Berkshire Hathaway has bet big on LNG, buying Dominion Energy’s 50% stake in the Cove Point LNG business. This takes Berkshire’s holding to 75% of the facility. Brookfield Infrastructure owns the remaining 25%. Berkshire Hathaway Energy now operates the facility.
The Cove Point LNG facility is non-trivial. The facility can reportedly store 14.6 billion cubic feet (BCF) of LNG, and send out 1.8 BCF daily. It purports to reach 28 countries. The facility also has gas transmission and pipeline facilities. This appears to be a sizeable investment in to LNG and associated infrastructure.
The question is why Berkshire Hathaway has entered LNG and how ordinary investors might approach this segment.
Why?
The answer might lie in LNG prices. LNG prices have fallen considerably over the past 12 months. Natural Gas is currently at $2.548. Thus, if Berkshire believes that prices will not fall further, Berkshire might view the investment as derisked and as having potential upside.
LNG-related companies have fallen in value. This would translate into the value of unlisted assets. Devon Energy is down 10.47% over the past 12 months and has fallen nearly 16% YTD. The trend is similar for other major companies to varying extents. This is despite analysts maintaining strong price targets. This might partly reflect relatively slow earnings growth in the sector. Berkshire might thus have been able to buy a quality asset at a relatively discounted price at a time when they believed LNG might not fall significantly further.
Berkshire might also rightly realize that LNG will play an increasing role as the world transitions to cleaner energy. This is especially as coal fired power plants are phased out. LNG is relatively cleaner and is likely to be an important part of a medium-term energy transition. Berkshire has taken notable stakes in other fossil fuel related companies (i.e., Occidental Petroleum and Chevron), highlighting that they do not believe the energy transition will be immediate.
How could you invest in LNG like Berkshire?
The next question is how might you invest in LNG-related assets. Clearly, it is implausible that you would buy a whole LNG facility. But, you might consider LNG-related stocks. Some of the most commonly mentioned ones are below. This is not to recommend any of these companies, rather to highlight some of the most frequently mentioned names.