Published on May 2nd, 2016 | by James Ayre16
Is The Weak Point Of Warren Buffett’s Financial Empire Fossil Fuels?
May 2nd, 2016 by James Ayre
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?
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.
Image by BNEF