It’s been a tough year for energy pipelines that carry oil and gas from source points to distribution and export terminals. In recent weeks, along with a general rally in energy-related stocks, the worst seems to have passed for the key pipeline companies upon which we rely for energy distribution in this country. Energy Transfer, (NYSE: ET), and Enbridge, NYSE: ENB) – two of the biggest pipeline operators – have seen 25% gains in the last 6-weeks.

In recent times, with the travails that have beset the pipeline business, I’ve been wondering about the intrinsic value of this crucial distribution network. As we will discuss later in this article, growth in this business has been stunted in recent times by court actions in the case of Energy Transfer and regulatory setbacks in the case of Enbridge. There has also been a perception that this business could be impaired by the decline in produced oil and gas volumes this year, which could reduce demand for their services. And, to put a finer point on the depressed valuations, what was their relationship to a realistic value on existing infrastructure?

What is the value of a pipeline that’s been built and installed? And, to add another aspect, one that’s is not under threat of being arbitrarily shut down by some judicial or regulatory agency? Are these companies, with huge installed bases carrying the energy we all need, being given proper credit in their valuations for the worth of their infrastructure? Recent events have left me thinking there is unrealized value in these companies. We will discuss a relative basis for valuing this hardware that was set recently by none other than Warren Buffett with his purchase of the pipeline assets of Dominion Energy, (NYSE: D).

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Source: Oil Price

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