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Business

Natural-Gas Prices Plunge as Unseasonably Warm Weather Is Forecast

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A sudden thaw across the Northern Hemisphere has melted down natural-gas prices, upending dire forecasts of energy shortages and sinking Vladimir Putin’s plan to squeeze Europe this winter.

It isn’t expected to remain as balmy as it was on Wednesday, when temperatures hit 66-degrees Fahrenheit in New York, but the forecasts that energy traders monitor call for abnormally warm weather extending into February, sapping demand for the heating fuel.

U.S. natural-gas futures for February delivery ended Wednesday at $4.172 per million British thermal units. That is down 57% from the summer highs notwithstanding a 4.6% gain on Wednesday that snapped a four-session losing streak, including an 11% drop on Tuesday. 

The price is now about the same as it was a year ago, when temperatures were also warmer than normal and before Russia’s invasion of Ukraine jolted energy markets.

The plunge is a bad omen for drillers, whose shares were among the stock market’s few winners last year. Cheaper gas is good news for households and manufacturers whose budgets have been busted and profit margins pinched by high fuel prices. Though shocks of cold and problems with pipelines could still push up regional prices, less expensive natural gas should help to cool inflation in the months ahead. 

There are also major geopolitical implications. Mild weather is driving gas prices lower in Europe, too, spelling relief for the region that coming into the winter faced the possibility of rolling blackouts and factory shutdowns. The war threw energy markets into chaos, but benchmark European natural-gas prices are now less than half of what they were a month ago and lower than any point since the February invasion. 

The drop is a welcome surprise for European governments that committed hundreds of billions of dollars to shield consumers and companies from high energy prices. Moscow cut supplies of gas to Europe last year in what European officials described as an attempt to undermine military and financial support for Kyiv.

So far, Russia’s strategy isn’t working. Warm weather is limiting demand, as is a European Union-led effort to curb consumption. But analysts say prices in Europe could shoot up again when the continent tries to refill stores for the 2023-24 winter without much Russian gas.

PHOTOS: How a 102-Year-Old Maritime Law Affects Today’s Home-Heating Prices

Besides being burned to heat roughly half of American homes, natural gas is used for cooking, along with making electricity, plastic, fertilizer, steel and glass. Last year’s high prices were a big driver of the steepest inflation in four decades.

When prices peaked in August, the question was whether there would be enough gas to get through the winter, given record consumption by domestic power producers with few alternatives, as well as demand in Europe, where the race is on to replace Russian gas.

Now the question in the market is how low prices will go.  

They were already falling when the late-December storm brought snow to northern cities and stranded travelers. Frigid temperatures prompted a big draw from U.S. natural-gas stockpiles and froze wells in North Dakota and Oklahoma. At its peak, the storm took nearly 21% of U.S. gas supply offline, according to East Daley Analytics, a gas consulting firm.  

The demand surge and the supply disruptions were fleeting and failed to counteract forecasts for balmy January weather. Prices were also pushed lower by another delay in the restart of a Texas export facility. It has been offline since a June fire left a lot of gas in the domestic market that would have otherwise been shipped overseas. 

Temperatures above 60 degrees Fahrenheit are forecast this week around the Great Lakes and along the Ohio Valley, while highs in the Southeast might reach into the 80s.

As measured in heating-degree days, a population-weighted measure of temperatures below 65 degrees Fahrenheit, this week will be twice as warm relative to normal as the last week of December was cold, said Eli Rubin, senior energy analyst at the gas-trading firm EBW AnalyticsGroup.

The firm estimates that warmer weather over the first half of January will reduce gas demand by about 100 billion cubic feet over that stretch. That is about the volume of gas that the U.S. produces each day. The Energy Information Administration estimates that daily American output hit a record in 2022.

Analysts anticipate similarly strong production in 2023. They expect the year to pass without new LNG export capacity coming online for the first time since 2016, when the U.S. began to ship liquefied natural gas abroad from the Lower 48 States. 

“The market is moving from a mind-set of winter scarcity to looking ahead to exiting winter with more in storage, adding production and not adding any new LNG exports,” Mr. Rubin said. “If anything, the market looks oversupplied.” 

Analysts have been reducing their gas-price assumptions as well as their outlooks for producers as the first weeks of winter pass without sustained periods of cold weather. 

Gabriele Sorbara, an analyst at Siebert Williams Shank, told clients this week that he expected natural gas to average $4.25 in 2023, down from a forecast of $5.50 before the warm spell. As a result, he downgraded shares of

EQT Corp.

, the biggest U.S. producer and one of the top-performing stocks in the S&P 500 last year, from buy to hold. 

“EQT will be dead money until estimates recalibrate and there is visibility of a rebound in natural-gas prices,” he wrote in a note to clients.  

SHARE YOUR THOUGHTS

What price changes are you seeing in your natural-gas bill this winter? Join the conversation below.

Hedge funds and other speculators have, on balance, been bearish on natural-gas prices since the summer, maintaining more wagers on falling prices than on gains, according to Commodity Futures Trading Commission data. Analysts said that is probably the safe bet. 

“We continue to caution against any attempts to time a price bottom,” the trading firm Ritterbusch & Associates told clients this week. 

—Joe Wallace contributed to this article.

Write to Ryan Dezember at ryan.dezember@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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Business

20 dividend stocks with high yields that have become more attractive right now

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Income-seeking investors are looking at an opportunity to scoop up shares of real estate investment trusts. Stocks in that asset class have become more attractive as prices have fallen and cash flow is improving.

Below is a broad screen of REITs that have high dividend yields and are also expected to generate enough excess cash in 2023 to enable increases in dividend payouts.

REIT prices may turn a corner in 2023

REITs distribute most of their income to shareholders to maintain their tax-advantaged status. But the group is cyclical, with pressure on share prices when interest rates rise, as they have this year at an unprecedented scale. A slowing growth rate for the group may have also placed a drag on the stocks.

And now, with talk that the Federal Reserve may begin to temper its cycle of interest-rate increases, we may be nearing the time when REIT prices rise in anticipation of an eventual decline in interest rates. The market always looks ahead, which means long-term investors who have been waiting on the sidelines to buy higher-yielding income-oriented investments may have to make a move soon.

During an interview on Nov 28, James Bullard, president of the Federal Reserve Bank of St. Louis and a member of the Federal Open Market Committee, discussed the central bank’s cycle of interest-rate increases meant to reduce inflation.

When asked about the potential timing of the Fed’s “terminal rate” (the peak federal funds rate for this cycle), Bullard said: “Generally speaking, I have advocated that sooner is better, that you do want to get to the right level of the policy rate for the current data and the current situation.”

Fed’s Bullard says in MarketWatch interview that markets are underpricing the chance of still-higher rates

In August we published this guide to investing in REITs for income. Since the data for that article was pulled on Aug. 24, the S&P 500
SPX,
-0.50%
has declined 4% (despite a 10% rally from its 2022 closing low on Oct. 12), but the benchmark index’s real estate sector has declined 13%.

REITs can be placed broadly into two categories. Mortgage REITs lend money to commercial or residential borrowers and/or invest in mortgage-backed securities, while equity REITs own property and lease it out.

The pressure on share prices can be greater for mortgage REITs, because the mortgage-lending business slows as interest rates rise. In this article we are focusing on equity REITs.

Industry numbers

The National Association of Real Estate Investment Trusts (Nareit) reported that third-quarter funds from operations (FFO) for U.S.-listed equity REITs were up 14% from a year earlier. To put that number in context, the year-over-year growth rate of quarterly FFO has been slowing — it was 35% a year ago. And the third-quarter FFO increase compares to a 23% increase in earnings per share for the S&P 500 from a year earlier, according to FactSet.

