One of the best investors over the years has been Warren Buffett and he is big fan of companies which have moats. One of the areas where the moats are biggest is in the utility division because all the pieces of generation of power need government regulation to do and government regulation to set prices. When the government regulates the electrical grid, it only allows one player to own the grid or a monopoly or for the greater good of the community. But what happens when something goes wrong? what if a government shut down the grid? what should other governments do?
In the case of Europe, before Russia invaded Ukraine, Russian gas flowed freely from the Siberian gas fields across Russia to the markets in Europe and Germany was receiving 40% of its gas from Russia. The pipelines connecting Russia and Europe are called Nord Stream 1 and II. On September 26, an underseas explosion happened in the Baltic Sea shutting down the pipeline, who did it and when will it be fixed?
In an article by Rebecca R Ruiz and Justin Scheck of the New York Times News Service, it turns out the explosion in the Baltic Sea was a very good place to hide who did it. Most of us believe pipeline companies have constant surveillance of their infrastructure, but according to Niklas Rossback, deputy research director of the Swedish Defense Research Agency, there was a lack of surveillance of the under portion of the pipeline.
The Baltic Sea is nearly an ideal crime scene, its floor is latticed with telecommunications cables and pipes that are not closely monitored. Ships come and go from the 9 countries bordering the sea and vessels can easily hide by turning off their tracking transponders. The Baltic is also a giant graveyard for unexploded munitions and chemical weapons dumped after the world wars.
Several countries including Russia have dive teams that specialize in the Baltic Sea. Russia has small, quiet submarines that can move undetected, according to former military and intelligence officers in the region.
The repair to fix the pipeline is estimated to be around $500 million. At the time of the blast of the pipeline which are concrete encased steel pipes nearly 4 feet in diameter and pipeline is over 700 miles long, the pipeline was not moving gas. This means some theories can be discounted, such as a bomb inside the pipeline, because it would need gas to move it to the target area. In all good mysteries there are many theories as to who did it and who benefits from the explosion.
Linking to dividend paying stocks, as an investor you like moats because there is big restriction to the competition. In all industries there is competition but in some, the competition seems to be years away. Understanding the competition is important part of your homework, but governments for a wide variety of reasons move slowly. If governments move slowly so do regulators who do the bidding of the government. Sometimes you will like the government, sometimes you want them to move aside, but governments can help you and ideally you want them on your side.
There are more questions than answers, till the next time – to raising questions.