Tag Archives: Warren Buffett

Would Saving A Livable Climate Destroy Buffett’s Fossil Fuel Empire?

Repost from Think Progress – Climate Progress

Would Saving A Livable Climate Destroy Buffett’s Fossil Fuel Empire?

By Joe Romm, March 11, 2016 8:00 AM
BNSF oil train derailment in 2013. CREDIT: BRUCE CRUMMY, AP

Billionaire Warren Buffett has bet the future of his company Berkshire Hathaway on dirty energy. In recent years he has been building a vertically-integrated fossil fuel empire — one that develops, delivers, processes, and burns the most climate-destroying fuels.

The final part of this series on Buffett looks at how BNSF Railways is the engine of his carbon-intensive conglomerate, creating a massive risk for shareholders in this increasingly carbon-constrained world — a risk the “Oracle of Omaha” needs to be far more upfront about.

Is Warren Buffett “The Profiteer” of “Climate Killers”?

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.

CoalValueImage
CREDIT: BNSF

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.

2015 “has already been the costliest by far for crude train explosions,” BloombergBusiness reported in December. A “BNSF train that derailed and exploded in Illinois” last March “carrying highly explosive crude from North Dakota” created some $5.5 million in damage.

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.

oil-overtime
CREDIT: EIA DATA

Also, last October we learned about “what is believed to be the largest frac sand unit train to date in North America.” You guessed it: “The 150-car unit train, operated by BNSF, carried 16,500 tons of frac sand used in hydraulic fracturing.”

Warren Buffett Bets Big On The Tar Sands

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.

On top of that, as BNSF’s website also proudly attests, the railroad “is positioned to act as a gateway to the Canadian oil sands.” Seriously.

Indeed several years ago, a BNSF employee magazine explained how invested the railway was in all aspects of tar sands (aka bitumen) development. The key point is that “Before bitumen can move through a pipeline to its destination, it must be blended with diluents (diluting agents),” lighter weight hydrocarbons like natural gasoline or butane:

BNSF has been moving single carloads of diluents from U.S. refineries to the Canadian border…. The inbounds are then interchanged with Canadian railroads, then moved to Edmonton, with the final move to the oil sands’ processing center via pipeline.

Last year, BNSF moved about 9,000 carloads of diluents for the project, with the majority of loads originating from the Gulf Coast, California, and Kansas. This year, about 12,000 carloads are anticipated to move.

There’s more: Beyond shipping diluents, “BNSF has also transported turbines, other large machinery and pipes for use at the drilling sites.”

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 percent 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, Phillips 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.”

Both A Livable Climate And Buffett’s Empire Cannot Thrive

Yes, the Oracle of Omaha has a thing for the Canadian tar sands. But more than that, over the last several years he has built a vertically-integrated fossil fuel empire — one that develops, delivers, processes, and even burns the most carbon-intensive fossil fuels. It would be a brilliant strategy except for two small details.

First, climate science makes clear we have to leave most fossil fuels — and virtually all of the most carbon-intensive — in the ground to avoid global catastrophic warming. Second, over the past 18 months, the leading nations of the world unanimously agreed on a plan whose goal is to do just that, and the overwhelming majority of them made detailed pledges to slow or reverse carbon-intensive growth and replace it with carbon-free growth.

The domestic and international coal market has already collapsed as a result of growing environmental concerns and low-cost alternatives including renewables. If the world follows through on its plans to keep total warming below 2°C — a big “if,” for sure — then coal is going to continue to be squeezed out of the market in the coming decades and oil will almost certainly follow the same fate, peaking in demand by 2030, as I discussed last month.

Now whether or not you believe the world is going to achieve the plan it unanimously embraced in Paris in December, surely Buffett ought to at least mention to his shareholders the risks to Berkshire Hathaway if the world does. Yet, his latest annual letter to shareholders dismisses the risk of climate change.

Here is all Buffett says about the coal risk: “To begin with an obvious threat, BNSF, along with other railroads, is certain to lose significant coal volume over the next decade.” But he quickly dismisses this as a problem that is not “crucial to Berkshire’s long-term well-being.”

Last summer, BNSF executive chairman Matthew K. Rose noted the decline in U.S. coal transport and consumption. He said of his company’s major investment to upgrade its rail service to and from the coal-rich Powder River Basin, “That leaves us with millions of dollars in investment in what will eventually be stranded assets.”

