To The Moon

While I research and verify materials’ info for this post, I learnt a little more about Mr Warren Buffet’s, his investment vehicle $Berkshire Hathaway(BRK.B)$ and liquefied natural gas (LNG).

LNG vessel

Natural Gas & Liquefied Natural Gas (LNG)

• Natural gas is an abundant resource.

• It is cleaner & cheaper than other fossil fuels. Eg. Oil and coal.

• Its domestic market “disadvantage” - effort required to transport the gas from production sites to market centres via pipeline.

• Its international markets “disadvantage” - effort required to “convert” natural gas into a pressurized liquid before shipping to overseas markets via LNG vessels.

• This implies additional effort & costs to (a) construct new pipelines to join network, (b) maintenance fees to keep pipelines in good conditions (c) maintain, lease or outsource its fleet of vessels.

There is value in LNG

LNG Global Market Value

• According to Shell Plc, in 2022 - global LNG trade reached 397 Million tonnes (MT).

• This is 16 Million tonnes (+4.2%) increased YoY.

• Again according to Shell Plc, in 2040 - global LNG demand is forecasted to reach 700 MT; a +176.32% gain in 18 years time.

• Asian countries are poised to account for 70% of new LNG demand.

• Could LNG’s potential earnings be the reason why $Berkshire Hathaway(BRK.A)$ decided to snap up Dominion Energy’s 50% stake of Cove Point LNG facility?

• With the purchase, Berkshire Hathaway Energy (subsidiary) that is already running the facility will have an updated 75% ownership.

• Based on Morgan Stanley’s analyst assessment, the $3.3 Billion deal was around -$1 Billion less than what the investment bank has expected to be the asking price, said David Arcaro.

• Looks like Mr Buffett has gotten Cove Point for a steal?

There was another post that said Dominion Energy decided to sell and use the proceeds for debt financing.

I am certain this is true.

I am also certain that if Cove Point has no intrinsic value, Mr Buffet would have:

1. Sold his 25% stake long ago.

2. Instead of piling another 50% of Cove Point to its holdings.

3. FYI, Cove Point is 1 of 7 operational LNG export terminals in US.

With the purchase completed, what is required now:

• Clearance as per the Hart-Scott-Rodino Act

• Filing with US Dept of Energy (DoE).

• Anticipating closure by end 2023.

It is anticipated that the approval processing closure by end 2023.

Natural Gas Prices

Natural gas - past 5 years prices

• Above please find natural gas prices for the past 5 years - 2019 to 2023.

• Price peaked at $9.5817 on 22 Aug 2022.

• Yesterday’s closing price was $2.7157.

• This implies a potential maximum upside of +71.66%.

With El Niño conditions keeping temperature at 40°C or higher in many parts of the world, demand for gas might be the catalyst that will kickstart gas price ascend again.

Why Did Natural Gas Price Plunge?

• Unseasonably mild winter that kept heating demand low.

• Improved energy efficiency.

• Behavioral changes in gas consumption.

• Last but not least, natural gas prices saw large falls driven by dynamics in the EU market.

Below are the Top 3 LNG stocks for considerations:

• $Cheniere(LNG)$. Leader in producing & exporting LNG in the US, with two facilities in (a) Sabine Pass and (b) Corpus Christi that have a combined capacity of 9.5 Bcf/d. It has long terms contracts with customers from Asia and Europe. It has a market cap of $38.565 Billion.

• $Chevron(CVX)$. Major integrated oil & gas company; with significant presence in the global LNG market. It operates / has stakes in several LNG projects worldwide. Eg. (1) Gorgon and Wheatstone in Australia, (2) Angola LNG in Africa, (3) Kitimat LNG in Canada, (4) 50% stake in ECA LNG project in Mexico. With a market cap of $301.062 Billion, what is there not to like?

• $Exxon Mobil(XOM)$. Another major integrated oil &gas company. With strong position in the global LNG market. Similarly it operates or has stakes in LNG projects around the world. Eg. (1) PNG LNG in Papua New Guinea, (2) Gorgon and Darwin in Australia, (3) Golden Pass in the U.S., (4) Rovuma in Mozambique, and (5) Arctic LNG 2 in Russia. With a market cap of $433.674 Billion, it is a strong competitor in the LNG world.

• Do you think gas price will rise again any time soon?

• Do you think now will be a good time to invest in LNG-related stocks, like Mr Buffet?

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