Lower production of U.S. natural gas and rising global demand for the commodity are setting the stage for a bull market in natural gas in the medium to long term, which Warren Buffett may have predicted when he invested in U.S. natural gas assets in the summer of 2020.

Last July, an affiliate of Berkshire Hathaway bought all of the gas transmission and storage assets of Dominion Energy in a nearly $10-billion deal, including debt assumption. For Berkshire Hathaway, it was the first major acquisition since the start of the coronavirus pandemic and the biggest acquisition in four years. In the following month, Berkshire Hathaway announced it had bought 5 percent in each of Japan’s five biggest trading companies, which are key importers of energy into the country.

Buffett is betting on the rise of natural gas demand, Ross Hendricks, Vice President of EnergyFunders, writes in Seeking Alpha.

From today’s perspective, energy bets on fossil fuels may be contrarian to the ESG trend for divesting oil and gas and coal and investing in clean energy solutions, but Buffett could be right with his bet on natural gas.

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Berkshire Hathaway has also recently unveiled an investment of US$4.1 billion in Chevron stock, another sign that Buffett doesn’t see fossil fuels as doomed.

There are signs that natural gas is the fossil fuel with the highest growth potential in coming years and even decades. Global natural gas demand is set to recoup this year most of the demand lost in the pandemic. LNG trade and demand will only grow over the next two decades. LNG demand is set to nearly double from 360 million tons last year to 700 million tons by 2040, thanks to continued solid demand from Asia and a rise in gas use for powering hard-to-electrify sectors, Shell said in its annual LNG Outlook 2021 last month.

In addition, U.S. LNG exports are also surging, while last year and this year domestic U.S. natural gas production would be lower than expected just over a year ago, as the collapse in oil prices led to lower associated gas production from fewer producing oil wells.

By Tsvetana Paraskova for Oilprice.com