Certainly, from a short-term business perspective, investing in oil-by-rail and tar-sands-by-rail to replace coal-by-rail appears to make sense. But what are the risks those investments will eventually become stranded assets, too? Low oil prices aren’t good for crude-by-rail, as BloombergBusiness explained in December. And aggressive climate action, which could well give us peak demand within 15 years, is not bullish for oil prices.

BNEFoilpeak1-16
CREDIT: BLOOMBERG

Rather than informing shareholders about any of these risks, Buffett asserts the reverse: “Both BHE [Berkshire Hathaway energy] and BNSF have been leaders in pursuing planet-friendly technology.” Seriously?

I discussed in Part 2 how, despite BHE’s own investments in renewables, BHE is working to crush solar energy in Nevada and around the western United States. And it remains a huge user of coal. And as we’ve seen BNSF is a major deliverer of coal….

But here is how Buffett defends the fairly ludicrous claim that BNSF is somehow one of the “leaders in pursuing planet-friendly technology”:

BNSF, like other Class I railroads, uses only a single gallon of diesel fuel to move a ton of freight almost 500 miles. That makes the railroads four times as fuel-efficient as trucks!

Yes, BNSF is a very fuel-efficient way of delivering vast amounts of climate-destroying fuels to market.

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!

BOTTOM LINE: Between Berkshire Hathaway and a livable climate, only one can thrive. That’s not a tough choice, is it?

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    Bill Gates gives Exxon cover: The Gates Foundation is deadly wrong on climate change, fossil fuels

    Repost from Salon.com
    [Editor:  Significant quote: “To Bill Gates’ credit he got the equation partly right, when he said that ‘the solution is investment’ in clean energy – a statement he backed up by committing to invest $2 billion in clean energy. However…”  – RS]

    Bill Gates gives Exxon cover: The Gates Foundation is deadly wrong on climate change, fossil fuels

    When Exxon shares your view, time to reconsider. Bill Gates has divestment, clean energy and fossil fuels wrong

    By Alex Lenferna, Nov 7, 2015 08:59 AM PST
    Bill Gates gives Exxon cover: The Gates Foundation is deadly wrong on climate change, fossil fuels
    (Credit: Reuters/Pearl Gabel)

    The Bill and Melinda Gates Foundation, the world’s wealthiest charitable foundation, has been under an unprecedented amount of scrutiny regarding their investments in the fossil fuel industry lately.

    Alongside a persistent and growing local Seattle-based campaign, about a quarter of a million people joined the Guardian in calling on the Foundation to join the $2.6 trillion worth of investors who have committed to divest from fossil fuels.

    In response, Bill Gates has proffered two public rejections of fossil fuel divestment, the most recent in a lengthy interview on climate change in this month’s edition of the Atlantic. Both rejections were based on misleading accounts of divestment which created straw men of the divestment movement, and downplayed the remarkable prospects for a clean energy revolution.

    Activists (and kayaktivists alike) were quick to point out the flaws in Gates’ argument and to highlight that by not divesting Gates is supporting the very industries that are lobbying against climate progress and whose business models are deeply out of line with averting the climate crisis. A disconcerting example of this came when Exxon Mobil endorsed Bill Gates’ view. They did so, furthermore, as part of an article attempting to deny their culpability for intentionally misleading the public about the reality of human-caused climate change, and by extension the risks of its product. Like Big Tobacco before them, Exxon are facing calls for federal investigation under the Racketeer Influenced and Corrupt Organizations Act by no less than Bernie Sanders, Hillary Clinton and more. In order to try and vindicate themselves and justify their deeply problematic position on climate change, Exxon turned to Gates’ views as support.

    Gates’ problematic statements remain the only response a representative of the foundation has given, and for a foundation dedicated to a better world, sharing worldviews on climate change with a corporation implicated in one of the more egregious corporate scandals arguably in human history seems like a poor position to be in.

    Thus, while the Gates Foundation has, of course, done much good work, such a response to divestment and framing of the climate change issue should lead us to question the intentions and motivations behind Bill Gates, the Foundation and its leaders.

    For instance, Warren Buffett, who owns much fossil fuel infrastructure, is the largest donor to the Gates Foundation, with donations of over $31 billion. What role does this play in the Foundation’s unwillingness to divest? Also, does Bill Gates’ chairman role on TerraPower, a nuclear power company, make him more willing to knock down clean energy in order to position TerraPower and their nuclear reactors favorably in the market? After all, the Atlantic interview in which Gates rejected divestment read almost like an advert for TerraPower.

