Berkshire Hathaway buys Dominion Energy natural gas assets in $10B deal

https://www.cnbc.com/2020/07/05/warren-buffetts-berkshire-buys-dominion-energy-natural-gas-assets-in-10-billion-deal.html

by finphil • 6 years ago

127 129 6 years ago

cnbc.com

pphysch• 6 years ago

With the purchase, Berkshire Hathaway Energy will carry 18% of all interstate natural gas transmission in the United States, up from 8%.

Always interesting to learn what XX% of a random industry a random conglomerate owns.

deadalus• 6 years ago

De Beers Group sells approximately 35% of the world's rough diamond production through its global sightholder and auction sales businesses.

source : https://en.wikipedia.org/wiki/De_Beers

ed25519FUUU• 6 years ago

From its inception in 1888 until the start of the 21st century, De Beers controlled 80% to 85% of rough diamond distribution and was accused of being a monopoly.[5] Competition has since dismantled the complete monopoly, though the De Beers Group still sells approximately 35%

Interesting. I wonder if synthetic diamonds played a role in that downward trajectory.

curiousllama4• 6 years ago

Fun fact / challenge: nobody reading this comment is in a room without a product made by Koch industries.

nappy-doo3• 6 years ago

Prove it. I spend a significant amount of my time making sure I buy brands that DO NOT fund that hateful family. I have also written to companies I like that advertise of Fox News.

(I don't need a hobby, I like using my time to vote with my dollars.)

reaperducer2• 6 years ago

Fun fact / challenge: nobody reading this comment is in a room without a product made by Koch industries.

Do you count the radio waves passing through my house carrying PBS television signals? Kochs fund PBS.

chaorace• 6 years ago

I wonder what this is signalling, when it comes to how Buffet's firm stands on market volatility? With stocks up and fresh bad news about the state of the pandemic rolling in, I would think that they would be more inclined to wait now and buy later.

Maybe they feel that the energy sector has gotten "discounted enough already" and that the short-term gains from waiting longer would be outweighed by the relatively safe gains that the investment promises post-pandemic?

purple_ferret• 6 years ago

This is only a partial buy of assets. In the deal Berkshire agrees to buy out 6 billion of debt (out of 70 billion in liabilities). It's not necessarily a deal that could be had in a fire sale, but one in which Dominion agrees to sell off assets that have some intrinsic value (around 10 billion by Buffet's estimation).

btilly2• 6 years ago

Warren Buffett's long-standing position on market volatility is that he never worries about it or tries to time the market.

If he finds a deal and he believes that the fundamental value proposition is there, then he makes the purchase without regard to what might happen tomorrow.

dopamean• 6 years ago

Exactly. It's possible a better deal could be made later but he looked at it and believes it's a good deal now so he'll do the deal now. It makes a lot of sense really.

richardknop• 6 years ago

Not all stocks are up. Indexes are mostly up because of crazy high tech valuations and tech stocks just keep going up parabolically.

Banks, industrials, materials, energy stocks are still very cheap, barely recovered from March lows in many cases.

mxschumacher2• 6 years ago

They are down a lot, but that doesn't make them cheap

acidburnNSA14• 6 years ago

To me this signals that Buffett believes that huge growth of cheap and crazy-popular wind and solar generators will continue to be directly correlated with a massive expansion of fracked natural gas (i.e. high-carbon fossil fuel) to back up their intermittency.

Fracked natural gas is certainly better than coal in almost all metrics (way less deadly air pollution, arguably less carbon emissions given better pipeline seals/maintenance), but it is not compatible with a climate solution because of its high carbon footprint.

I'm always advocating for 24/7 low-carbon, low-land, low-material energy (i.e. energy with high power density) like nuclear but it appears that the public simply is not interested. It would help if we could just choose a reactor design and serialize it like the Koreans did to get costs way down.

inetknght• 6 years ago

To me this signals that Buffett believes
it appears that the public simply is not interested

I'm not sure I agree. I'd say that it appears that Warren Buffet is not interested.