The NAREIT report breaks out numbers for 12 categories of equity REITs, and there is great variance in the growth numbers, as you can see here.

FFO is a non-GAAP measure that is commonly used to gauge REITs’ capacity for paying dividends. It adds amortization and depreciation (noncash items) back to earnings, while excluding gains on the sale of property. Adjusted funds from operations (AFFO) goes further, netting out expected capital expenditures to maintain the quality of property investments.

The slowing FFO growth numbers point to the importance of looking at REITs individually, to see if expected cash flow is sufficient to cover dividend payments.

Screen of high-yielding equity REITs

For 2022 through Nov. 28, the S&P 500 has declined 17%, while the real estate sector has fallen 27%, excluding dividends.

Over the very long term, through interest-rate cycles and the liquidity-driven bull market that ended this year, equity REITs have fared well, with an average annual return of 9.3% for 20 years, compared to an average return of 9.6% for the S&P 500, both with dividends reinvested, according to FactSet.

This performance might surprise some investors, when considering the REITs’ income focus and the S&P 500’s heavy weighting for rapidly growing technology companies.

For a broad screen of equity REITs, we began with the Russell 3000 Index
RUA,
-0.18%,
which represents 98% of U.S. companies by market capitalization.

We then narrowed the list to 119 equity REITs that are followed by at least five analysts covered by FactSet for which AFFO estimates are available.

If we divide the expected 2023 AFFO by the current share price, we have an estimated AFFO yield, which can be compared with the current dividend yield to see if there is expected “headroom” for dividend increases.

For example, if we look at Vornado Realty Trust
VNO,
+1.01%,
the current dividend yield is 8.56%. Based on the consensus 2023 AFFO estimate among analysts polled by FactSet, the expected AFFO yield is only 7.25%. This doesn’t mean that Vornado will cut its dividend and it doesn’t even mean the company won’t raise its payout next year. But it might make it less likely to do so.

Among the 119 equity REITs, 104 have expected 2023 AFFO headroom of at least 1.00%.

Here are the 20 equity REITs from our screen with the highest current dividend yields that have at least 1% expected AFFO headroom:

Company Ticker Dividend yield Estimated 2023 AFFO yield Estimated “headroom” Market cap. ($mil) Main concentration
Brandywine Realty Trust BDN,
+1.82% 		11.52% 12.82% 1.30% $1,132 Offices
Sabra Health Care REIT Inc. SBRA,
+2.02% 		9.70% 12.04% 2.34% $2,857 Health care
Medical Properties Trust Inc. MPW,
+1.90% 		9.18% 11.46% 2.29% $7,559 Health care
SL Green Realty Corp. SLG,
+2.18% 		9.16% 10.43% 1.28% $2,619 Offices
Hudson Pacific Properties Inc. HPP,
+1.55% 		9.12% 12.69% 3.57% $1,546 Offices
Omega Healthcare Investors Inc. OHI,
+1.30% 		9.05% 10.13% 1.08% $6,936 Health care
Global Medical REIT Inc. GMRE,
+2.03% 		8.75% 10.59% 1.84% $629 Health care
Uniti Group Inc. UNIT,
+0.28% 		8.30% 25.00% 16.70% $1,715 Communications infrastructure
EPR Properties EPR,
+0.62% 		8.19% 12.24% 4.05% $3,023 Leisure properties
CTO Realty Growth Inc. CTO,
+1.58% 		7.51% 9.34% 1.83% $381 Retail
Highwoods Properties Inc. HIW,
+0.76% 		6.95% 8.82% 1.86% $3,025 Offices
National Health Investors Inc. NHI,
+1.90% 		6.75% 8.32% 1.57% $2,313 Senior housing
Douglas Emmett Inc. DEI,
+0.33% 		6.74% 10.30% 3.55% $2,920 Offices
Outfront Media Inc. OUT,
+0.70% 		6.68% 11.74% 5.06% $2,950 Billboards
Spirit Realty Capital Inc. SRC,
+0.72% 		6.62% 9.07% 2.45% $5,595 Retail
Broadstone Net Lease Inc. BNL,
-0.93% 		6.61% 8.70% 2.08% $2,879 Industial
Armada Hoffler Properties Inc. AHH,
-0.08% 		6.38% 7.78% 1.41% $807 Offices
Innovative Industrial Properties Inc. IIPR,
+1.09% 		6.24% 7.53% 1.29% $3,226 Health care
Simon Property Group Inc. SPG,
+0.95% 		6.22% 9.55% 3.33% $37,847 Retail
LTC Properties Inc. LTC,
+1.09% 		5.99% 7.60% 1.60% $1,541 Senior housing
Source: FactSet

Click on the tickers for more about each company. You should read Tomi Kilgore’s detailed guide to the wealth of information for free on the MarketWatch quote page.

The list includes each REIT’s main property investment type. However, many REITs are highly diversified. The simplified categories on the table may not cover all of their investment properties.

Knowing what a REIT invests in is part of the research you should do on your own before buying any individual stock. For arbitrary examples, some investors may wish to steer clear of exposure to certain areas of retail or hotels, or they may favor health-care properties.

Largest REITs

Several of the REITs that passed the screen have relatively small market capitalizations. You might be curious to see how the most widely held REITs fared in the screen. So here’s another list of the 20 largest U.S. REITs among the 119 that passed the first cut, sorted by market cap as of Nov. 28:

Company Ticker Dividend yield Estimated 2023 AFFO yield Estimated “headroom” Market cap. ($mil) Main concentration
Prologis Inc. PLD,
+1.29% 		2.84% 4.36% 1.52% $102,886 Warehouses and logistics
American Tower Corp. AMT,
+0.68% 		2.66% 4.82% 2.16% $99,593 Communications infrastructure
Equinix Inc. EQIX,
+0.62% 		1.87% 4.79% 2.91% $61,317 Data centers
Crown Castle Inc. CCI,
+1.03% 		4.55% 5.42% 0.86% $59,553 Wireless Infrastructure
Public Storage PSA,
+0.11% 		2.77% 5.35% 2.57% $50,680 Self-storage
Realty Income Corp. O,
+0.26% 		4.82% 6.46% 1.64% $38,720 Retail
Simon Property Group Inc. SPG,
+0.95% 		6.22% 9.55% 3.33% $37,847 Retail
VICI Properties Inc. VICI,
+0.41% 		4.69% 6.21% 1.52% $32,013 Leisure properties
SBA Communications Corp. Class A SBAC,
+0.59% 		0.97% 4.33% 3.36% $31,662 Communications infrastructure
Welltower Inc. WELL,
+2.37% 		3.66% 4.76% 1.10% $31,489 Health care
Digital Realty Trust Inc. DLR,
+0.69% 		4.54% 6.18% 1.64% $30,903 Data centers
Alexandria Real Estate Equities Inc. ARE,
+1.38% 		3.17% 4.87% 1.70% $24,451 Offices
AvalonBay Communities Inc. AVB,
+0.89% 		3.78% 5.69% 1.90% $23,513 Multifamily residential
Equity Residential EQR,
+1.10% 		4.02% 5.36% 1.34% $23,503 Multifamily residential
Extra Space Storage Inc. EXR,
+0.29% 		3.93% 5.83% 1.90% $20,430 Self-storage
Invitation Homes Inc. INVH,
+1.58% 		2.84% 5.12% 2.28% $18,948 Single-family residental
Mid-America Apartment Communities Inc. MAA,
+1.46% 		3.16% 5.18% 2.02% $18,260 Multifamily residential
Ventas Inc. VTR,
+1.63% 		4.07% 5.95% 1.88% $17,660 Senior housing
Sun Communities Inc. SUI,
+2.09% 		2.51% 4.81% 2.30% $17,346 Multifamily residential
Source: FactSet

Simon Property Group Inc.
SPG,
+0.95%
is the only REIT to make both lists.

