Warren Buffett Bets On LNG, Despite Low Gas Prices, With This $3 Billion Deal Separator Site title Separator Site title

Mar 20, 2024

Warren Buffett added to his bet on liquefied natural gas late Monday, with Berkshire Hathaway (BKRA) agreeing to buy Dominion Energy's (D) share of the Maryland-based Cove Point LNG export plant in a $3.3 billion deal.

Buffett's Berkshire Hathaway Energy announced Monday it is purchasing Dominion Energy's 50% stake in the Cove Point LNG terminal. The more than $3 billion deal will bring Buffett's share in the LNG export facility to 75%. Brookfield Asset Management (BAM) owns the other 25%.

The sale is subject to clearance under the Hart-Scott-Rodino Act and a filing with the U.S. Department of Energy, with anticipated closing by the end of the year.

Morgan Stanley analyst David Arcaro wrote Tuesday the deal was around $1 billion less than the firm expected.

Dominion Energy stock gained 0.8% to 51.99 Tuesday during market trade. On Monday, D shares fell 1.3% to 51.58.

The decision by Warren Buffett's company to up its ownership in one of seven operational U.S. LNG export terminals comes as U.S. natural gas prices have dropped considerably compared to last year.

U.S. natural gas futures gained around 1.7% Tuesday to $2.70 per million British thermal units. Prices are down around 60% from the same time last year when futures spiked to 14-year highs as Russia's invasion of Ukraine sparked fears of an energy crisis in Europe.

The U.S. Energy Information Administration reported last week average front-month futures prices for LNG cargoes in East Asia were $12.14 per million British thermal units, down 68% compared to last year. Meanwhile, natural gas futures for delivery at the Title Transfer Facility (TTF) in the Netherlands averaged $11.22 per million British thermal units, a 76% drop vs. 2022.

The Cove Point LNG terminal has a storage capacity of 14.6 billion cubic feet (bcf/d). Its daily export capacity is 1.8 bcf/d, a bit less than 14% of total U.S. LNG export capacity.

"We are proud of our operations at Cove Point and are excited for this opportunity to increase our ownership in these world-class facilities," Berkshire Hathaway Energy Gas Transmission and Storage President Paul Ruppert said in a statement.

Meanwhile, Dominion Energy said in a statement the company will use the $3 billion from the deal to pay off debt.

"This investment is noncore to Dominion Energy as we focus on our state-regulated utility operations," Dominion Energy Chief Executive Robert Blue said in a press release. "This sale gives us the opportunity to reduce variable rate debt consistent with our goal of strengthening our balance sheet."

Warren Buffett has continued to add oil and natural gas investments to Berkshire's holdings in 2023.

On June 28, Buffett announced Berkshire purchased an additional 2.14 million shares of Occidental Petroleum (OXY) in three days. Berkshire bought OXY at prices between 57.01-57.17.

The OXY purchases brought Berkshire's total stake in the Houston-based energy company to 25%.

On May 30, Buffett disclosed he purchased 4.66 million OXY shares for about $275 million over May 25-30.

Berkshire also holds a stake in Dow Jones energy giant Chevron (CVX). Buffett sold around $6 billion worth of Chevron stock in the first quarter, according to Berkshire's Q1 financial report. Buffett's outfit reported reducing CVX holdings to $21.6 billion as of March 31.

Warren Buffett began buying the Dow Jones stock in 2020. Prior to Buffett's Q1 decision to sell, Berkshire Hathaway amassed a stake totaling 167 million CVX shares, worth around $29 billion.

OXY jumped 3.1% Tuesday as oil prices rebounded toward the top of their recent trading range. CVX added 1.8% Tuesday.

Please follow Kit Norton on Twitter @KitNorton for more coverage.

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