Natural Gas: Buffett bets big on the return of pre-shale volatility – Rabobank

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Warren Buffett’s firm, Berkshire Hathaway Energy, announced it is buying the US natural gas assets formerly held by Dominion Energy. There is deep optionality embedded in physical energy assets which could ultimately be worth multiples of what Buffett paid should market volatility return to pre-shale levels, according to strategists at Rabobank. 

Key quotes

“The US and even global natural gas supplies are set to tighten dramatically and with that, we expect to see spot prices and market volatility return to pre-shale levels. If our expectations are realized, then this big US natural gas bet by Buffett could ultimately end up being worth multiples of what was paid.”

“We view the bullish natural gas play as in the ‘strong hands’ of the market while the oil bulls are split into a wide cross-section of retail traders that are generally flying by the seat of their pants. This dynamic has set up the ultimate value vs momentum trade, as we see it, and which will play out in the months and even years ahead. We remain convinced though that this transaction has the potential to be a landmark deal that could well mark the ‘bottom’ for the US natural gas industry.”

“One needs to consider who to invest alongside and also to be able to identify those honey traps set by the market and that is why our eyes are on natural gas outperforming oil in the coming years as the energy transition is brought forward as a result of the virus outbreak and its long term impact to transportation fuel demand.”

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