I think the public is interested but can't afford the investment.

acidburnNSA14• 6 years ago

I guess I'm thinking Buffett's lack of interest is related to the public's lack of interest at the current price point.

On June 23, a Pew Research poll about energy preference came out. Nuclear did relatively poorly compared to renewables but, to your point, it did beat out most fossil-based solutions (barely).

[1] https://www.pewresearch.org/science/2020/06/23/two-thirds-of...

toomuchtodo3• 6 years ago

While I don’t think Buffett is going to live long enough to see if this bet pays off, it’s reasonable that this natural gas play is going to fall flat considering renewables uptake and the cost decline curve of battery storage. This is without even discussing that many jurisdictions are considering or are starting to ban natural gas distribution to residences. After coal is driven out for electricity and heating, climate advocates and policy makers will be coming after natural gas next (and rightfully so if we intend to limit total carbon emissions).

It’s not quite as “dumb money” as SoftBank, but very similar to T Boone Pickens’ natural gas play. Dominion sees the writing on the wall and found a greater fool.

http://pickensplan.com/the-plan/natural-gas/

https://www.utilitydive.com/news/utilities-dont-see-stranded... ("We get approached a lot about buying gas plants in the U.S. — I wouldn't touch one ... In a lot of these [jurisdictions] it's the next coal, and I think it's coming quicker than we think." — Ken Hartwick, President and CEO, Ontario Power Generation)

https://www.utilitydive.com/news/renewables-storage-poised-t... (“If all proposed gas plants are built, 70% of those investments will be rendered uneconomic by 2035, according to the Rocky Mountain Institute“)

epistasis4• 6 years ago

I agree, in that this seems like the wrong tech to back at this time.

However, I do wonder if these pipelines could be transitioned to something like HVDC; rip out the pipe and use the right of way for an entirely different, safer purpose that will have tremendous value in the future.

Building new transmission is unbelievably difficult in this age, and I think most of the opportunities for doing so will require repurposing existing, defunct infrastructure.

acidburnNSA14• 6 years ago

I dunno. I think there's a good argument that fracked gas will become more valuable as intermittency of the grid rises. Oftentimes in energy transitions, externalities rise with scale. As the scale of wind and solar and batteries rise, they may hit roadblocks (NIMBY, transmission lines, chemical fires, chemical disposal environmental concerns, energy return on investment issues, etc).

There are plenty of people who say that fracked natural gas value will go up and up. Rocky Mountain Institute is kind of fringe in their beliefs on this topic.

Ken Hartwick at OPG has more nuclear and hydro than almost anyone, so I'm not surprised they are anti-gas.

valuearb2• 6 years ago

The question is whether Buffett got a low enough price that his risk is low. Natural gas demand may be on a long term downward path, but it’s not going away entirely any time in the next 30 years.

At the right price I’d happily own natural gas for the next decade, the question is did Buffett get that price? He’s been a victim of his own success for the last couple decades, his growth in portfolio size has removed the least efficiently priced market opportunities from his consideration.

Evidence is he’s not able to find the discount to intrinsic value that he used to demand in the biggest market caps, and is being forced to reduce his margin of safety on deals. The fact that this is the first significant deal he’s been able to swing in the 4 months since the market crashed supports this.

barney54• 6 years ago

How do you think all of coming wind and solar will be balanced on the grid? Today and for the foreseeable future, that's what natural gas is going to do. Batteries have come down in cost, but natural gas is far, far cheaper than grid scale batteries.

Also, to put one of the quotes in perspective, the vast majority of Ontario Power Generation's assets are hydro. The two ways you balance the grid currently are natural gas and hydro. Hydro is fantastic, but it's really, really hard to build new hydro.

imtringued4• 6 years ago

Natural gas plants are necessary for power to gas.

epistasis4• 6 years ago

low-material energy (i.e. energy with high power density) like nuclear

Nuclear is not particularly dense, kilogram for kilogram, compared to something like solar. A reactor and containment and cooling require absolutely massive amounts of concrete and steel.

