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Berkshire Hathaway Energy Acquires 50% Stake in Cove Point LNG Facility
Expansion into Energy Infrastructure
Berkshire Hathaway Energy, the energy and utility division led by Warren Buffett, has agreed to purchase a 50% stake in the Cove Point liquefied natural gas (LNG) facility for $3.3 billion in cash. This acquisition adds to Berkshire's growing focus on energy infrastructure within its conglomerate. With this purchase, Berkshire Hathaway Energy will now hold a 75% limited partnership stake in Cove Point LNG, located in Lusby, Maryland. The remaining 25% stake is held by a subsidiary of Brookfield Infrastructure Partners.
A Valuable US LNG Exporter
The Cove Point LNG facility is one of the few operational LNG facilities in the United States that has the capability to export LNG. This acquisition aligns with Berkshire's long-term strategy of investing in energy resources, which are increasingly becoming more valuable. Bill Stone, Chief Investment Officer at Glenview Trust and a Berkshire shareholder, stated that this purchase strengthens Berkshire's position as an owner of one of the rare US LNG exporters.
Key Features of Cove Point LNG
The facility boasts a storage capacity of 14.6 billion cubic feet and a daily send-out capacity of 1.8 billion cubic feet. Additionally, Cove Point LNG has a long-term contract with Sumitomo Corp., a Japanese trading company in which Buffett has also invested. This strategic advantage enhances Berkshire Hathaway Energy's position in the LNG market.
Berkshire's Growing Interest in Energy
This acquisition follows Berkshire Hathaway's initial investment in Dominion's gas pipeline and storage assets for $4 billion in 2020. Berkshire Hathaway Energy Chairman, Greg Abel, has been instrumental in these energy-focused endeavors. Abel, who is now vice chairman for non-insurance operations and considered to be Buffett's successor, has taken on significant responsibilities within the conglomerate.
Diversifying with Wind, Solar, and Traditional Energy
In addition to its LNG investments, Berkshire has proposed spending nearly $4 billion to increase wind and solar power generation in Iowa. This move demonstrates Berkshire's commitment to diversifying its energy portfolio. Simultaneously, the conglomerate has been expanding its exposure to traditional energy companies, such as Occidental Petroleum and Chevron. Stone suggests that Buffett's preference for pipelines stems from their reliable revenue streams, contrasting with the volatility often associated with commodity exposure. Despite the decline in natural gas prices, exporters like Berkshire Hathaway Energy typically operate on long-term take or pay contracts, ensuring stability in their revenue streams.
Conclusion: Implications for a New Business
The acquisition of a 50% stake in the Cove Point LNG facility by Berkshire Hathaway Energy signals the conglomerate's continued focus on energy infrastructure investments. For a new business in the energy sector, this development may have important implications.
Firstly, this acquisition highlights the growing value of LNG exports in the United States. With the Cove Point facility possessing the capability to export LNG, it positions Berkshire Hathaway Energy as an owner of one of the few operational LNG exporters in the country. For a new business looking to enter the LNG market, this suggests a potential opportunity to capitalize on the rising demand for LNG exports.
Moreover, the strategic advantages of the Cove Point LNG facility, including its significant storage and send-out capacities, as well as its long-term contract with Sumitomo Corp., provide Berkshire Hathaway Energy with a competitive edge in the LNG market. This underscores the importance of securing advantageous infrastructure and contractual agreements for a new business aiming to establish a foothold in the industry.
Additionally, Berkshire Hathaway's commitment to diversifying its energy portfolio, evidenced by its plans to invest in wind and solar power generation, presents opportunities for new businesses operating in renewable energy sectors. With the conglomerate's focus on traditional energy companies as well, partnerships and collaborations may be viable paths for a new business seeking to navigate the evolving energy landscape.
Overall, the expansion of Berkshire Hathaway Energy's energy infrastructure and its growing interest in a diverse range of energy sources present promising prospects for new businesses in the sector. Identifying and capitalizing on the emerging opportunities in LNG exports, renewable energy, and traditional energy sectors may pave the way for success in this evolving and dynamic market.
Article First Published at: https://www.cnbc.com/2023/07/11/berkshire-hathaway-takes-control-of-lng-facility-as-buffett-ups-bet-on-energy-infrastructure.html