    Divest-Invest: Two Sides of the Same Coin

    To Bill Gates’ credit he got the equation partly right, when he said that “the solution is investment” in clean energy – a statement he backed up by committing to invest $2 billion in clean energy. However, clean energy investments are only part of the equation; if we are to solve climate change, we also need to wind down investments in the fossil fuel industry and related infrastructure, while breaking the fossil fuel industry’s corrupting stranglehold on politics so that we can unlock the sorts of policies, societal changes and investments needed to tackle the climate crisis.

    While Gates claims that divestment is a “false solution” that “won’t emit less carbon” and that there is no “direct path between divesting and solving climate change,” the 2° Investing Initiative (and the International Energy Agency) point out that “divesting from fossil fuels is an integral piece to aligning the financial sector with a 2°C climate scenario,” with reductions in fossil fuel investments of $4.9 trillion and additional divestment away from fossil-fueled power transmission and distribution of $1.2 trillion needed by 2035 if we are to achieve the internationally agreed upon 2°C target.

    It seems that even Peabody, the largest private-sector coal company in the world, has a more enlightened view on divestment than Bill Gates. Peabody have recognized that by shifting perceptions around fossil fuels and spurring on legislation, divestment efforts “could significantly affect demand for [their] products and securities.” Peabody’s conclusion aligns closely with that of the researchers at Oxford University’s Stranded Assets Program, whose influential report on divestment illustrates that the political and social power that divestment builds through stigmatizing the fossil fuel industry could also “indirectly influence all investors… to go underweight on fossil fuel stocks and debt in their portfolios.”

    Contradicting Bill Gates’ claim that divestment “won’t emit less carbon,” the “radical” environmentalists over at HSBC bank recently issued a research report showing that divestment could lead to less fossil fuel production and less carbon emissions. According to HSBC, divestment could help “extend the carbon budget” by creating “less demand for shares and bonds, [which] ultimately increases the cost of capital to companies and limits the ability to finance expensive projects, which is particularly damaging in a sector where projects are inherently long term.”

    The “Miracle” of Clean Energy

    Gates also provided a misleading assessment of the economics of the clean energy transition (seemingly out of the pages of a fossil fuel industry misinformation handbook or his favored climate contrarian adviser Bjorn Lomborg). Gates claimed that the only way current technology could reduce global emissions is at “beyond astronomical cost,” such that a “miracle” on the level of the invention of the automobile was necessary to avoid a climate catastrophe.

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      BNSF Railway plans temporary layoffs with slipping freight demand

      Repost from the Fort Worth Star Telegram

      BNSF plans temporary layoffs with slipping freight demand

      Associated Press, May 27, 2015
      BNSF is furloughing some employees due to a decline in demand for shipping, including crude oil.
      BNSF is furloughing some employees due to a decline in demand for shipping, including crude oil. Curtis Tate, MCT

      BISMARCK, N.D.  –  BNSF Railway says it’s planning employee furloughs due to a drop in freight shipping demand across its rail network.

      The Fort Worth-based company said Wednesday in a statement that it hopes to call back employees “as soon as business needs require.”

      The railroad declined to say how many employees were being furloughed but that they are “at different locations across our network.” The company also said it’s reducing it’s hiring plans for the next several months.

      “Customers’ volumes in the near term have come down somewhat from their prior estimates. As a result we are having to adjust our workforce demand numbers down to match volume and the work required to move that volume,” the statement said.

      BNSF is part of Warren Buffett’s Berkshire Hathaway, based in Omaha, Nebraska.

      The railroad is the biggest player in North Dakota’s oil patch, hauling most of the 1.1 million barrels that moves out of the region daily. Oil drilling has been curtailed significantly in North Dakota’s Bakken Shale and other fields following the collapse in oil prices.

      The railroad also is the biggest hauler of freight in the Upper Great Plains.

      Just last year, the railroad was expanding rapidly, adding 6,000 workers and 500 locomotives to meet demand for shipping and ease backups caused by severe winter weather.

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        Railroad President Greeted by Bomb Train Protestors in Chicago

        Repost from DeSmogBlog

        BNSF President Greeted by Bomb Train Protestors in Chicago

        By Justin Mikulka, May 27, 2015 – 16:50

        Today at the annual North American Rail Shippers Association, Carl Ice, president of rail company Burlington Northern Sante Fe (BNSF) had his keynote address interrupted by members of Rising Tide Chicago. The activists carried banners reading, “BNSF: Profits over Safety” and “BNSF: Bomb Trains Kill.”