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Business

OPEC+ Eyes Output Increase Ahead of Restrictions on Russian Oil

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Saudi Arabia and other OPEC oil producers are discussing an output increase, the group’s delegates said, a move that could help heal a rift with the Biden administration and keep energy flowing amid new attempts to blunt Russia’s oil industry over the Ukraine war.

A production increase of up to 500,000 barrels a day is now under discussion for OPEC+’s Dec. 4 meeting, delegates said. The move would come a day before the European Union is set to impose an embargo on Russian oil and the Group of Seven wealthy nations’ plans to launch a price cap on Russian crude sales, potentially taking Moscow’s petroleum supplies off the market. 

After The Wall Street Journal and other news organizations reported on the discussions Monday, Saudi energy minister Prince

Abdulaziz bin Salman

denied the reports and said a production cut was possible instead.

Any output increase would mark a partial reversal of a controversial decision last month to cut production by 2 million barrels a day at the most recent meeting of the Organization of the Petroleum Exporting Countries and their Russia-led allies, a group known collectively as OPEC+. 

The White House said the production cut undermined global efforts to blunt Russia’s war in Ukraine. It was also viewed as a political slap in the face to President Biden, coming before the congressional midterm elections at a time of high inflation. Saudi-U.S. relations have hit a low point over oil-production disagreements this year, though U.S. officials had said they were looking to the Dec. 4 OPEC+ meeting with some hope.

Talk of a production increase has emerged after the Biden administration told a federal court judge that Saudi Crown

Prince Mohammed

bin Salman should have sovereign immunity from a U.S. federal lawsuit related to the brutal killing of Saudi journalist Jamal Khashoggi. The immunity decision amounted to a concession to Prince Mohammed, bolstering his standing as the kingdom’s de facto ruler after the Biden administration tried for months to isolate him. 

It is an unusual time for OPEC+ to consider a production increase, with global oil prices falling more than 10% since the first week of November. Oil prices fell 5% after reports of the increase and then pared those losses after

Prince Abdulaziz

‘s comments. Brent crude traded at $86.25 on Monday afternoon, down more than 1%. 

Ostensibly, delegates said, a production increase would be in response to expectations that oil consumption will rise in the winter, as it normally does. Oil demand is expected to increase by 1.69 million barrels a day to 101.3 million barrels a day in the first quarter next year, compared with the average level in 2022. 

Saudi energy minister Abdulaziz bin Salman has said the kingdom would supply oil to ‘all who need it.’



Photo:

AHMED YOSRI/REUTERS

OPEC and its allies say they have been carefully studying the G-7 plans to impose a price cap on Russian oil, conceding privately that they see any such move by crude consumers to control the market as a threat. Russia has said it wouldn’t sell oil to any country participating in the price cap, potentially resulting in another effective production cut from Moscow—one of the world’s top three oil producers.

Prince Abdulaziz said last month that the kingdom would “supply oil to all who need it from us,” speaking in response to a question about looming Russian oil shortages. OPEC members have signaled to Western countries that they would step up if Russian output fell. 

Talk of a production increase sets up a potential fight between OPEC+’s two heavyweight producers, Saudi Arabia and Russia. The countries have an oil-production alliance that industry officials in both nations have described as a marriage of convenience, and they have clashed before. 

Saudi officials have been adamant that their decision to cut production last month wasn’t designed to support Russia’s war in Ukraine. Instead, they say, the cut was intended to get ahead of flagging demand for oil caused by a global economy showing signs of slowing down. 

Raising oil production ahead of the price cap and EU embargo could give the Saudis another argument that they are acting in their own interests, and not Russia’s. 

Another factor driving discussion around raising output: Two big OPEC members, Iraq and the United Arab Emirates, want to pump more oil, OPEC delegates said. Both countries are pushing the oil-producing group to allow them a higher daily-production ceiling, delegates said, a change that, if granted, could account for more oil production. 

Under OPEC’s complex quota system, the U.A.E. is obligated to hold its crude production to no more than 3.018 million barrels a day. State-owned Abu Dhabi National Oil Co., which produces most of the U.A.E.’s output, has an output capacity of 4.45 million barrels a day and plans to accelerate its goal of reaching 5 million barrels of daily capacity by 2025. Abu Dhabi has long pushed for a higher OPEC quota, only to be rebuffed by the Saudis, OPEC delegates have said.

Last year, the country was the lone holdout on a deal to boost crude output in OPEC+, saying it would agree only if allowed to boost its own production much more than other members. The public standoff inside OPEC was the first sign that the U.A.E. has adopted a new strategy: Sell as much crude as possible before demand dries up.

Earlier this month, Iraqi Prime Minister Mohammed Shia’ al-Sudani said that his country, which is the second-largest crude oil producer in OPEC, would discuss a new quota with other members at its next meeting.

A discussion of OPEC production quotas has been on hold for months. The idea faces opposition from some OPEC nations because many can’t meet their current targets and watching other countries run up their quotas could cause political problems domestically, delegates said. 

—Michael Amon contributed to this article.

Write to Summer Said at summer.said@wsj.com and Benoit Faucon at benoit.faucon@wsj.com

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US

Biden to Announce Restrictions on Methane Emissions at COP27

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SHARM EL SHEIKH, Egypt—President Biden is moving to tighten restrictions on emissions of methane, a potent greenhouse gas, and boost funding for developing countries to adapt to the effects of climate change and transition to cleaner technologies, according to the White House. 

Mr. Biden is expected to announce the measures in a speech before a United Nations climate conference, known as COP27, according to a fact sheet released by the White House ahead of the address. The measures include plans for the Environmental Protection Agency to require oil-and-gas companies to monitor existing production facilities for methane leaks and repair them, according to administration officials.

Methane is 80 times as potent at trapping heat from solar radiation as carbon dioxide over its first 20 years in the atmosphere. It is responsible for about half a degree Celsius of global warming since the preindustrial era, and its levels are rising fast, according to measurements made by the National Oceanic and Atmospheric Administration. 

The planned rules affect hundreds of thousands of U.S. wells, storage tanks and natural-gas processing plants, and require companies to replace leaky, older equipment and buy new monitoring tools.

EPA Administrator

Michael Regan

said flaring—a technique used by gas producers to burn off excess methane from oil and natural-gas wells—would be reduced at all well sites under the planned rules. Owners would be required to monitor abandoned wells for methane emissions and plug any leaks, he said.

“We’ve tightened down to limit flaring as much as possible without banning it,” Mr. Regan said.

President Biden met on Friday with Egyptian President Abdel Fattah Al Sisi in Sharm El Sheikh.



Photo:

KEVIN LAMARQUE/REUTERS

The American Petroleum Institute, which represents U.S. oil and gas producers, said it was reviewing the proposed rule. 

“Federal regulation of methane crafted to build on industry’s progress can help accelerate emissions reductions while developing reliable American energy,”

Frank Macchiarola,

API’s senior vice president of policy, economics and regulatory affairs, said in a statement.

Lee Fuller of the Independent Petroleum Association of America, a Washington, D.C., trade group that represents many smaller producers, said his group would be reviewing the regulations closely. 

“While everyone wants to produce oil and natural gas using sound environmental procedures, there will always be a need to assure that the regulatory structure is cost effective and technologically feasible,” he said in a statement. 

Rachel Cleetus, lead economist for the Union of Concerned Scientists, a nonprofit advocacy group, said in a statement that the EPA had “taken an important step forward by issuing a robust standard for methane emissions from oil-and-gas operations.”

