I have established a reputation as a bit of a contrarian in certain areas of the energy market. I have been tough on pipeline companies in particular. Pipelines have attributes that simply can’t be mitigated. Among them the fact, that they must cross long distances to deliver their products, and pass native populations that are against their construction for reasons of their own. They are also hostage to the political whims of local, state, and federal leaders who typically rail against them being built. That adds up to a negative impact that has restrained shares of pipeline operators, even as the general energy market has rallied this quarter. For example, in my last OilPrice article, I called into question whether Energy Transfer, (NYSE: ET) was a colossus ready to cast off its chains and revert to its glory days? Or did it have farther to fall as a result of an adverse court decision, and more importantly to some, was its lofty ~20% distribution in jeopardy? ET is currently mired in travails over the aptly named, Dakota Access Pipeline. The market has largely discounted an adverse outcome for the company as ET’s stock remains under pressure while the continued operation of the DAPL is litigated.
So having established my creds as a pipeline doubter with broader concerns that I documented in an OilPrice article last winter about the gas market in particular, when I saw what Warren Buffett had done, my immediate reaction was…He’s finally lost it!
If you haven’t been following closely, last week Warren Buffett made a move no one anticipated by forking over $10 bn for Dominion Energy’s natural gas assets. In this article we will move a little beyond the headlines and postulate what this move, by one of America’s cagiest investors might hold in store for both the pipeline and gas markets.
Warren buys Dominion’s Gas assets
It was an odd timing given that on that very same day the company involved, Dominion Energy, (NYSE:D) canceled a gas pipeline with another utility player, Duke Energy, (NYSE:DUK). Perhaps they were just tired of buying their lawyers new Tesla’s, all the time. This project had been embroiled in controversy for years. And, just as it looked like they might be winning with a favorable ruling from the Supreme Court on June, 15th, they cancelled it, unemploying a raft of legal talent in the process one presumes.
It turned out to be a busy day in the pipeline business as that same day, the deal with Buffett was announced. In a nearly US$10-billion deal, Dominion Energy with its sights set squarely on its goal of achieving zero-carbon electric generation by 2050, said it would be selling substantially all of its gas transmission and storage assets to an affiliate of Berkshire Hathaway.
So…what was Warren thinking?
This could be viewed as a contrarian play. The environmental lobby is pushing utilities to move away from gas, using a strategy after the success they’ve had pushing U.S.coal over to China, which incidentally has been building coal-fired…