. This demonstrates the impact that the current climate is having on M&A markets in the short term.

Refinancing deals have also been impacted; more than 100 companies worldwide have delayed or stopped financing deals worth USD 45BN since the start of the conflict in Europe [10]. This is likely to be impacted by EUR infrastructure iboxx index of IG bonds widening [11] as the cost of borrowing has increased by almost 1.5% (double September 2021) for an investment grade infrastructure borrower [12].

Elsewhere in Europe, Spain - an ‘Energy Island’ [13] - and the leading European country by regasification capacity [14], is far less reliant on exported gas from Russia. Similarly, Poland is in an advantageous position as it is on track to be free from Russian gas, oil, and coal by the end of 2022 as a result of the Baltic Pipe construction, connecting Poland to Norwegian gas fields [15]. As the region is able to provide security that other nations are not, we expect M&A activity to remain stable. The current situation in Spain and Poland demonstrates that while there are overarching challenges, some regions remain resilient allowing M&A activity to continue.

Inflation, interest rates and lender caution

The uncertainty in energy security has led to increasing energy prices, likely resulting in record inflation. The Eurozone inflation rate is currently already at 7.5% in March 2022, versus 5.9% in February [16]. Inflation concerns, increasing interest rates, and the continued drive towards energy transition are creeping into conversations with institutional lenders who provide long-term liquidity for infrastructure assets.

Additionally, with ESG investment criteria high on agendas, lenders are far more hesitant to provide liquidity around fossil fuel assets due to perceived risk of countries moving to renewable sources of energy. At the same time, gas infrastructure is viewed as a means of enabling the upcoming decarbonisation through application of low-carbon gases in energy systems. Given that gas is part of the EU taxonomy, transmission and distribution assets are still considered well protected and are not currently presenting any fundamental credit risks.

As a result, gas infrastructure continues to offer attractive opportunities to investors, especially in jurisdictions with advanced energy transition frameworks, such as the UK, with a clear path towards using hydrogen. This is evident in the UK’s hydrogen plan - a GBP 100M investment programme to move existing gas pipelines to provide hydrogen for households by 2026 [17] - demonstrating the opportunity for significant investment that should go hand in hand with public spending.

Opportunities and trends emerging

Midstream infrastructure

Midstream infrastructure assets, especially supply chain integrated and key import and export terminals continue to perform well. The contracted nature of these assets allow them to weather broader market volatility well and therefore, these assets remain attractive to infrastructure sponsors and lenders. This continued interest is evident by Evos Finance BV- an independent liquid bulk storage provider [18] - refinancing of its EUR 640M senior debt facility. Assets focused on strategic storage will potentially face renewed investor interest due to the ongoing energy security crisis in Europe. In addition to providing energy security, the EU has proposed legislation requiring countries to fill their gas storage to a minimum of 90% ahead of winter - it is currently sitting at 26% [19], which will fuel activity further for related gas storage assets.

While recent announcements have increased motivation to reduce Russian gas dependency, gas assets still represent critical infrastructure to Europe. It is clear that the green energy transition is still reliant on natural gas, and success in midstream asset transactions is set to continue as investors look to facilitate the all-important transition.

Importance of Liquified Natural Gas (LNG)

Despite not being ‘renewable’, the increase in the usage of LNG (Liquified Natural Gas), is an important step in transitioning between fossil fuels and renewable energy. With that in mind, European countries are seeking ways to increase LNG capacity to diversify its gas supply. In 2021 alone, demand for LNG across Europe increased by 11%, with a third of the demand coming from Germany [20], and is expected to rise a further 5% in 2022 [21]. This accelerated need for LNG terminals and vessels is attracting infrastructure investors as it presents opportunities for energy security and long-term investment. As investors look to deploy capital in this space, risk appetite has increased and shifted focus to LNG and greenfield investments.

Renewable and green energy

Sustainability has been a core driver of energy deal and fundraising activity for some time [22]. In 2021, energy transition deals accounted for approximately 20% of all sector deals [23] with investors heavily focused on deals being ESG compliant. Q1 2022 alone has seen 185 renewable M&A deals worldwide, [24] and we expect momentum to continue in 2022.

As part of the renewed focus on the environment, there has been the introduction of sustainability linked debt. Lenders are moving towards greener financing solutions, e.g. Independent Network Owner Last Mile Infrastructure deal, [25] in which platform financing with sustainability-linked debt from European and North American banks and PP institutions secured. This trend is set to continue, and we can see this as infrastructure sponsors continue to broaden their level of investment and interest in renewable platforms across Europe and globally.

Sustainability initiatives are also being driven by the EU’s pledges for additional funding for renewables. We see examples of this in their new strategy to boost green energy options by partnering with infrastructure development [26]. Between 2021 and 2022 alone, approximately EUR 5.8BN was invested in energy research projects [27]to improve clean energy technologies.

Nuclear energy has become a topical point in conversations around alternate energy sources. The ongoing debate around its suitability and whether it should have a place in the transition vary across nations. Germany is aiming to move away from nuclear entirely, however this is causing an increase in energy prices and the general cost of living [28]. On the other hand, France and the UK are investing in nuclear energy. France is aiming to build 14 nuclear reactors by 2050 [29] and the UK is planning to build eight reactors [30]. As the debate continues, nuclear will remain on agendas for the foreseeable future.

Opportunities in renewables can be seen outside of Europe, as countries in South-East Asia are pledging commitments towards more climate friendly energy sources. Singapore is a prime example of this, as USD 26BN has been pledged in green bonds by the Singapore government to meet the demand of investors seeking to achieve sustainability targets and deepen liquidity in the sustainable finance sector [31]. We expect government initiatives to continue driving renewables opportunities, as the importance of sustainability will remain at the forefront of conversations.


While the current climate has created challenges, it is clear that the need for energy security is driving investment in the renewables space to enable Europe to become more self-sufficient. Key takeaways include:

  • Europe reducing reliance on imported gas is creating some hesitancy in M&A and debt markets in countries heavily exposed to Russian supplies
  • Despite inflation, rising interest rates and lender caution around fossil fuels, gas remains protected as an energy asset
  • Midstream infrastructure will likely continue to play a role in the energy transition, as gas infrastructure remains critical to ensuring energy security and decarbonisation through application of low-carbon gases (e.g. hydrogen)
  • LNG is a key next step in the transition, and there is ample potential for investors going forward
    Sustainability initiatives will continue to drive renewables M&A

We expect these trends to continue as the energy transition drives forward and creates opportunities in the M&A and debt space.

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