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Falling Natural Gas Prices May Cost Buffett Billions

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Warren Buffett

Warren Buffett is telling investors that falling natural gas prices may “virtually wipe out” a $2 billion bond his company, Berkshire Hathaway, purchased from Energy Future Holdings Corp.

Bloomberg News reports:

Buffett’s Berkshire Hathaway Inc. (BRK/A) wrote down the debt by $390 million last year, following a $1 billion impairment in 2010, the billionaire said in his annual letter to shareholders posted Feb. 25 on the company’s website. The market value of the investment was $878 million at the end of December, he said.

“If gas prices remain at present levels, we will likely face a further loss, perhaps in an amount that will virtually wipe out our current carrying value,” wrote Buffett, Berkshire’s chairman and chief executive officer. “Conversely, a substantial increase in gas prices might allow us to recoup some, or even all, of our writedown.”

Buffett, 81, invested in the bonds in 2007 after Energy Future, then called TXU Corp., was bought by KKR & Co. (KKR) and TPG Capital in the largest leveraged buyout. The private-equity firms wagered that gas prices would rise, pushing up rates for wholesale electricity. Instead, they plummeted amid an expansion of drilling, forcing down what the company can charge in unregulated markets for power it produces from sources including coal.

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