And check out the size of the new SMRs that are being proposed; 1-10MW of an SMR isn't that tiny. I haven't run the masses at all like I have with solar and 1GW plants, since I'm not very familiar with wind turbines, but I wouldn't be surprised at all if wind and SMRs were within an order of magnitude of mass per MW.

Nuclear gets tons of energy out of small masses of fuel, but the rest of the infrastructure isn't so small, especially compared to solar which has massless fuel.

acidburnNSA14• 6 years ago

They are indeed massive, but a gigawatt is a lot of power! In the balance, nuclear uses a vastly less raw material and land per energy than almost all other energy sources. The DOE 2015 quadrennial report shows data on things like this, and here is a plot of the data (with citation) [1].

Where are you getting your info?

E=MC² from the fuel does indeed carry over into incredibly low land, raw material, and waste footprints in nuclear. That's what's so cool about it.

[1] https://images.squarespace-cdn.com/content/v1/56a45d683b0be3...

Edit: actual citation is table 10.4 in [2] on pg 390 of the pdf. That cites ref 52 which points to [3] from Argonne National Lab. Would be nice to find a better reference.

[2] https://www.energy.gov/sites/prod/files/2017/03/f34/quadrenn...

[3] https://greet.es.anl.gov/

More info in here [4]

[4] http://pubdocs.worldbank.org/en/961711588875536384/Minerals-...

heavenlyblue2• 6 years ago

To me it signals this company is undervalued

vmception• 6 years ago

Exactly, that's the only thing that matters in this calculus unless Berkshire Hathaway governance forces them to add additional factors into purchases in some industries.

all_blue_chucks• 6 years ago

To determine whether a company is undervalued you must have some prediction of future business prospects.

vkou2• 6 years ago

I'm always advocating for 24/7 low-carbon, low-land, low-material energy (i.e. energy with high power density) like nuclear but it appears that the public simply is not interested.

As a member of the public, I have never been asked where I want my electricity to come from, so my interest has little bearing on what actually gets built.

The public may be asked to make a decision by proxy (R versus D), but that is only one of many decisions that get made, as a consequence of that choice.

acidburnNSA14• 6 years ago

There are a lot of policies put in place that affect the energy markets that elected leaders are heavily involved in. For instance, there are production tax credits for wind. There are incentives for rooftop solar. There is talk of a carbon tax or cap and trade. There are debates about whether or not nuclear should be counted for or against clean energy targets. In the 1970s, there was massive legislation (the clean air act) that increased the costs of coal dramatically. These all greatly influence the mix of energy that gets built and are very tied to consumer preferences (if a little indirectly).

distances2• 6 years ago

Can't you choose your electricity provider? I definitely check the electricity production type pie chart every time I switch providers.

nicoburns• 6 years ago

As a member of the public, I have never been asked where I want my electricity to come from, so my interest has little bearing on what actually gets built.

Really? Here in the UK every energy supplier offers a "green tariff" (usually at a slightly higher rate) where a proportion (or all) of the energy is derived from green sources. There's some shenanigans with trading of certificates which means it's not quite as straight forward as that, but still I believe this does end up subsidising green energy.

thinkcontext2• 6 years ago

This may not apply to you (vkou) specifically but many people don't know that 1/3 of states have deregulated electricity markets that allow customers to choose who generates their electricity. There is still a local utility company that maintains the wires and handles billing, that does not change. The choices vary on price, length of contract, amount of renewables, etc. Signing up is as simple as filling out a web form, you continue to receive your bill from the utility as usual. The only difference is the part of the bill for generation has the new company's name and rate.

See https://www.electricchoice.com/ for which states and more background info.

pulse7• 6 years ago

"Fracked natural gas is certainly better " ... "way less deadly air pollution"... but way more water contamination by fracking chemicals...

acidburnNSA14• 6 years ago

I've seen the video of the guy opening his faucet and lighting it up but I read somewhere that that was found to be biogenic, and that that kind of thing is actually really rare with fracking. Not an expert in this though so I could be wrong.