Mr. Biden is walking a political tightrope during his brief stopover in Egypt on his way to summits in Cambodia and Indonesia. The war in Ukraine has unleashed turmoil in energy markets, underscoring the world’s continued reliance on fossil fuels.

Control of the U.S. Senate and House of Representatives still hinged on races that were too close to call as of early Friday morning, with both parties girding for a final outcome that might not be known for days. If Republicans win control of either chamber it would mean more power to a party that is deeply skeptical of Mr. Biden’s climate agenda and reluctant to spend billions of dollars to help other countries transition to cleaner sources of energy.

The White House said Mr. Biden is expected to announce an additional $100 million for the United Nations Adaptation Fund, which helps countries adapt to floods, droughts and storms that climate scientists say are increasing in frequency and severity as the earth’s atmosphere and oceans warm. The U.S. has yet to pay the $50 million it pledged to the fund at last year’s climate talks in Glasgow.

As world leaders gather for the COP27 climate conference in Egypt, WSJ looks at how the war in Ukraine and turmoil in energy markets are complicating efforts to reduce carbon emissions. Photo: Mohammed Salem/Reuters

The U.S. also owes $2 billion to the U.N. Green Climate Fund, which finances renewable energy and climate adaptation projects in the developing world. The administration has asked for $1.6 billion for the fund in the fiscal 2023 budget.

The White House said Mr. Biden would also pledge $150 million to a U.S. fund for climate adaptation and resilience across Africa; $13.6 million to the World Meteorological Organization to collect additional weather, water and climate observation across Africa; and $15 million to support the deployment of early-warning systems in Africa by NOAA in conjunction with local weather-forecasting agencies.

The U.S. pledges don’t address demands from poorer nations to provide money for damage they say is the result of climate-related weather events—a new category of funding known as “loss and damage.” This week at the summit, Belgium and Germany pledged a combined 172 million euros, equivalent to $176 million, to support loss-and-damage payments to developing countries. Scotland pledged $5.8 million and Ireland pledged $10 million.

Developing countries have made a renewed push to set up a mechanism for loss-and-damage payments after severe floods in Pakistan this summer that caused $30 billion in losses, according to World Bank estimates, killed more than 1,700 people and displaced 33 million residents. Sen.

Sherry Rehman,

Pakistan’s federal minister for climate change, said she is hoping for more resources from the U.S. and other nations to help her country.

U.S. negotiators are concerned the concept of loss and damage exposes wealthier nations to spiraling liability. There is also the scientific uncertainty of determining which effects can be tied to human-induced climate change and which are part of normal seasonal variation. However, U.S. climate envoy

John Kerry

said this week at the conference that he is open to discussing loss and damage.

SHARE YOUR THOUGHTS

What do you hope is discussed or accomplished at the climate change conference? Join the conversation below.

“We need more,” Ms. Rehman said in an interview. “What you hear everywhere at COP is ‘action now.’ Everything else is fluff.”

Mr. Biden arrived at the climate summit Friday after most world leaders have departed. He met privately with Egyptian President

Abdel Fattah Al Sisi

at the conference, located at a resort town along the Red Sea. The U.S. and Germany were expected to announce Friday a $250 million financing program to build 10 gigawatts of new wind-and-solar energy facilities in Egypt while decommissioning 5 gigawatts of inefficient natural-gas power plants.

The Biden administration’s efforts to curb methane emissions follow an agreement reached on the sidelines of the Glasgow summit a year ago, in which China and the U.S. pledged to work on reducing emissions of the gas. Beijing this week announced a plan to cut methane emissions but hasn’t yet included the new measures in its climate plans submitted to the U.N. 

Nigeria announced its first-ever regulations, including limits on flaring, to cut overall methane emissions by more than 60% over 2020 levels. Canada said Thursday it plans to cut emissions of methane from its oil-and-gas industry by more than 75% over 2012 levels by 2030. 

Emissions from flaring are far higher than previous government and industry estimates, according to an analysis of 300 wells in four states published in September in the journal Science.

The White House says 260 billion cubic meters of gas are wasted every year from flaring and methane emissions within the oil-and-gas sector. 

Under the 2015 Paris climate agreement, countries aim to limit global warming to well under 2 degrees Celsius above preindustrial levels and preferably to 1.5 degrees. The gap between the emissions cuts pledged by 166 nations, including the U.S., and their current emissions puts the world on track to warm 2.5 degrees Celsius, or 4.5 degrees Fahrenheit, by the end of the century, according to a recent U.N. report.

White House officials point to Mr. Biden’s support of the Democrats’ climate, health and tax legislation that allocates hundreds of billions of dollars to climate and energy programs, including tax credits for buying electric vehicles and investments in clean technologies.

Administration officials said the legislation has helped put the U.S. on track to meeting Mr. Biden’s goal of cutting domestic emissions 50% below 2005 levels by 2030.

—Matthew Dalton and Scott Patterson contributed to this article.

Write to Eric Niiler at eric.niiler@wsj.com

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Business

Schlumberger Rebrands as SLB, Dropping Family Name

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Schlumberger Ltd.

SLB 2.18%

is changing its name to SLB, dropping the family name of the brothers who founded the oil-field services company nearly a century ago.

The company said the punchier moniker, which is effective Monday, is meant to embrace its focus on newer energy services, such as clean hydrogen and carbon-capture technology. The rebranding includes a new logo and comes as the company said it would focus on creating and scaling new energy systems such as carbon solutions, hydrogen, geothermal and geoenergy, energy storage and critical minerals.

“It’s simple, it’s bold, it’s still related to our heritage,” Chief Executive

Olivier Le Peuch

said. “We have to find a path to keep this heritage and, at the same time, [it’s] an opportunity to draw a new north for the company.”

Brothers Conrad and Marcel Schlumberger founded the predecessor to the company that would carry their family name in France in 1926, when they created the Société de Prospection Électrique, or the Electric Prospecting Company, according to the company website.

Throughout the 1930s, the company grew rapidly and established international business units bearing the Schlumberger name. In 1940, the company moved its headquarters to Houston, the burgeoning center of the U.S. oil drilling industry.

Over the past century, the company has evolved from its roots doing surface prospecting for the metal-ore mining industry. By the 1960s, its deep-sea drilling equipment was used in the search for sunken vessels and the company began providing high-precision sensors to the National Aeronautics and Space Administration.

Money is a sticking point in climate-change negotiations around the world. As economists warn that limiting global warming to 1.5 degrees Celsius will cost many more trillions than anticipated, WSJ looks at how the funds could be spent, and who would pay. Illustration: Preston Jessee/WSJ

The company has since grown aggressively through acquisitions, cementing its lead as the world’s largest oil-field services company through its 2010 acquisition of Smith International for over $11 billion.

More recently, Schlumberger has expanded into renewable-energy services along with the broader oil-and-gas industry. In 2020, Schlumberger launched a business unit to explore low-carbon and carbon-neutral technologies.

The following year, the company said it wanted to achieve net-zero greenhouse gas emissions by 2050, with minimal reliance on offsets. The company has since rolled out new offerings to reduce carbon dioxide and methane emissions from oil-and-gas operations.

Earlier this month, Schlumberger announced two partnerships, one meant to introduce sustainable technology into the production process for battery-grade lithium compounds and another to accelerate the industrialization of carbon-capture technology.

Shares of Schlumberger are up more than 68% so far this year, outperforming the S&P 500’s decline of 21% over the same period. Last week, the company posted third-quarter earnings that topped Wall Street expectations on 28% revenue growth from a year ago.

