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Buffett bets big: LNG takes the spotlight in Berkshire’s energy portfolio

Warren Buffett isn’t concerned about the future of gas, particularly LNG.

This week, the billionaire investor delved further into the energy sector as Berkshire Hathaway assumed control of a US export facility for Liquified Natural Gas (LNG) by purchasing a 50% non-controlling limited partner interest in Cove Point LNG in the state of Maryland for $US3.5 billion in cash.

Dominion Energy has announced its agreement to sell its 50% stake in Cove Point LNG to Berkshire Hathaway Energy, a subsidiary of Berkshire Hathaway.

Currently, Berkshire Hathaway Energy operates the facility as the general partner with a 100% interest and as a limited partner with a 25% interest. The remaining 25% is owned by Canadian investor Brookfield Infrastructure. Consequently, Berkshire will ultimately possess a 75% stake.

Cove Point, one of the oldest gas plants in the US, was initially used in 1972 to receive gas from Algeria. It began handling LNG in 1978 but stopped a few years later due to the Algerians’ demand for higher prices, which the then-owners rejected.

The plant remained idle until 1994 when it was reactivated to receive LNG. It subsequently expanded into an export facility, completing the project in 2018. Berkshire Hathaway Energy acquired its first stake in the plant in 2020.

Cove Point is among seven US export LNG projects experiencing a surge in demand following Russia’s invasion of Ukraine. European buyers seeking alternatives to Russian gas have been the primary drivers of this increased demand.

Berkshire’s entry into LNG exports now puts it in direct competition with its two major energy interests: Chevron, one of the world’s largest LNG exporters (especially from Australia), and Occidental, a major domestic US gas supplier, explorer, producer, and petrochemical company in the Middle East.

The value of Berkshire’s stake in Chevron was $US21.6 billion as of March 31, following the sale of 20% of the holding in the first quarter.

In June, Berkshire Hathaway increased its stake in Occidental to 25%. Additionally, Berkshire owns approximately $US9.5 billion of Occidental preferred stock with an 8% dividend, along with warrants to purchase another $US5 billion worth of Occidental shares at slightly over $US59 each.

Including the investment in the LNG plant, as well as the stakes in Chevron and Occidental, Buffett has invested over $US37 billion in the energy sector over the past couple of years. Berkshire Energy also holds other LNG interests, as well as investments in renewables such as wind farms and solar power.