Coal pollutes lots of water though so it seems hard to beat. Certainly fracking causes more fracking waste than coal, but I believe the overall environmental impact is less across the board.

kube-system4• 6 years ago

Coal mining also often employs processes that pose the risk of water pollution. eg. https://en.wikipedia.org/wiki/Acid_mine_drainage

The difference is that human activities can be changed through regulation. The chemical byproducts of a combustion reaction cannot.

danans• 6 years ago

Buffett's utility holdings (i.e. PacifiCorp) are aggressively shutting down coal plants and ramping up their wind/solar capacity in their service territories.

One perhaps far-fetched possibility here might be that he is vertically integrating the natgas based aspect of their utility business instead of buying natgas from another company while as you say dealing with the intermittency of renewables, although that would require some kind of merger with those utilities so that the natgas input could be provided at-cost to them.

cs702• 6 years ago

He owns both extensive utility operations and extensive transportation operations. Might as well own some natural gas assets too, if it can be acquired at the right price.

workingname• 6 years ago

I only see him valuing the pipelines themselves, and perhaps not as strong of a shift into absolving fossil fuels like everyone expects. Humans are slow to change and adapt, I mean look at coronavirus and masks in the US.

Natural gas is great because of the low levels of emissions, the not so great aspect is fracking continuing to mess up peoples homes, i.e. flaming sinks.

Those that are in control should advocate for the publics best interest imo.

truculent2• 6 years ago

look at coronavirus and masks in the US.

Equally, look at coronavirus and masks in western Europe

acidburnNSA14• 6 years ago

The not so great aspect of gas is that its a high carbon fossil fuel that causes global warming. 490 gCO2-eq/kWh is not even close to low. Low carbon sources have lifecycle emissions closer to 10.

reaperducer2• 6 years ago

Maybe he's not interested in the natural gas for energy.

Everything I know about natural gas came from visiting and energy museum, but from what I remember, natural gas is used to make hydrogen, plastics, fertilizer, certain types of animal foods, and even things like vitamins.

At an elementary level, it's easy to imagine a world without natural gas because there are lots of other ways to make electricity. But it's harder to imagine a world without plastic.

mxschumacher2• 6 years ago

~50% of us homes are heated with nat gas.

hristov• 6 years ago

First of all the assumption of nuclear being low carbon is really doubtful. Nuclear requires fuel and uranium mining is a very expensive and dirty process. The real carbon impact on nuclear depends largely on the quality of the uranium ore and for bad quality ores the impact maybe worse than natural gas.

See here for more details. https://theecologist.org/2015/feb/05/false-solution-nuclear-...

Furthermore, the massive risks of nuclear are inescapable for any right-thinking person. Furthermore, the almost eternal nuclear waste problem is still there and still has not been solved.

Furthermore, even if gas is more carbon intensive it is better overall, because it allows for zero carbon generation like solar and wind to flourish. Because gas can be used to compensate when there is no wind and no sun. Nuclear is absolutely useless in these cases because it is very slow to start up and turn off. The fact that nuclear is "24/7" is not actually a positive thing when you want to to work with cheap solar/wind energy.

Eventually we will develop suitable storage solutions but until then gas is a good interim solution.

acidburnNSA14• 6 years ago

The myth of nuclear being not low-carbon has been wholly rejected by a large and significant meta-analysis of the IPCC itself, as clearly seen in Table A.III.2 in [1], which puts nuclear at 12 gCO₂-eq/kWh, the lowest on the list except for wind at 11. Solar is around 40. Natural gas is 490. Coal is 820. The data are plotted here [4] directly from that table.

It's no surprise either. When uranium has 2,000,000x more energy per mass than any chemical, and when splitting atoms has nothing to do with carbon emissions, it's very difficult to make it high-carbon through lifecycle issues.