Write to Will Feuer at will.feuer@wsj.com and Benoît Morenne at benoit.morenne@wsj.com

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World

Russia to Keep Nord Stream Pipeline Shut, Citing Mechanical Problems

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Russia indefinitely suspended natural gas flows to Europe via a key pipeline hours after the Group of Seven agreed to an oil price cap for Russian crude—two opposing blows exchanged between Moscow and the West in an economic war running parallel to the military conflict in Ukraine.

Kremlin-controlled energy company Gazprom PJSC said late Friday it would suspend supplies of gas to Germany via the Nord Stream natural-gas pipeline until further notice, raising the pressure on Europe as governments race to avoid energy shortages this winter.

Gazprom said it had found a technical fault during maintenance of the pipeline, which connects Russia with Germany under the Baltic Sea. The company said the pipeline will remain shut down until the issue is fixed, without giving any timeline.

The pipeline was due to resume work early Saturday after three-day maintenance. Before the maintenance, the pipeline was operating at 20% of its capacity.

Russia first began throttling supplies via Nord Stream in June, saying that needed maintenance was being prevented by Western sanctions imposed following Russia’s invasion of Ukraine. The notion was dismissed by European officials as an excuse for Russian President

Vladimir Putin’s

regime to use its gas exports to punish Europe for its support of Ukraine.

Western leaders are preparing for the possibility that Russian natural gas flows through the key Nord Stream pipeline may never return to full levels. WSJ’s Shelby Holliday explains what an energy crisis could look like in Europe, and how it might ripple through the world. Illustration: David Fang

A complete shutdown of Nord Stream will compel European governments to accelerate their push to become independent of Russian gas ahead of the winter months and could force them to ration energy—a move that would hurt industrial companies and tip the continent’s already fragile economy into a recession.

“By further reducing gas deliveries, Russia is tightening the screws on the EU,” said Janis Kluge, an expert on Russia at the German Institute for International and Security Affairs. “Europe will now have to take its efforts up a notch to conserve more gas.”

At the same time, the move deprives Moscow of its most potent economic leverage on the continent and could remove any remaining misgivings in European capitals about raising sanctions on Moscow for fear of retribution.

“Until it is repaired, gas transport via Nord Stream is completely stopped,” Gazprom said Friday.

Moscow and the West have been engaged in an economic war since Russia invaded Ukraine in February. Western democracies have inflicted economic and financial sanctions on Russia, and Moscow has tried to choke unfriendly countries’ access to its natural gas, which Europe uses for heating and electricity production.

ArcelorMittal SA,

one of the world’s largest steelmakers, was the latest industrial giant to say it is reducing European production capacity amid the energy crisis. The company said Friday it will close two of its plants in Germany amid soaring electricity costs.

Steelmaking is particularly energy intensive, alongside other industries like fertilizer and chemical production and glass making.

G-7 countries said on Friday they would impose a cap on the price of Russian oil. The mechanism would force buyers seeking to insure their shipment via insurers located in a G-7 or European Union country to observe the price limit on their purchases. The cap, whose level will be set at a future meeting, originated in a U.S. initiative and has been under discussion for months.

Russia has said countries imposing a cap wouldn’t receive any Russian oil. Sales of oil make up a far bigger share of Russian state revenues than sales of natural gas.

Inspectors from the United Nations’ nuclear agency visited the Russian-occupied Zaporizhzhia nuclear-power plant, despite shelling near the facility for which Ukraine and Russia exchanged blame. On Friday, Ukraine accused Russia of hindering access to the plant. Photo: Yuri Kochetkov/Shutterstock

Hours before Gazprom’s Nord Stream announcement, German Finance Minister

Christian Lindner

praised the G-7 decision, saying “Russia is generating big profits from the export of commodities such as oil, which is something we must push back on vigorously.”

The cap, he added, would help combat inflation in the EU.

Russia would have enough capacity via other gas pipelines to Europe to compensate for the Nord Stream shortfall. However, flows via these other routes declined following the start of the war in Ukraine.

Ukraine halted one gas-transit route in May, blaming interference by Russian forces. Deliveries through another, called Yamal, which traditionally transported gas from Russia to Europe, have stopped this year due to sanctions imposed by Russia on the Polish part-owner.

Germany’s economy minister,

Robert Habeck,

said this week that the country can’t count on Nord Stream during the winter.

In reaction to the Nord Stream closure, a spokeswoman for the ministry said on Friday that Germany was far better prepared than a few months ago.

“We have already seen Russia’s unreliability in the past few weeks, and accordingly we have unwaveringly and consistently pursued our measures to strengthen our independence from Russian energy imports,” the spokeswoman said.

Klaus Müller, head of Germany’s energy regulator, said the country would need to boost gas imports from other suppliers, continue to fill up gas stores and cut gas consumption.

European officials had expected that the Kremlin would use gas flows to keep markets and governments on edge and erode support for Ukraine among Western voters.

Gazprom’s shutting down of Nord Stream “under fallacious pretenses is another confirmation of its unreliability as a supplier,” European Commission spokesman Eric Mamer wrote on Twitter.

A senior manager of a German gas company formerly controlled by Gazprom said Friday that he expects local importers of gas channeled via Nord Stream to stop paying for their contractual obligations with Gazprom.

Natural-gas prices have broken records in recent weeks amid the energy crunch, though they have also dropped sharply in the past days, with some analysts crediting the speed at which Europeans have been filling up their gas storage facilities through the summer.

Goldman Sachs analysts said that the Nord Stream outage would cause prices to surge again. The Gazprom decision “will reignite market uncertainty regarding the region’s ability to manage storage through winter, driving a significant rally,” the bank said in a note to clients.

Gazprom began throttling gas flows in June, citing technical problems with the turbines. The company insists that a key turbine couldn’t be sent to Russia after it was maintained in Canada because of international sanctions on Moscow. But Germany, where the turbine was located, said that there are no obstacles, and that Moscow was in fact blocking the turbine’s return to Russia.

On Friday, Gazprom said that it found an oil leak in a turbine at the compressor station of the pipeline. Gazprom said that similar issues had been found with other turbines this summer that have led to the reduction of the gas flows.

Gazprom said it had notified German company

Siemens Energy AG

, which maintains the turbines, of the new leak. Gazprom said that the necessary repairs could only be done in a specialized repair facility. Previously, some turbines for the pipeline had been repaired by Siemens Energy in Canada.

Siemens Energy said that Gazprom’s announcement wasn’t a technical reason for stopping operation. “Such leakages do not usually affect the operation of a turbine and can be sealed on site. It is a routine procedure during maintenance work,” the company said. It said it wasn’t currently contracted for maintenance work but is ready to assist.

Europe has been preparing for a possible Russian gas cutoff, with EU gas- storage facilities filling up faster than expected this summer, to over 80%.

Still, if Nord Stream remains shut, Europe’s gas stores would end the winter at 26% of their capacity, which would complicate Europe’s situation next winter, Massimo Di Odoardo, vice president for gas and liquefied natural gas research at energy consulting firm Wood Mackenzie, wrote this week.

Germany, which received more than half of its gas from Russia before the war in Ukraine, has been racing to diversify its supply of gas and to install floating liquefied natural gas terminals to ship in gas from the U.S. and elsewhere. In recent months, Germany’s gas imports from Norway, Belgium and the Netherlands have far outweighed the reduced Russian flows.

The country is close to hitting its 85% gas storage target, initially set for Oct. 1. German officials, however, have warned that reaching the next milestone of 95% by Nov. 1 would be challenging unless companies and households cut consumption.

The 760-mile-long Nord Stream pipeline first opened in 2011. Russia and a consortium of European energy companies built a second pipeline, Nord Stream 2, running alongside the original one, that would have doubled capacity. But the German government froze the project in February over the war in Ukraine.

