Published on July 9th, 2020 | by Steve Hanley0
Warren Buffett & Pig Poop: Unpacking The Blockbuster Dominion Energy Pipeline Deal
July 9th, 2020 by Steve Hanley
Last week, Virgina’s Dominion Energy and North Carolina’s Duke Energy decided to abandon the Atlantic Coast Pipeline, a project they were promoting jointly even though it was opposed by many in the very states it was supposed to benefit. In the end, opponents tied the two companies up in knots of litigation, making the price of proceeding simply too high.
The lesser reported aspect of that announcement was Dominion’s agreement to sell all its natural gas transmission holdings to Berkshire Hathaway, the investment powerhouse headed by Warren Buffett. Berkshire has been underperforming the market of late, but that hasn’t stopped Buffett from being known to Wall Street as The Oracle of Omaha for his cautious, deliberate investment strategies that basically break down to this — buy good companies, hire good people to manage them, and get out of the way. Berkshire Hathaway will pay Dominion $4 billion in cash and assume liabilities of about $5.8 billion.
CNBC says the move greatly increases Berkshire Hathaway’s footprint in the natural gas business. After the purchase, it will carry 18% of all interstate natural gas transmission in the United States, up from 8% currently. Berkshire Hathaway Energy will acquire 100% of Dominion Energy Transmission, Questar Pipeline, Carolina Gas Transmission, and 50% of Iroquois Gas Transmission System. Berkshire will also acquire 25% of Cove Point LNG, an export-import and storage facility for liquefied natural gas, one of just six in the U.S.
So what does Berkshire Hathaway want with a bunch of last century pipelines known for large methane leaks and high operating costs? Forbes says, “For Buffett, the deal complements Berkshire Hathaway’s existing 16,000-mile pipeline network, thus supporting his bet that natural gas will put the final bullet into coal and will be a mainstay of U.S. power generation for decades to come.”
None of us is clairvoyant, of course, but Buffett and his band of merry pranksters may have overlooked the most recent trend in the utility industry — the transition directly from coal to renewables. The era of natural gas being a so-called “bridge fuel to the future” may be over before it begins.
In the end, Forbes speculates, Dominion may have simply been willing to dump its transmission holdings for below market value, an opportunity that was just too good to ignore. Lots of companies have made money squeezing the last few dollars of profit out of coal mines. Perhaps Buffett can do the same with natural gas assets. It’s not like Berkshire Hathaway is opposed to renewables. It is the owner of wind farms in the American West that generate 6,600 megawatts of electricity.
Making money for its investors is Berkshire’s raison d’être. If it can squeeze profits out of a dying business, there is nothing wrong with that. We in the CleanTechnica community might like for all the fracking wells to dry up and eliminate the source of supply for much of America’s natural gas, but the reality is natural gas will be with us for quite a while yet. Don’t weep for Warren Buffett. He will come out of this OK.
Dominion Energy has been under attack in its home state of Virginia for its antediluvian attitudes. Tech companies in the northern part of the state have been begging for more renewable energy for their server farms for years to no avail. As Forbes points out, Dominion Energy is the successor to the Virginia Railway & Power Company, “founded in 1909 by Frank Jay Gould, son of robber baron Jay Gould. Its roots are firmly planted in Appalachian coal. Even as late as 1995, when its current CEO Tom Farrell came onboard as general counsel, more than half of its power came from burning coal.”
Long the most powerful corporation in Virginia, it has often been the tail that wags the dog in Virginia politics. But things are changing. Virginia governor Ralph Northam, a Democrat, has been a strong advocate for reducing carbon emissions and transitioning to renewable energy and the legislature is in compete agreement. Dominion seems to have gotten the message that it had better get on board or get left behind.
It is now embracing renewables in a big way. “All told, Dominion expects to make some $55 billion of investments by 2035 into low-carbon energy sources — spurred in part by Virginia’s aggressive new mandate for 100% carbon-free electricity by 2045,” Forbes says. As is often the case, business decisions are driven more by economics and financial predictability than doing good deeds like saving the planet from a climate catastrophe. Dominion CEO Thomas Farrell tells Forbes, “Solar was not affordable. Five years ago we didn’t have a single panel.” Now Dominion is the 4th largest solar operator in the country.
Forbes says the business case for renewables is simple. As a regulated utility, it is guaranteed a certain rate of return on its investments by law. Which means it knows in advance just how much money it will make on that $55 billion investment. Sweet!
In an e-mail to CleanTechnica, Bloomberg Green says the deal with Berkshire Hathaway doesn’t mean the company is getting out of natural gas entirely. It still burns gas in power plants and will continue to do so for the foreseeable future. It also still owns distribution networks, which deliver gas to customers. That’s the infrastructure Dominion sees carrying it into the future.
The source of some of that natural gas will come from inside Virginia via methane collected from the excrement of some of the 30 million hogs a year “produced” by Smithfield Foods. Farmers used to let the pig slop just run downhill or fester in large lagoons, but now it is fed to anaerobic digesters which turn it into sterile, nutrient-rich organic matter that can be used as fertilizer or even livestock bedding. The water left behind is sprayed on crops. But the biggest benefit is a harvest of renewable natural gas that can then be distributed throughout Virginia via Dominion’s network of in-state pipelines.
Dominion is also working with Vanguard Renewables, which is using similar technology at dairy farms. Vanguard president Kevin Chase tells Forbes that even though dairy digesters have been perfected in Europe, owners of natural gas pipelines were skeptical about transporting bovine gas. “It was guilty until proven innocent,” says Chase. His company now has contracts with Vermont Gas, Middlebury College, and Polar Beverages.
But according to EcoWatch, renewable natural gas may be making false promises when it comes to reducing atmospheric pollution. “The key issue is that methane isn’t just a fuel — it’s also a potent greenhouse gas that contributes to climate change. Any methane that is manufactured intentionally, whether from biogenic or other sources, will contribute to climate change if it enters the atmosphere.
“To be clear,” EcoWatch adds, “RNG is almost certainly better for the climate than fossil natural gas because byproducts of burning RNG won’t contribute to climate change. But doing somewhat better than existing systems is no longer enough to respond to the urgency of climate change. The world’s primary international body on climate change suggests we need to decarbonize by 2030 to mitigate the worst effects of climate change.” And let’s not forget the overall impact of the meat industry on atmospheric carbon pollution.
In other words, if we are burning stuff to create energy — and that includes biomass — we are more or less fooling ourselves into thinking we are making an important contribution to the environment but what we are really doing is kicking the can down the road.
William McDonough, author of Cradle To Cradle, tells Forbes, “Putting (RNG) into a pipeline is better than letting it go loose, but it’s still a fugitive carbon. To say it’s the cleanest energy is not correct if you’re considering climate change.” He favors using ever cheaper solar and wind power to electrolyze water into hydrogen.
Dominion is already experimenting with adding 10% hydrogen to natural gas, says Diane Leopold, CEO of the company’s natural gas division. “It’s expensive at the moment, but solar was expensive, too.” Tom Farrell takes a very pragmatic approach to the future. Asked by Forbes if his company would consider nuclear fusion, he replied, “I don’t doubt it. A sustainable company is one that adapts to challenges and weathers the storm.” Anyone familiar with the old Dominion Energy, which liked to dig in its heels and oppose any new ideas, will understand what a huge change in attitude that statement is.
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