Apollo’s interest in CATEC fueled by rising demand for natural gas and hydrogen

“There is real growth in the need for gaseous fuels as part of the energy transition,” Apollo partner Scott Browning told PE Hub.

The rising demand for cleaner alternatives to carbon-intensive fossil fuels attracted Apollo Global Management to invest in Composite Advanced Technologies (CATEC), a Houston-based manufacturer of storage cylinders for natural gas and hydrogen, Apollo partner Scott Browning told PE Hub.

Scott Browning, Apollo Global Management

“There is real growth in the need for gaseous fuels as part of the energy transition,” Browning said. “In heavy industries, mining or other sectors for example, there may not be a route to decarbonize operations, and they may be using diesel fuel or other heavy fuels with more emissions. Today, you can use compressed natural gas to displace that diesel and in many ways it’s both cheaper for the customer as well as better for the environment,” he added.

As demand for gaseous fuel rises, there is another opportunity to create a one-stop shop for the equipment and services needed, according to Browning.

Demand for CATEC’s high-pressure vessels comes from fuel logistics companies, heavy industrial end-users, utility companies, developers and others. In hard-to-abate sectors or in isolated geographies, such as mining and other heavy industrial places, gaseous fuels can be transported in CATEC vessels to where they are needed to help with decarbonizing efforts.

“The broader gaseous supply chain requires logistics operations that are supported by these types of vessels,” the Apollo partner said. “We see a broader opportunity to invest in CATEC’s capabilities to address that market, whether by expanding capacity or pursuing other growth initiatives.”

With barriers to entry into this sector, Browning said this investment can benefit from being part of a broader platform within Apollo to tackle opportunities in front of it.

The Inflation Reduction Act (IRA), which dedicates billions of dollars in funding for renewables, offers incentives to scale the production of gaseous fuels.

Cleaner fuels

The RNG sector is growing, according to the data from the Environmental Protection Agency, which shows that there were nearly 200 operational projects in the US in 2022, compared with 13 in 2005.

Hydrogen, which is used in industrial processes and in fuel cells for electricity generation and powering vehicles, according to the Energy Information Administration, is also on the rise, and so is compressed natural gas (CNG).

“We see a ton of growth coming on the hydrogen side. There’s a lot of announced projects, and regulatory support will help drive the continued adoption of cleaner fuels,” Browning said.

“That said, as with many of these growth sectors, it won’t always be a straight line, but we have strong conviction in the market’s potential.”

However, in scaling CATEC, Browning believes there are a lot of adjacent businesses and expansion opportunities, both organically and inorganic.

“Our first priority is to continue executing on CATEC’s strategy in partnership with management in a safe and reliable way while taking a targeted approach on both organic and inorganic growth opportunities,” he said.

And how does this investment stand with the current tight climate? “We believe the tailwinds that we see in energy transition and decarbonization can withstand broader macroeconomic volatility,” Browning said.

In CATEC, Apollo is trying to leverage its experience investing in different aspects of the renewables value chain to grow the company, according to Browning. “We have a lot of experience investing in companies benefiting from energy transition tailwinds and in transforming single asset or company investments into a broader platform that can serve customers even better in support of that transition.”

Other PE deals in RNG

There has been a flurry of deals in this sector from PE investors this year. Some recent examples include Goldman Sachs Asset Management’s investment in Synthica Energym, announced earlier in August. Based in Blue Ash, Ohio, Synthica specializes in facilities that use bacteria to break down organic waste produced in manufacturing processes and convert it into RNG.

In April, Quinbrook Infrastructure Partners acquired PurposeEnergy, a Windham, New Hampshire-based company that specializes in turning waste food into bio-gas for use in industrial processes, conversion to renewable electricity, or refinement to RNG.

Also in April and through its portfolio company Covanta, EQT, a Stockholm-headquartered PE firm, agreed to acquire Circon, a La Porte, Texas-based provider of environmental services, including waste management, from Kinderhook Industries.