Warren Buffett calls Berkshire Hathaway’s energy business one of the “lead dogs” in the conglomerate’s sprawling $254bn empire.
Mr Buffett seems keen on feeding his pack. Berkshire will buy Dominion Energy’s US natural gas pipeline and storage assets for $9.7bn including debt. This marks the famed stockpicker’s first big deal since the coronavirus crisis hit markets in March.
The move will greatly increase the size of Berkshire’s natural gas business. The Dominion deal brings more than 7,700 miles of gas pipelines and 900bn cubic feet of gas storage capacity. These will double Mr Buffett’s share of natural gas transmission in the US to 18 per cent.
That Berkshire’s largest acquisition in more than four years comes in energy will raise eyebrows. After all, its most recent bet on the sector — a $10bn investment in oil producer Occidental Petroleum — has not gone exactly to plan. The outlook for natural gas remains grim, even as the US has become an exporter. Global gas consumption is forecast to drop this year by the most in history, according to the International Energy Agency. Natural gas future prices in the US tumbled to a near 25-year low last month.
But investing in energy infrastructure differs from gambling on energy explorers. Like oil storage, gas storage facilities are in demand as producers stockpile excess inventory until prices recover. Natural gas currently in storage is up 30 per cent compared to the previous-year period, according to the US Energy Information Administration.
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Gas pipeline usage fees also tend to be locked in fixed contracts. In typical Buffett fashion, he is buying long-term, low-risk cash flows. Analysts at CreditSights reckon the Sage of Omaha is paying about 10 times ebitda for Dominion’s gas assets, using Berkshire’s low financing costs.
Mr Buffett, no sleepy pup, described the energy business in May as “not a way to get real rich” but as “a way to stay real rich.” Buying Dominion’s gas assets fits very much into this logic.
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