
Berkshire Hathaway buys Dominion Energy natural gas assets in $10B deal - finphil
https://www.cnbc.com/2020/07/05/warren-buffetts-berkshire-buys-dominion-energy-natural-gas-assets-in-10-billion-deal.html
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acidburnNSA
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.

~~~
toomuchtodo
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/](http://pickensplan.com/the-
plan/natural-gas/)

[https://www.utilitydive.com/news/utilities-dont-see-
stranded...](https://www.utilitydive.com/news/utilities-dont-see-stranded-
assets-as-a-top-risk-should-they/572246/) ("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...](https://www.utilitydive.com/news/renewables-storage-poised-to-
undercut-natural-gas-prices-increase-strande/562674/) (“If all proposed gas
plants are built, 70% of those investments will be rendered uneconomic by
2035, according to the Rocky Mountain Institute“)

~~~
epistasis
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.

~~~
mperham
> 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.

I think this is a very astute observation. Don't underestimate the value of an
existing pipe running to almost every building in America.

~~~
joejerryronnie
Is Buffett prepping for home-based molecular assemblers?

~~~
blaser-waffle
I want my Lady's Illustrated Primer ASAP

~~~
joejerryronnie
Careful, in the wrong hands, results can be . . . unexpected.

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pphysch
> 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.

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

~~~
nappy-doo
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.)

~~~
curiousllama
Look at these brands:
[https://www.kochind.com/companies](https://www.kochind.com/companies)

Guardian might've made your windows (car & home); Invista might've made the
nylon in your clothes; Molex makes the liiiiiiitle tiny bits of plastic in the
computer you're using.

Live pretty much anywhere except the coasts in the US? Koch probably sold the
softwood lumber used to build your house.

You sure your car doesn't burn gasoline from Flint Hills?

Do you ever use paper products? Georgia Pacific (Brawny, Dixie, Angel
Soft...).

They're so foundational in so many basic industries, they're just unavoidable.

~~~
nappy-doo
I avoid the GP products. I can't change the plastics in my computer. My house
is older than dirt, and the windows are so old you can see the glass warping.
The lumber's proper sized, not scaled by 0.5inches (eg, rafters are true
2"x8"), but I get your point. It's hard to PROVE what the state is.

Let's just say, I try my hardest.

~~~
curiousllama
You certainly try harder than most!

Plus, most of these companies are in B2B commodities industries where
purchasing is the margin driver, not sales. So I wouldn't worry too much about
whether the Nylon 6,6 in your yoga pants was made in an Invista facility...
your purchasing decision just wouldn't matter that much.

------
rory096
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...](https://www.prnewswire.com/news-releases/dominion-energy-and-duke-
energy-cancel-the-atlantic-coast-pipeline-301088177.html)

------
johnwheeler
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
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.

------
chaorace
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?

~~~
btilly
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
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.

~~~
manquer
If you can afford to do so , yes it makes sense .

However public company leadership and professional fund managers cannot stop
worrying about short term impact , their job is on the line .

There is enormous pressure to deliver short term results very few people like
buffet can escape that.

He is able do it due to his reputation, wealth and peculiar holding structure
of Berkshire Hathaway (no splits or dividends )

I should mention as much as short term focus is painted as bad , _on average_
it is good strategy to base people’s performance on. It is better management
fails faster than fails slower . “Blue chip” companies should reduce risk more
than maximise gain .

~~~
btilly
There is room in finance for multiple strategies, and a lot of niche funds
that you've never heard of.

As an extreme example, Taleb's black swan hypothesis requires investors who
are OK with losing money day in and day out. And yet people are willing to
invest in Universa Investments. (Which is making a killing this year.)

Given
[https://en.wikipedia.org/wiki/The_Superinvestors_of_Graham-a...](https://en.wikipedia.org/wiki/The_Superinvestors_of_Graham-
and-Doddsville) it there should be an appetite for niche funds following the
value investing approach. And indeed
[https://www.investopedia.com/articles/investing/071415/five-...](https://www.investopedia.com/articles/investing/071415/five-
wildly-successful-value-investors.asp) shows that there are successful funds
that follow such approaches. They aren't very popular. But the excuse that
professional fund managers CANNOT do something like this is clearly specious.

However as Taleb says, courage is the one virtue that can't be faked. Running
a fund that follows a different strategy than the mainstream requires having
the courage to tell investors that if they are not on board with your fund's
strategy, then you would prefer that they take their money elsewhere. That
kind of courage is rare. (And can be indistinguishable from stupidity for
unbounded times.)

~~~
manquer
Niche funds are exactly that _niche_. _Most_ (in numbers not the money they
control) are not accredited investors and cannot afford to lose their whole
investments. There is not much room for multiple strategies in mainstream
investments for good reason .

Correspondingly most fund managers are not fancy hedge fund managers who can
simply be _courageous_ , the legal and the corporate framework they operate
under would not allow for that kind of risk taking. Popular media and writers
like Taleb focuses way more on this niche segment because it sells more
books/movies etc, or is more interesting to write about, and perhaps also
because the industry does control a large amount of wealth.

Buffet himself strongly believes that hedge funds simply do not justify the
management fees they charge and famously bet a million dollars on that thesis
and won. Even of the fund managers who actually do have the chance to take
aggressive decisions do not always do better than say index traded funds over
a long enough time period.

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yingw787
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.

------
sailfast
> 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.

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

~~~
wsetchell
To justify spending that money, they'd have to think they'd get better returns
on their R&D than shareholders could get elsewhere (e.g. by just buying the
S&P 500).

It is quite difficult to beat the S&P 500, and they're saying they don't have
any ideas which can.

~~~
jandrese
If the shareholders don't think the R&D is going to be profitable then they
can sell their own shares. It doesn't seem like the company should be making
that decision for them.

More to the point, if the company is seeing such great profits then their
competitors should be undercutting them. If they don't have competitors then
maybe they should be regulated more like a utility and give that money back to
the customers. Stock buybacks usually end up being just a handout to the rich,
which they don't need.

~~~
tinalumfoil
> If the shareholders don't think the R&D is going to be profitable then they
> can sell their own shares

It's not that the companies aren't profitable, it's that past a certain point
their money is more valuable as cash to their shareholders than anything the
company could use it for.

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aussiegreenie
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.

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staycoolboy
> clean energy production from wind, solar and natural gas

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

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

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

~~~
belval
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.