        BNSF moves significantly more oil by rail than any other rail company and much of that oil passes through the Chicago area.

        In March, a BNSF oil train derailed and caught fire in Galena, Illinois. In May, another BNSF oil train derailed and caught fire in North Dakota.

        BNSF makes billions of dollars putting our communities and climate at risk,” said protester Kevin Oliver. “So we took this action to take a stand against the obscene wealth that is being generated at the expense of our safety.”

        Oliver was correct about BNSF making billions of dollars for its parent company Berkshire Hathaway, run by famed investor Warren Buffett. Berkshire Hathaway purchased BNSF in 2009 and it has turned out to be an amazing investment, if you don’t mind the occasionally exploding oil train.

        The success of the investment was summed up best by Jeff Mathews who has written books about Berkshire Hathaway.

        He [Buffett] stole it,” Matthews told Bloomberg. “He’s got to feel really good that he bought it when he did, because it’s a wonderful asset, and it’s done nothing but get more valuable in the time that he’s owned it.”

        And that increase in value is directly related to the huge increase in moving Bakken crude oil in BNSF unit trains in the past several years. Trains that do not have modern braking systems, which is one of the issues raised by Rising Tide Chicago. And BNSF is certainly in no hurry to part with any of their profits to install modern braking systems.

        As reported on DeSmog, BNSF and the rail and oil industries have lobbied extensively against requirements that the industry upgrade the oil trains to use a modern electronically controlled pneumatic (ECP) braking system.

        And while the new regulations released earlier this month will require some oil trains to use ECP brakes by 2021 and all of them by 2023, the American Petroleum Institute has filed a lawsuit against the Department of Transportation challenging this requirement, which is likely to delay even that long timetable.

        The length of time the oil and rail industries have been allowed by the new regulations to implement safer technologies even surprised the former chair of the Pipeline and Hazardous Materials Safety Administration (PHMSA), Cynthia Quarterman. PHMSA is the agency responsible for the new regulations and Quarterman led that agency for most of the time the regulations were being developed.

        “That was the biggest surprise, by far,” Quarterman said in an interview with Argus after the regulations were released. “The push-back for five years for most things, I thought it was a substantial push-back in terms of dates.”

        Extending the timeline for the regulations has been a top priority of the oil and rail lobbyists and their partners in congress in their efforts to weaken the new regulations and protect profits.

        Prior to release of the new regulations Quarterman told USAToday that she thought ECP brakes were a top priority when it came to improving oil-by-rail safety.

        “The more I think about it, the more I think that the ECP brakes may be more important than the tank car itself,” Quarterman said. “Because it would stop the pileup of the cars when there’s a derailment or when there’s a need to brake in a very quick fashion.”

        And it isn’t just Quarterman who believes in the safety benefits of ECP braking systems. In 2007, long before the oil-by-rail boom, BNSF was touting the impressive safety benefits of ECP brake systems according to this press release.

        ECP brakes have the potential to reduce train stopping distances by as much as 50 to 70 percent over conventional air brake systems. ECP brakes utilize electronic signals to simultaneously apply and release throughout the length of a freight train. This differs from conventional brake systems in which each car brakes individually as air pressure moves in a series from car to car.

        But since the existing highly profitable and known to be flawed fleet of DOT-111 and CPC-1232 tank cars being used to move Bakken oil do not have ECP braking systems currently installed, BNSF and their allies at the American Petroleum Institute are now against ECP technology. An approach succinctly captured in today’s banner reading, “Profits over Safety.”

        In 2006, the Federal Railroad Administration released a report on ECP brakes prepared by Booz Allen Hamilton which stated that the brakes are a “tested technology” that offers “major benefits” and could “significantly enhance” rail safety.

        The question raised by today’s protest and the one that is really at the heart of the whole oil-by-rail discussion is how long will companies like BNSF get to continue to put profits over safety? The answer to that question is most likely the one given by former head of the National Transportation Safety Board Deborah Hersman. Hersman said that we’ve “seen a lot of difficulty when it comes to safety rules being implemented if we don’t have a high enough body count.”

        So in all likelihood, the only way that there will be significant safety improvements in the oil-by-rail industry is when the next fatal accident increases the pressure on regulators and the industry to finally part with some of their profits to protect the public.

         

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