—Bojan Pancevski contributed to this article.

Write to Georgi Kantchev at georgi.kantchev@wsj.com and Andrew Duehren at andrew.duehren@wsj.com

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Business

Warren Buffett Not Expected to Bid for Control of Occidental Following Approval for Bigger Stake

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Warren Buffett’s

bid to boost his big stake in

Occidental Petroleum Corp.

OXY 9.88%

even further isn’t expected to serve as a prelude to a full takeover of the resurgent energy company by the widely watched billionaire, at least for now.

In a regulatory filing Friday, the Federal Energy Regulatory Commission said that Mr. Buffett’s

Berkshire Hathaway Inc.

BRK.B -2.30%

had received permission to buy up to 50% of the driller’s shares. The news stoked speculation that Berkshire could be gearing up to acquire Occidental.

Analysts have said Occidental’s oil business would complement Berkshire’s existing energy holdings, which include utilities, natural gas and renewables. Mr. Buffett has a warm relationship with Chief Executive

Vicki Hollub

and has publicly praised her efforts to turn the company around after its acquisition of Anadarko Petroleum Corp. and her plans to pay down debt and increase dividend payouts.

But Mr. Buffett hasn’t informed Occidental of any plans to acquire a controlling stake in the company, according to people close to the matter. Given Mr. Buffett’s well-known aversion to hostile deal making, it would be out of character for him to make a bid without sounding out the company’s executives and directors first.

Owning such a big stake—Berkshire is Occidental’s largest shareholder—gives him major influence over the company already, and acquiring control could cost him a hefty premium to the current share price. The stock closed Friday at $71.29, up nearly 10% on the news, giving the company a market capitalization of about $66 billion.

Why would Berkshire seek out permission to buy more of Occidental, then?

For one, it was close to running up against FERC-imposed investing limits.

Filings show Berkshire currently has a 20% stake in Occidental. It also has warrants to purchase another 83.9 million common shares and 100,000 shares of preferred stock that pay a hefty dividend—both of which it acquired after helping Occidental finance its 2019 acquisition of Anadarko.

If Berkshire were to exercise the warrants, its stake would rise to roughly 27%. That would have exceeded the 25% limit FERC allowed for before Friday’s ruling.

“This is not a company that’s going to raise regulators’ hackles,” said Cathy Seifert, an analyst for CFRA Research.

It should also give Berkshire breathing room in case share buybacks or other company moves decrease the amount of shares outstanding, thus increasing its percentage stake.

There are other reasons to doubt a Berkshire takeover of Occidental is imminent.

One of them is price, said David Kass, a professor of finance at the University of Maryland’s Robert H. Smith School of Business.

So far, Berkshire has bought virtually all of its Occidental shares at a price in the range of $50 to $60, Mr. Kass said. The highest price Berkshire paid was $60.37 in July, according to filings.

Mr. Buffett is a well-known bargain-hunter, so it is difficult to imagine Berkshire rushing to buy more Occidental shares at the current price, Mr. Kass said. The shares are up 146% for the year, boosted by a rally in the price of oil, compared with an 11% decline for the S&P 500.

People familiar with deliberations at Occidental said the company’s leadership believes Mr. Buffett might consider making an offer if oil prices fall, bringing down Occidental’s stock price. If Mr. Buffett made an offer the company viewed as fair, a majority of the Occidental’s board would likely approve presenting it to shareholders, one of the people said.

Mr. Buffett didn’t respond to a request for comment. An Occidental spokesman declined to comment.

Mr. Buffett is currently represented as a passive shareholder in Occidental, based on the so-called 13G filing he has on record with the U.S. Securities and Exchange Commission. If he were to change his intentions and hold meaningful discussions with the company about a full-on takeover, he would likely need to change his filing to a 13D, which is required by large shareholders who intend to get actively involved in the running of a company.

Taxes could also play a role in Mr. Buffett’s bid for a bigger minority stake in Occidental. Corporations with a stake of at least 20% in another company are eligible to deduct 65% of dividends received, up from the standard 50%.

Berkshire’s 20% stake also allows it to include a proportionate share of Occidental’s earnings in its own results. That could give its earnings a multibillion-dollar boost annually, based on analyst estimates of Occidental’s earnings. Before the most recent purchases, disclosed this month, Occidental fell below the 20% threshold for both benefits.

Since Berkshire started buying Occidental shares in February, Mr. Buffett has had a friendly and collaborative relationship with Ms. Hollub, and the pair speak regularly, according to people familiar with the matter.

When Mr. Buffett bought another slug of Occidental shares this spring, he called Ms. Hollub to let her know about the transaction, according to one of the people. Ms. Hollub was driving at the time and pulled over to take the call, the person said.

Mr. Buffett’s message was simple: “Keep doing what you’re doing,” he told Ms. Hollub.

Berkshire’s growing ties with Occidental have an unexpected link to Mr. Buffett’s earliest days of investing.

At age 11 in 1942, Mr. Buffett made his first investment: three shares of Cities Service’s preferred stock. Forty years later, Occidental went on to acquire the oil company, which Ms. Hollub had just joined the year before.

Mr. Buffett’s investment in Occidental this year shows his first stock purchases “coming full circle 80 years later,” Mr. Kass said.

—Benoît Morenne contributed to this article.

Write to Akane Otani at akane.otani@wsj.com, Christopher M. Matthews at christopher.matthews@wsj.com and Cara Lombardo at cara.lombardo@wsj.com

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Business

Warren Buffett’s Berkshire Hathaway Cleared to Buy as Much as Half of Occidental’s Shares

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In a regulatory filing Friday, the Federal Energy Regulatory Commission said that Berkshire Hathaway had asked for and received its permission to buy up to 50% of the driller’s shares. Berkshire has been loading up on Occidental’s shares this year, amassing roughly 20% of the company’s stock, public filings show, leaving many analysts to speculate whether Mr. Buffett would seek control of the company, one of the largest U.S. oil producers.

Occidental’s shares jumped to lead stock gains among the S&P 500 Friday, rising 9.9% after the publication of the ruling. The company’s stock has risen about 146% this year, far and away tops in the S&P 500 stock index, which is down 11% this year.

Berkshire requested the authorization on July 11 and said at the time it owned approximately 18.72% of the outstanding common shares of Occidental, according to the federal ruling. Berkshire has since added shares and earlier this month said in a securities filing that it held roughly 20% of Occidental’s common stock. Berkshire also owns warrants to buy another big slug of Occidental’s common stock as well as $10 billion worth of preferred shares that pay Berkshire about $800 million annually, filings show.

“It is concluded that the Proposed Transaction is consistent with the public interest,” Carlos D. Clay from the FERC’s Office of Energy Market Regulation wrote in the filing.

A spokesman for Occidental confirmed that Berkshire could now buy up to 50% of common shares and didn’t comment further. A Berkshire Hathaway representative didn’t respond to a request for comment.

Mr. Buffett has invested billions in renewables such as wind-farm projects through Berkshire’s energy unit and has also added oil companies to the holding company’s portfolio in recent years.

Chevron Corp.

is now one of Berkshire’s largest stock investments.

Occidental has raked in high profits from elevated oil prices, netting $3.7 billion in the second quarter. The profits are a dramatic turnaround for the company, which lost around $14.8 billion in 2020 after the global pandemic gutted oil demand. Berkshire’s stock purchases, as well as that of the many investors who follow Mr. Buffett’s moves, have helped lift Occidental’s shares to the head of the broad rally in energy stocks.

