Inna Kucherenko
Two weeks ago, news agencies reported on Warren Buffett's Berkshire Hathaway first major investment after a long break.
USD 9.7 billion will be invested in the American energy company Dominon Energy.
Berkshire Hathaway Energy specializes in investments in the most promising energy projects, most of which are renewable.
In such case, Berkshire Hathaway Energy pays about USD 4 billion for assets in the gas transmission and storage segment and covers Dominon Energy's debt obligations of almost USD 6 billion.
WHY ARE EXPERIENCED INVESTORS INTERESTED IN DOMINION ENERGY?
Recently, the company faced with the need to abandon the construction of the gas pipeline due to protests by environmental organizations and representatives of American indigenous peoples. Lawsuits were filed against Dominion Energy.
It should be noted that the pressure of environmental organizations and local communities on oil and gas companies largely complicates and delays the search for investors, and such asset sales linger on. The desire of oil and gas companies to get rid of distressed assets, in turn, can be attractive to investors, as it will help speed up the deal and lower prices.
In particular, Buffett's energy business expanded with bargain-priced pipeline facilities Dominion sold to invest in renewable energy.
But, of course, this is far from the only factor to buy new assets.
WHAT SHOULD AN ENERGY COMPANY BE LIKE TO BE INVESTED IN?
Diversified portfolio of assets, well-developed infrastructure and bold innovative projects allow staying one step ahead of companies in the energy sector.
The oil and gas industry is now facing the need to adopt the energy transition for their operations and business models. Companies also have to think about their role in reducing greenhouse gas (GHG) emissions and meeting the goals of the Paris Agreement.
This is a serious challenge for the upstream. Lack of investment in production leads to its fall at the level of 8% per year, which exceeds the level of decline in demand. Thus, investment in production is still necessary, particularly in the context of energy transition, but the type of resources being developed and the way they being produced will largely change. Those companies with inexpensive resources, tight control of costs and environmental performance can be successful.
“But the main question amid rising greenhouse gas emissions is relatively simple: should today's oil and gas companies be seen only as part of the problem, or can they be critical factor in its solving?” this is how the International Energy Agency formulates the topic of its research.
Answering the question, the IEA notes that there will not be a single oil and gas company that will not be affected by the transition to clean energy, so each sector of the industry should consider how to respond to this.
The energy community is increasingly talking not about the “oil and gas” sector, but about the “energy” sector. This transition takes companies out of their comfort zone, instead it makes it possible to manage the risks of transition. Some major oil and gas companies turn into "energy" companies that provide consumers with a diverse range of fuels, electricity and other services.
The IEA believes it is also important for companies to scale up investment in low-carbon hydrogen, biomethane and advanced biofuels, as they can provide the energy benefits of hydrocarbons without net carbon emissions. These low-carbon fuels will require about 15% of the total investment over ten years.
WHAT WILL THE INVESTMENT IN DOMINION ENERGY BE MADE FOR?
Dominion Energy expect to spend these funds, in particular, on the development of biogas.
Over the next 10 years, Dominion expects to invest USD 650 million in gas production in agriculture.
The company already deals with green hydrogen projects. According to Diana Leopold, COO of the gas business, they successfully introduced 10% of hydrogen in their gas power plants. She notes that this technology is now quite expensive, but recalls that solar energy was once expensive as well.
Findings
Thus, the diversification of energy businesses and focus on reduction of the carbon footprint makes the company more investment-attractive.
At the same time, one should remember the many years of experience directly in the oil and gas business. According to the IEA analysts, the oil and gas industry will be the decisive point for some key capital-intensive technologies to meet their clean energy goals. Industry resources and skills can play a central role in combating emissions in some sectors such as the development of Carbon Capture, Utilization and Storage (CCUS) Systems, low carbon hydrogen, biofuels and inshore wind farms. Scaling up these technologies and reducing their cost will depend on large-scale engineering and management capabilities, qualities that well comply with those of large oil and gas companies.