I went deep with someone a while back on here who claims that nuclear was closer to 100 gCO₂/eq than the IPCC number of 12g CO₂-eq/kWh, and they realized they were using 1950s energy values for gaseous diffusion enrichment instead of much-more-efficient centrifuges.

Another source verifying that nuclear is very low carbon include [2] (which is a writeup for [3]).

Tell me nuclear is expensive. Tell me you're concerned about accidents. Tell me what about the waste. But do not tell me nuclear is not low carbon. This is an absolutely unjustifiable belief propagated in public almost exclusively by institutional anti-nuclear organizations with a long and storied history of using incorrect information to make nuclear look bad.

The real clincher to this argument is that we all agree there are no direct carbon emissions in fission. Splitting uranium makes no CO₂. So it's all lifecycle stuff. And in a 100% nuclear future, 100% of the mining, transportation (electrified), enrichment, etc. would be nuclear powered and so the carbon emissions would be literally 0. Same can be said for all other non-combustion sources.

[1] https://www.ipcc.ch/site/assets/uploads/2018/02/ipcc_wg3_ar5...

[2] https://www.carbonbrief.org/solar-wind-nuclear-amazingly-low...

[3] https://www.nature.com/articles/s41560-017-0032-9

[4] https://whatisnuclear.com/img/lifecycle-carbon-emissions-300... (plot of data from [1])

Furthermore, the massive risks of nuclear are inescapable for any right-thinking person. Furthermore, the almost eternal nuclear waste problem is still there and still has not been solved.

That is the story at least. Fortunately we have scientific methods to help prevent us from fooling ourselves even when things are postulated that seem wrong. The actual fact is that nuclear is way safer than mainstream energy sources (gas, biofuel, oil, coal), and is perfectly on par with wind and solar. If this sounds crazy, please dig into the data! I admit it is surprising, but it is true.

When you look at the data [5], nuclear is actually amazingly safe. So much so, that it's irrational even in the face of nuclear accidents to not shut down all fossil and replace it with nuclear from a public health perspective. This is because the toll of air pollution (both from fossil and biofuel) kills about 8M people every single year.

I invite everyone to read the WHO reports on the impact of Chernobyl and compare with 8 Million deaths per year and tell me who's right-thinking!

[5] https://ourworldindata.org/safest-sources-of-energy

Because gas can be used to compensate when there is no wind and no sun.

Yeah except gas emits 490 gCO₂-eq/kWh when the wind is not blowing and sun is not shining and that is wholly incompatible with solving climate change, even if we cover the whole country with wind, solar, and gas plants.

With nuclear you get 0 carbon 100% of the time in any geography or season. Check electricitymap.org [6] for live emissions data and take a look at nuclear-heavy ontario and france compared to germany for real-world live proof of this.

[6] https://www.electricitymap.org/

Lastly, nuclear waste is a solved problem already. Did you know that zero people have been injured or killed by stored nuclear waste in dry casks (which is where we put them now)? You can walk right up to them [7]. We have a long-term solution like Onkalo [8] but even in the interim it's crazy to not build zero carbon energy even though we have properly handled commercial nuclear waste for 70 years. Again, remember that our current energy systems today are killing 8 million people per year.

[7] https://www.youtube.com/watch?v=EUvvIzH2W6g

[8] http://www.posiva.fi/en/final_disposal/onkalo

Reason0772• 6 years ago

"Buffett believes that huge growth of cheap and crazy-popular wind and solar generators will continue to be directly correlated with a massive expansion of fracked natural gas"

But this is not actually true, at least in the UK's experience. Britain's renewables have expanded massively in the last 10 years, allowing almost all coal power plants to close and grid carbon emissions to be cut by over 60%.

Britain still leans heavily on natural gas generation during times when the sun isn't shining and the wind isn't blowing. However, the quantity of natural gas used has declined as well.

