Buffett's First Investment Since COVID-19 Is in 'Energy' (Comprehensive)

Investment in Natural Gas Facilities After Selling Aviation and Bank Stocks
Betting on the Decline of Natural Gas Prices

[Image source=EPA Yonhap News]

[Asia Economy New York=Correspondent Baek Jong-min] Billionaire investor Warren Buffett has finally pulled the trigger. After repeatedly cutting losses on airline stocks following the COVID-19 pandemic, Buffett has made a large-scale investment for the first time.

CNBC reported on the 5th (local time) that Chairman Buffett invested $4 billion to acquire Dominion Energy's natural gas transportation and storage facilities. The broadcast added that considering the company’s debt of $5.7 billion is also being assumed, the total investment size is effectively close to $10 billion.

This investment is the first since the stock market plummeted due to the COVID-19 crisis in March. As the market fell, Buffett sold airline stocks including Delta Air Lines and bank stocks such as investment bank Goldman Sachs in April and May, accepting losses. Thanks to this, he increased his cash holdings to $137 billion but recorded a net loss of 60 trillion won in the first quarter alone. Afterwards, as airline stocks rebounded, he faced humiliating evaluations that "Buffett is past his prime."

Buffett’s investment in Dominion Energy can be interpreted as a high evaluation of the growth potential of the natural gas market, considering his investment principle of "buy low, sell high." Natural gas prices recently fell to their lowest level in 25 years. The related industry is also sluggish. The biggest factor is that electricity demand fell short of expectations, leading to a decline in natural gas demand as well. However, there is an interpretation that his betting appetite was stimulated by speculation that China will increase imports of U.S.-made natural gas to comply with the trade agreement with the United States.

It is also noteworthy that he chose traditional industries as an investment destination instead of the contactless sectors that have been spotlighted after the COVID-19 crisis. Buffett had focused on banks as major investment targets during the 2008 global financial crisis.

With this acquisition, Berkshire Hathaway will be able to add 7,700 miles of gas pipelines and gas storage businesses to its existing energy operations. Its market share in the U.S. gas transportation sector also increased significantly from 8% to 18%.

Dominion Energy, which sold some of its businesses to Berkshire Hathaway, attracted attention by announcing on the same day that it would abandon the $8 billion Atlantic Coast Pipeline (ACP) project, which it had been pursuing for six years with Duke Energy, a major U.S. energy supplier. The ACP is a project to connect a 600-mile natural gas pipeline through the Appalachian Mountains to West Virginia, Virginia, and North Carolina. The company explained that increased regulatory reviews have raised expected costs, leading to growing doubts about the project's economic feasibility.