Occidental’s ill-timed $38 billion deal to take over rival Anadarko Corp. in 2019 loaded the company with debt, leaving it in a perilous position as oil prices tumbled during the pandemic. Chief Executive

Vicki Hollub

made deep spending cuts over the past two years, moved to rein in growth and focused on using cash to pay down debt.

The company has repaid $8 billion in debt this year to bring it to $22 billion, down from nearly $36 billion a year ago, according to the company and analysts. Occidental’s endeavor to reach investment-grade status and its cash-generating capabilities have made it an attractive target for Mr. Buffett, said Neal Dingmann, an analyst with Truist Securities. “It’s a great sort of hedge against a lot of his other businesses to own such a high free-cash-flowing business,” he said.

Occidental has raked in high profits from elevated oil prices, netting $3.7 billion in the second quarter.



Photo:

Reuters Staff/REUTERS

Mr. Buffett has made no secret of his admiration for Ms. Hollub, describing her as one of the best executives in the business. In 2019, he acquired $10 billion in preferred stock to help the company pay for the Anadarko deal.

“What Vicki Hollub was saying made nothing but sense,” Mr. Buffett said at Berkshire’s annual shareholder meeting in April. Occidental looked like “a good place to put Berkshire’s money,” he added.

Mr. Buffett had to show his hand to the market because power plants controlled by both Occidental and Berkshire Hathaway feed the same grid in Louisiana. Occidental owns a power plant in Taft, La., that feeds its chemical plant next door. Leftover power is sold on the local grid, which Berkshire Hathaway Energy plants also feed.

FERC ruled that since Occidental’s plant accounts for just 0.48% of the capacity connected to the region’s grid, a combination with Berkshire “will not have an adverse effect on competition” in the local electricity market. Mr. Buffett had to ask, though, before beefing up Berkshire’s Occidental stake.

In recent years, Occidental has ventured into renewables through its Oxy Low Carbon Ventures unit. This new focus dovetails with Berkshire’s own investments in renewable energy and puts Mr. Buffett’s company in a position to benefit from tax breaks, said

Bill Smead,

chief investment officer at Smead Capital Management.

“We see Berkshire’s filing as a vote of confidence in the oil macro and the value proposition in energy equities,” said Kevin MacCurdy, a managing director at investment firm Pickering Energy Partners.

Write to Benoît Morenne at benoit.morenne@wsj.com and Ryan Dezember at ryan.dezember@wsj.com

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World

Russia Resumes Nord Stream Natural-Gas Supply to Europe

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BERLIN—Russian natural gas began flowing again at a reduced volume through a critical pipeline into Europe on Thursday, according to its operator, buying time for governments to decouple from the Kremlin’s exports amid what they expect will be an increasingly unreliable supply of energy from Moscow heading into the winter.

The Nord Stream pipeline connecting Russia with Germany under the Baltic Sea resumed operation after its annual maintenance, ending 10 days of tense speculation about whether President

Vladimir Putin’s

regime would cut off the gas flow to Europe in retaliation for Western sanctions after his invasion of Ukraine.

The operator, Nord Stream AG, said the pipeline was in the process of restarting, which would take a few hours. “Gas is flowing,” a spokesman for the operator said.

The spokesman said flows are expected to be at pre-maintenance level of around 40% of total capacity, but it would take a few hours to reach that volume. One of the German network operators, NEL Gastransport GmbH, later said Thursday that this volume of gas was currently flowing through the pipe, as also confirmed by Nord Stream’s own online monitoring tool.

The German energy regulator said gas flows could reach 40% of capacity Thursday.

“Unfortunately, the political uncertainty and the 60% cut from mid-June remain,” the regulator’s head, Klaus Müller, said on Twitter.

The restart sent wholesale European natural-gas prices down 5% Thursday to €154.55, the equivalent of about $157.50, a megawatt-hour. Including Thursday’s fall, prices have fallen by 14% over the past week but have more than doubled this year and are more than four times as high as 12 months ago. The rally has propelled electricity prices to historic highs across Europe. Broader financial markets were steady Thursday as investors awaited earnings reports from major U.S. companies and an expected interest-rate increase by the European Central Bank.

A compressor station in Mallnow, Germany.



Photo:

filip singer/Shutterstock

The pipeline has been operating below capacity since Russia began throttling supplies in June, invoking technical issues related to Western sanctions against Russia.

Mr. Putin earlier this week said Russia would meet its contractual obligations for gas deliveries to Europe. The Nord Stream pipeline is the main conduit for Russian gas into Europe. Mr. Putin also warned that Western sanctions adopted to punish Russia in the wake of the invasion could cause further disruptions and cap pipeline volumes as low as 20%.

European officials and executives had worried the pipeline might not restart at all, or do so at even lower volumes. While gas is now flowing again, how much Russia sends—and for how long—will be closely watched by European capitals, who are in the midst of filling reservoirs for the higher-demand winter just a few months away.

An abrupt cutoff would have pushed Germany, Europe’s largest economy and industrial powerhouse, and several of its neighbors into a severe recession, according to most economists. But even reduced flows and the uncertainty regarding future supplies mean governments may still be forced to ration energy and subsidize mounting costs for households, experts and officials say.

Nord Stream channels gas extracted from Siberia by state-controlled Gazprom PJSC.

Mr. Putin this week blamed the drop on the absence of a turbine that had been held up in Canada after undergoing repairs because of Western sanctions, but is now on its way back to Russia.

Berlin and most Western experts said the cut in supplies was an attempt to pressure the West into easing sanctions and to push up gas prices. Several German officials and a Gazprom manager in Europe told The Wall Street Journal that Nord Stream had an elaborate contingency system with at least one spare turbine available at all times.

German officials say they expect the pipeline to continue to operate at its reduced pre-maintenance capacity—a level they think was deliberately set to prevent Germany and others from building up enough gas reserves for the winter. Because of technical reasons related to the pressure levels in the pipeline, Nord Stream can’t transport volumes below 30% of its capacity of 55 billion cubic meters a year.

A German government minister said that Mr. Putin was deliberately causing anxiety in the global energy markets, but that he was unlikely to sever supplies completely because it would remove his leverage and risk a harsher response from the West.

The reduced flows and uncertainty are already hitting Germany’s economy. The largest gas utility,

Uniper SE,

is in bailout talks with the German government. The company said Monday that it had drawn down a €2 billion, or $2.04 billion, credit line with German state-owned KfW bank. A German Economy Ministry spokesperson said Monday that the government was working with Uniper and its Finnish parent,

Fortum Oyj,

to find ways to help the company.

Germany and other European Union nations, which pledged to end purchases of Russian energy by 2024, are now working on two basic contingency plans.

The Nord Stream pipeline has been operating below capacity since Russia began throttling supplies in June.



Photo:

Markus Schreiber/Associated Press

The first envisages a status quo, with Nord Stream operating at around 40% of its capacity. Under that scenario, Germany, where gas storages are currently 65% full, would have to significantly reduce consumption compared with the previous year to avoid a shortfall in the winter. Some regions, however, are expected to be more severely affected, possibly triggering local measures such as limited factory shutdowns and a cut in supply to some businesses.

Under this scenario, Germany would be unable to completely fill its reserves before year-end, leaving the country vulnerable to new surprise supply cuts and keeping energy prices high.

This could be politically explosive for Berlin, with some 66% of Germans currently feeling that the government isn’t doing enough to tackle high energy prices, while 53% believe the sanctions are hurting Germany more than Russia, according to a Forsa poll published on Wednesday.

“We need to prepare for a war economy…the next two winters will be difficult,” said

Günther Oettinger,

a former chief energy official of the EU and German politician. “Our very democracy is in danger of disruption from the energy costs fallout.”

