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Published on May 2nd, 2016 | by James Ayre

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Is The Weak Point Of Warren Buffett’s Financial Empire Fossil Fuels?

May 2nd, 2016 by  

Warren Buffet has built quite a name for himself over the decades as a shrewd investor, but is there now a growing point of weakness in his empire? To be blunt, just how dependent is Warren Buffet’s financial position on the continued large-scale use of fossil fuels?

Following a number of large Berkshire Hathaway bets on fossil fuel companies over the last couple of years, one would presume that his empire is greatly dependent in the fossil fuel industry. But how to gauge thus?

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An article published somewhat recently on Think Progress examined that line of thought… Here are some select excerpts from the (long) article:

When Rolling Stone named Warren Buffett one of its 17 “Climate Killers” in 2010, they called him “The Profiteer.” They zeroed in on his recent purchase of “Burlington Northern Santa Fe railroad for $26 billion — the largest acquisition of Buffett’s sto­ried career.” Why? BNSF is “the nation’s top hauler of coal, shipping some 300 million tons a year.” That is especially convenient for Buffett because, as noted in Part 2, Berkshire Hathaway Energy has four major utilities that still rely on coal for over half their electricity generation. But BNSF is so much more than just the top hauler of coal. As their website proudly attests “BNSF is the largest transporter of crude oil in North America” — and we all know how well the whole crude-by-rail thing has been going.

…From 2010 through mid-2014, oil shipped by rail in the United States increased from about one million barrels of oil every month to 25 million! At the same time, Canadian imports increased 50-fold, as we’ve reported. BNSF was a driving force behind that explosion.

…But wait, there’s more. You may recall from Part 1 that last year, the billionaire spent $240 million buying another chunk of Canadian tar sands giant Suncor, upping his overall bet on the climate-destroying liquid fuel to $1.1 billion — a fact Buffett does not share with shareholders in his list of Berkshire Hathaway’s climate risks.

…There’s still more to this empire. In 2015, Buffett “nearly doubled Berkshire’s position in Phillips 66,” one of the country’s leading oil (and gas) refiners and processors. The company has 15 refineries which can refine a total of 2.2 million barrels of crude per day. In January of this year alone, Buffett spent a staggering $832 million to buy yet more Phillips 66 stock. At more than $5 billion, it is his sixth-largest holding. He now owns 14% of the “Number 7” company on the Fortune 500 list. Phillips 66 is a major co-owner of the Wood River Refinery in Illinois, which in recent years made investments “to expand the capacity to handle the bitumen from the Alberta oil sands by nearly 700%.” Also not coincidentally, for the last year, Philips 66 has been trying to get California planning commissioners to let it build a 1.3-mile rail spur to its Santa Maria refinery. Why? As the Sierra Club explained last month, “The oil giant seeks to transport tar sands crude from Canada in mile-long trains — each laden with over 2 million gallons of dirty crude.”

…Finally, is it only a coincidence that after outperforming the market for decades, the stock of Berkshire Hathaway has actually underperformed the S&P 500 over the last five years? Again, if serious global climate action ultimately keeps oil prices low and renders much of the tar sands uneconomic, then Buffett’s carefully constructed fossil fuel empire is going to keep suffering — and deservedly so. After all, leading climate activists have been urging major investors to disinvest in fossil fuels for years. Buffett is doing the exact reverse!

While I personally remain very skeptical that oil use will fall significantly within just the next few decades (the probable remained of lifespan of Buffet…), those are still questions worth considering if one is an investor.

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About the Author

's background is predominantly in geopolitics and history, but he has an obsessive interest in pretty much everything. After an early life spent in the Imperial Free City of Dortmund, James followed the river Ruhr to Cofbuokheim, where he attended the University of Astnide. And where he also briefly considered entering the coal mining business. He currently writes for a living, on a broad variety of subjects, ranging from science, to politics, to military history, to renewable energy. You can follow his work on Google+.



  • neroden

    Yes, Warren Buffett is buying garbage, junk stocks like Phillips and Suncor. Yes, this will depress Berkshire Hathaway’s performance. But not much, because it’s still a tiny fraction of the business.

    BNSF will do fine — forget the oil and coal. They haul container freight, which is a still-growing business, and they haul grain in a part of the country where global warming is *improving* harvests.

    In fact, Berkshire Hathaway is mostly an insurance company. Buffett can lose a lot of money on Phillips and Suncor and it won’t be material — he makes his real money by writing insurance.

    *And he’s raised all the premiums he charges to account for global-warming-induced disasters*.

  • rlhailssrpe

    The author does not understand the free market. No one, including Buffet, is large enough to control the market. Each player can go long or short, both in aggressive positions, e.g. extracting, transporting, processing and selling carbon fuels, or passive positions, insuring all entities against harmful impacts of the use of this fuel.

    It is obvious that ultra sophisticated money people rejected the doom filled prophecies of Dr. Hansen et al. The risks of hurricanes. tornadoes, floods, droughts, crop failures, coast line flooding, etc., due to man’s activities, is not much, not worth significant alternations of insurance policies. Buffet pursues rail road purchases and other deals.

    One example from the conference. Buffet’s company owns a utility and pays net metering to solar roof top generators. He says the rate is three times the market value and is basically a wealth transfer from the majority to the solar minority, via government dictate. His opponents claim that without this gravy, no one would buy solar. That was insightful from a market viewpoint..