Natural gas generation may remain profitable, because wholesale power prices rise when generation is scarce. But because natural gas power plants are being used less often, gas consumption and carbon emissions still decline.

acidburnNSA14• 6 years ago

The UK built lots of plant biomass, and generates more electricity from it than solar. The capacity factor of these has dropped to 62%, indicating that they are load following with biomass. Unfortunately, even though biomass is renewable and counts as such in poorly designed energy policies, it uses combustion and causes significant air pollution (worse than gas) as well as high carbon concentration in the atmosphere, which causes global warming (on par with gas).

Worse still, biomass used lots of land and competes with food production. Gas is arguably better for the environment than biomass.

So yeah you're right. I should change the statement to say either gas or biomass or some other destructive combustion rises with renewables.

SEJeff• 6 years ago

The big wildcard here is massive stationary storage, such as Tesla’s megapacks. They’re contracted to start on a 1MWh project with PG&E in California this year (Moss Landing). Renewables with stationary storage, in some cases, kill the economics for these “peaker plants”.

rory096• 6 years ago

Dominion and Duke Energy also cancelled the controversial Atlantic Coast Pipeline the same day this deal was announced, citing mounting costs from legal uncertainties.

https://www.prnewswire.com/news-releases/dominion-energy-and...

sailfast• 6 years ago

Dominion plans to use about $3 billion of the after-tax proceeds to buy back its shares later this year.

So, they sold this asset to buy back shares? This seems like a seriously short-sighted play.

wsetchell2• 6 years ago

I don't get people's aversion to stock buybacks.

If a company has money it cannot productively spend, it should return that money to shareholders. Stock buybacks are a tax efficient way to do that.

The company believes the asset wasn't very profitable for them to own, so they sold it and gave the shareholders the money back.

dpcx• 6 years ago

Could it not spend some portion of that money on research and development? I feel that literally any industry could find improvements.

stainforth• 6 years ago

Some of the money should go to the workers

johnwheeler2• 6 years ago

It’s a tax efficient way to return the money to shareholders

blobbers2• 6 years ago

Curious; I like hackernews but what about this article is relevant to this community?

smolder• 6 years ago

It's answered in the guidelines --anything that we may find interesting is submissable.

idoh• 6 years ago

I cannot speak for anyone else, but on the one hand HN is very bullish on alternative / clean energy, and on the other hand a well respected investor like Buffet is taking a contrary position. So I want to see the comments hashing it out, to adjust my priors.

blobbers2• 6 years ago

For what it is worth, Buffett also backed the largest solar project in the United States. Look up the NV Energy Gemini project.

Please don't take this headline for anything than what it is; Buffett is a deal hunter, and he likes buying things at a deep discount.

belval• 6 years ago

HN is just another news aggregator, while it is obviously more tech-focused, the people that use it tend to be interested in more general news as well.

johnwheeler2• 6 years ago

Lots of analyzing what Buffett is signaling. My bet is he had little to do with the purchase and it was more likely made and informed by Greg Abel.

Rather than nabbing a bargain, they probably thought the deal just made sense to expand their existing energy assets. In other words, the deal wasn’t good, but it wasn’t bad either. There hasn’t been much bargain buying in wide moat companies at Berkshire for the last ten years.

nabla9• 6 years ago

Berkshire Energy is continuing buying energy transmission networks and utilities. This fits their long term strategy.

Buy utilities, connect them together. Dominion's gas pipeline fits nicely to Berkshire Energy's pipeline coming from California.

yingw787• 6 years ago

Oh interesting. I'm part of the Dominion Energy Green Power initiative. I have no idea whether I'm actually making a difference...but I pay more and get a green sticker + pamphlet, so that's cool. Saving one starfish and all that.

staycoolboy• 6 years ago

clean energy production from wind, solar and natural gas

Wait a sec, how did "natural gas" end up in the "clean energy" category?

kube-system4• 6 years ago

Well at least it's not "wind, solar, and clean coal" anymore.

aussiegreenie• 6 years ago

It just means Berkshire Hathaway has too much capital and needs to do something. Those gas assets are worth half their book value, if that.

Berkshire Hathaway buys Dominion Energy natural gas assets in $10B deal

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