Dominion drops pipeline project and sells gas business to Berkshire Hathaway

Dominion Energy has scrapped a large pipeline project and sold its natural gas transmission business to Berkshire Hathaway, marking a big shift towards cleaner energy for the US utility — and another bet on fossil fuels by Warren Buffett.

Dominion’s $10bn deal with Berkshire Hathaway Energy also marks the first big transaction by Mr Buffett since the onset of the coronavirus pandemic and economic crisis.

The Atlantic Coast pipeline, under development by Dominion and Duke Energy, another US utility, was set to stretch across 600 miles from West Virginia to North Carolina and pump 1.5bn cubic feet of gas a day. Its cancellation comes after delays and legal challenges that had sent costs soaring to almost $8bn and despite the Supreme Court’s approving the project last month.

Thomas Farrell, Dominion’s chief executive, and Lynn Good, his counterpart at Duke, said in a joint statement their decision reflected the “increasing legal uncertainty that overhangs large-scale energy and industrial infrastructure development in the United States”.

But the announcements also mark a clear shift by Dominion away from natural gas transport and storage. The company said 90 per cent of future operating earnings would come from its utility business, although it will hold on to an interest in Cove Point, a Maryland liquefied natural gas facility.

“We offer an industry-leading clean-energy profile which includes a comprehensive net-zero target by 2050 for both carbon and methane emissions as well as one of the nation’s largest zero-carbon electric generation and storage investment programmes,” said Mr Farrell.

He noted the company’s plan to invest up to $55bn in methods to reduce emissions, including renewable natural gas, and the retirement of oil and coal-fired power plants.

“This looks like an energy-transition play,” said Andrew Gillick, a managing director at RS Energy Group, a consultancy. “With the cancellation of the pipeline as well, it is clear Dominion is planning for net-zero.”

For Mr Buffett, the latest move — his first big acquisition of the Covid-19 crisis — takes his company in the opposite direction, significantly expanding Berkshire’s fossil fuel exposure. Last year, he invested $10bn to help Occidental Petroleum finance its purchase of Anadarko.

The deal for Dominion’s gas assets gives Berkshire Hathaway Energy, a unit of Mr Buffett’s parent company that already runs a $100bn energy portfolio, ownership of almost 8,000 miles of natural gas transmission lines, and transport capacity of almost 21bn cubic feet a day.

The transaction also includes considerable storage facilities and partial ownership of the Cove Point LNG terminal, one of only six LNG export facilities in the country, which Berkshire Hathaway Energy will operate.

Berkshire will pay $4bn for the Dominion gas assets and also take on its $5.7bn in debt, the companies said.

Dominion, one of the largest US midstream players, has proved relatively resilient during a price crash that has shattered the share prices of oil and gas producers. Its share price has marginally risen since the start of the year while the broader S&P energy index has fallen by 40 per cent.

“We are very proud to be adding such a great portfolio of natural gas assets to our already strong energy business,” said Mr Buffett.

But analysts said the pipeline cancellation was another sign that developing new fossil fuel infrastructure in the US would become increasingly difficult.

“The decision to scrap the pipeline project reflects not just a desire of Dominion to shift focus to its utility business but also how much more costly and time-consuming it has become to pursue a pipeline project in the face of environmentalist opposition, a trend that will only intensify,” said Jason Bordoff, head of Columbia University's Center on Global Energy Policy. 

Environmentalists welcomed Dominion and Duke’s decision to ditch the pipeline project, saying it offered the companies an opportunity to move towards clean energy.

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“The costly and unneeded Atlantic Coast pipeline would have threatened waterways and communities across its 600-mile path,” said Gillian Giannetti, an attorney at the Natural Resources Defense Council. “As they abandon this dirty pipe dream, Dominion and Duke should now pivot to investing more in energy efficiency, wind and solar — that’s how to provide jobs and a better future for all.”

The Dominion deal with Berkshire must secure regulatory approvals. The companies expect it to close in the fourth quarter of 2020.