    High cost is the barrier to the green energies’ wide spread acceptance.

    • neroden

      Buffett is an idiot and a fool when it comes to energy, but it doesn’t really matter. It’s just not a large part of his investment. (He’s also invested in worthless shares of Wells Fargo, which is a badly run crime syndicate which will probably get shut down over one of its major frauds, and it also doesn’t matter.) Berkshire Hathaway is mostly an insurance company.

      *Buffett raised the insurance rates he charges* to account for the increased global-warming-induced risks of hurricanes. tornadoes, floods, droughts, crop failures, coast line flooding, and so on. He mentioned this last year and the year before, IIRC.

      In short, he makes money because of global warming, by charging higher insurance premiums.

      • rlhailssrpe

        Buffet is a master at evaluating risk and risks his own money every day. His axiom, since he was a boy, is not investing in anything without understanding the details.

        What he contributes to AGW is to put the non- zero risk is some scale. Yes he tweaks insurance policies but he rejects the-end-of-the-world-unless-you-do-it-my-way prophecies. He advocates burning carbon. And puts $60 billion behind that policy. And makes more billions. It matters.

        • Bob_Wallace

          Might we say that Buffet’s main goal is to grow the value of his company? If there’s money to be made in the short run from fossil fuels, he’ll take a share.

          But watch for him to get out before the investment craters.

          One can understand climate change, realize that we must get off fossil fuels, but also realize that we won’t get off fossil fuels overnight and someone will make money during the transition. There’s a difference between making money off something that will happen one way or another and spending money to keep fossil fuels in play (e.g., Koch Industries).

          • rlhailssrpe

            I agree that Buffet’s main goal is to grow his company. This is also the goal of the Koch Industry owners. One key characteristic of savvy owners is to survive long term. I do not think that either pursues hot short term profits, with a huge down side for their investments, your crater.. It would be alien to their prior careers.

            Thus it is interesting to consider their positions on climate change and energy related investments. From the BH conference, and Buffet’s earlier statements, it is clear he thinks
            that without government subsidiaries the industry will fail for wind gen. and roof top solar. The market will clear when the subsidies end. At that coming date, high cost will be the barrier to the green energies’ wide spread acceptance.

            Climate change will be resolved, societally, by the market, not by government action. This is as it should be.

          • Bob_Wallace

            As far as I know Buffet is not spending money trying to stop renewables. He’s just making money where he see opportunity.

            OTOH, the Koch brothers have funded anti-renewable energy legislation attempts and in other ways attempted to keep us on fossil fuels longer.

            ” Buffet’s earlier statements, it is clear he thinks
            that without government subsidiaries the industry will fail for wind gen. and roof top solar”

            It seems that Buffet (and his friend, Bill Gates) doesn’t have a good understanding of renewable energy. Perhaps wind and solar haven’t grown large enough yet to impress them.

        • eveee

          So go long on coal and oil and short wind and solar. Put your money where your mouth is.

    • eveee

      Um, no ultra sophisticated people accepted the prospects of climate change . You however, didn’t notice them doing so,

      “What is remarkable is that Munich Re first warned about global warming way back in 1973, when it noticed that flood damage was increasing.”

      “Munich Re, Swiss Re and the other reinsurers, along with the Lloyd’s of London insurance market (unrelated to the bank of the same name), stand out from the rest of the business world by being on the same page as scientists on climate change. What’s more, while most of the planet has its head in the sand about the reality and requirements of global warming, the reinsurance industry has already moved on to mastering the math on other catastrophes.”

      https://climatecrocks.com/2016/04/18/houstonwe-have-a-voooshhhh/

      Wind and solar were the largest sources of new generation in 2015, outpacing natural gas.
      http://www.utilitydive.com/news/solar-and-wind-comprise-61-of-2015-capacity-additions-gas-contributes-35/411813/

      Thats because they are cheaper than FF.

      So no, high cost is not a barrier to green energies widespread acceptance.

  • Adrian

    Another major part of that business is moving coal. Rail volumes of both coal and oil are declining.. (Oil may rebound in the medium-term, but coal won’t. )

  • Ross

    Warren Buffett is probably great at reading a SEC filing.

    He’s said he doesn’t see climate change impacting on Berkshire Hathaway’s businesses.

    Eternally the optimist.

  • Brunel

    Oil use will fall.

    A lot of off-grid mobile phone towers now run on diesel.

    Batteries are now cheap enough to replace the diesel.

    The same with cars. Cars will be PHEV to slash oil use.

    • Mike Dill

      I went the BEV route. I went for Solar PV. I will go for storage. I will probably go off grid in the middle of the suburbs if Warren and the Nevada PUC do not get the message soon.

      • Brunel

        What is the daily connection charge. Would it hurt the PUC if you became 95% self sufficient using batteries + solar PV while still being connected to the grid for 5% of your power needs.

        • Mike Dill

          Soon my connection charge – with no power draw – will be US$1.50/day. That will be more than my kWh charges. So my ‘real’ kWh rate will be at least twice the rate given in my bill. If I stay connected, they make money.

          I will buy the storage, disconnect, and spend my money elsewhere if they cannot offer a reasonable tariff.

          • Brunel

            OMG! Even in Victoria, AUS I do not pay that much! More like A$1/day.

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