The second scenario, seen in Berlin as less likely according to German officials, foresees an end to Russian gas supplies before the end of the year, triggering an emergency plan that would allow Chancellor

Olaf Scholz

to take control of the gas market and ration consumption.

Under legislation that protects households and critical infrastructure, rationing would hit mainly businesses, leading to a drop in Germany’s gross domestic product of between 5% and 6% in 2023, according to estimates by

Deutsche Bank.

With many European countries that depend on Russian gas reliant on supplies transiting through Germany, irregular or dwindling supplies through Nord Stream would have effects across the continent.

The EU this week issued guidelines recommending measures to cut gas consumption by 15% between August 2022 and March 2023, including by limiting the temperature in office spaces to 66 degrees this winter.

Germany’s immediate neighbors are working on their own contingency plans.

Germany and Austria negotiated a deal to share their gas-storage capacity and help each other’s regions that are at risk of fuel shortages.

“Russian dictator Vladimir Putin is using energy as a weapon against us. It is clear that the cooperation with Germany, through which almost all gas flows to us, will be essential for us in this direction,” Josef Sikela, the minister of industry and trade of the Czech Republic, told reporters earlier this month.

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Europe is also adjusting its gas infrastructure, which has so far been largely geared to receive supply from Russia. Belgium and Germany are working to expand the capacity of a pipeline connecting the two nations, while Austria and Italy are looking into importing their infrastructure to be able to channel more Norwegian gas into their storage.

The Netherlands, once among the world’s largest gas producers, is considering temporarily prolonging the life of a gas field scheduled for closure after mining work there caused numerous earthquakes.

Many governments are trying to secure gas from other suppliers, from Norway to Algeria, the U.S. and Qatar, which often comes in the form of liquefied natural gas transported by ship.

Germany is building several LNG terminals on its coast to receive shipments from faraway countries and has chartered five floating terminals that can handle those inflows in the short term. Increased LNG purchases by EU nations—Germany alone is investing over €15 billion—have caused a shortage on the global market, leaving countries such as Pakistan struggling to access supply.

Berlin, meanwhile, has said it would review its decision to shut down its three remaining nuclear-power plants. It is already planning to increase use of coal to produce electricity this winter to save gas for heating.

Write to Bojan Pancevski at bojan.pancevski@wsj.com and Georgi Kantchev at georgi.kantchev@wsj.com

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Business

Warren Buffett Says Markets Have Become a ‘Gambling Parlor’

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OMAHA, Neb.—As recently as February,

Warren Buffett

lamented he wasn’t finding much out there that was worth buying. 

That is no longer the case.

After a yearslong deal drought, Mr. Buffett’s

Berkshire Hathaway Inc.

BRK.B -2.55%

is opening up the spending spigot again. It forged an $11.6 billion deal to buy insurer

Alleghany Corp.

Y -0.62%

, poised to be Berkshire’s biggest acquisition in six years. It bought millions of shares of

HP Inc.

HPQ -2.53%

and

Occidental Petroleum Corp.

OXY -3.40%

And it dramatically ramped up its stake in

Chevron Corp.

CVX -3.16%

, making the energy company one of Berkshire’s top four stock investments.

The big question: Why?

“It’s a gambling parlor,” Mr. Buffett said Saturday of the markets over the past few years. He added that he blamed the financial industry for motivating risky behavior among investors. While he finds speculative bets “obscene,” the pickup in volatility across the markets has had one good effect, he said: It has allowed Berkshire to find undervalued businesses to invest in again following a period of relative quiet. 

“We depend on mispriced businesses through a mechanism where we’re not responsible for the mispricing,” Mr. Buffett said.

Mr. Buffett, 91 years old, shared his thoughts on the state of the markets, Berkshire’s insurance business and recent investments at the company’s annual shareholder meeting in downtown Omaha.

Berkshire also held votes on shareholder proposals, with investors ultimately striking down measures that asked Berkshire to make its board chairman independent and called for the company to disclose climate risk across its businesses. 

Shareholders eager to score prime seats lined up for hours before the doors opened in the arena where Mr. Buffett; right-hand-man

Charlie Munger,

98; and Vice Chairmen

Greg Abel,

59, and

Ajit Jain,

70, took the stage. As Mr. Buffett entered, a lone audience member took the opportunity to send a message. “We love you,” the person shouted. 

Mr. Buffett appeared equally enthused to see the thousands of shareholders sitting before him. 

It was a lot better being able to be with everyone in person, he said.

Up until recently, Berkshire had largely been sitting on its cash pile. Its business thrived; a recovering economy and roaring stock market helped push net earnings to a record in 2021. But it didn’t announce any major deals, something that led many analysts and investors to wonder about its next moves. Berkshire ended the year with a near record amount of cash on hand. (After Berkshire’s buying spree, the size of the company’s war chest shrank to $106.26 billion at the end of the first quarter, from $146.72 billion three months earlier.)

Mr. Buffett’s feeling that there were no appealing investment opportunities for Berkshire quickly gave way to excitement in late February, he said Saturday, when he got a copy of Alleghany Chief Executive

Joseph Brandon’s

annual report.

The report piqued his interest. He decided to follow up with Mr. Brandon, flying to New York City to talk about a potential deal over dinner. 

Warren Buffett headed in to speak to shareholders at Berkshire Hathaway’s annual meeting in Omaha, Neb., on Saturday.



Photo:

SCOTT MORGAN/REUTERS

If the chief executive hadn’t reached out, “it wouldn’t have occurred to me to write to him and say, ‘Let’s get together,’” Mr. Buffett said.

Berkshire’s decision to build up a 14% stake in Occidental also came about with a report. Mr. Buffett said he had read an analyst note on the company, whose stock is still trading below its 2011 high, and decided the casino-like market conditions made it a good time to buy the stock.

Over the course of just two weeks, Berkshire scooped up millions of shares of the company. 

“I don’t think we ever had anything quite like we have now in terms of the volumes of pure gambling activity going on daily,” Mr. Munger said. “It’s not pretty.” 

But the amount of speculation in the markets has given Berkshire a chance to spot undervalued businesses, Mr. Munger said, allowing the company to put its $106 billion cash reserve to work.

“I think we’ve made more because of the crazy gambling,” Mr. Munger said.

Another business that caught Berkshire’s eye? Chevron. Berkshire’s stake in the company was worth $25.9 billion as of March 31, up from $4.5 billion at the end of 2021, according to the company’s filing. That makes Chevron one of Berkshire’s four biggest stockholdings, alongside

Apple,

American Express Co. and Bank of America Corp.

Neither Mr. Buffett nor Mr. Munger specifically addressed Berkshire’s decision to increase its Chevron stake.

But the two men offered a defense of the oil industry. It is a good thing for the U.S. to be producing more of its own oil, Mr. Buffett said. Mr. Munger went further, saying he could hardly think of a more useful industry. 

At the meeting, Mr. Buffett also revealed that Berkshire has increased its stake in

Activision Blizzard Inc.

The company now holds a 9.5% position in Activision, a merger-arbitrage bet from which Berkshire stands to profit if

Microsoft Corp.’s

proposal to acquire the videogame maker goes through.

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At the end of the day, Berkshire doesn’t try to make its investments based on what it believes the stock market will do when it opens each Monday, Mr. Buffett said.

“I can’t predict what [a] stock will do…We don’t know what the economy will do,” he said.

What Berkshire focuses on is doing what it can to keep generating returns for its shareholders, Mr. Buffett said. Berkshire produced 20% compounded annualized gains between 1965 and 2020, compared with the S&P 500, which returned 10% including dividends over the same period.

“The idea of losing permanently other people’s money…that’s just a future I don’t want to have,” Mr. Buffett said.

Write to Akane Otani at akane.otani@wsj.com

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