In Omaha, Nebraska is a 90-year-old who runs a business alongside his 97-year-old business partner. While you might think encountering them driving on the freeway would be bad, I assure you that competing with them in the business world would be much worse. Those dentures will eat you alive.
I’m referring of course to the youngster, Warren Buffett, and his slightly more experienced sidekick Charlie Munger. The pair run Berkshire Hathaway, a holding conglomerate so large that it frightens children (recent Annual Report stats: 360,000 employees, $42 billion in 2020 income, and, excluding many wholly-owned companies, a stock portfolio worth $280 billion).
When they speak, the world listens, and it should. They are beholden to no one, they fear no one, and apparently, even the Grim Reaper won’t go near these goofy/razor-sharp/immortal investors. Their wealth and clout give the comfort to speak truths, and they do so in an eloquent way. Despite their age, the two retain a laser-like ability to understand business issues that the rest of the business world has great trouble grasping. Their ability to judge financial matters is not even on the same planet as today’s politicians, activists, and profoundly incompetent media talking heads.
One of Berkshire Hathaway’s segments is a massive energy business (BHE) that includes a western-US electrical distribution system. Regarding an energy transition, Buffett and Munger are far too wise to talk about when something must be done, they talk about the challenges of doing it – the hallmark of honest minds. Here is Buffett in the most recent BH Annual Report, talking about upgrading electrical infrastructure for an increasingly renewable world:
“Transmission lines had to cross the borders of states and other jurisdictions, each with its own rules and constituencies. BHE would also need to deal with hundreds of landowners and execute complicated contracts with both the suppliers that generated renewable power and the far-away utilities that would distribute the electricity to their customers. Competing interests and defenders of the old order, along with unrealistic visionaries desiring an instantly-new world, had to be brought on board.” [Emphasis added]
For every visionary, dreamer, idiot, and charlatan out there banging on pots and chanting about an energy transition, how we ‘must’ complete one soon to save humanity, pay heed to the only people that matter in the entire equation – the people that do things.
And when I say ‘do things’ I don’t mean construct problem-exacerbating isolated pseudo-solutions with government money – I mean ‘do things’ as in build a business that is successful and profitable. Buffett is not a defender of the old order (but will only invest in what he understands) and he certainly is no unrealistic visionary.
Per Buffett, the system upgrades kicked off in 2004, when BHE recognized the coming rise of renewables. The estimated completion date of these upgrades: 2030. That’s right. One company’s asset upgrades, in one part of the country, will take 26 years, and cost $18 billion, even when run by some of the sharpest minds industry has ever seen.
Now, Buffett isn’t stupid; he did build wind farms to capitalize on government handouts and energy subsidies. That is an infinitely different proposition than creating a company just to capture those handouts, a company with no chance of existence without them. Buffett understood renewables can play a significant role as part of a system – which is why he went strongly into wind power, but also why he recently bought up a lot of natural gas pipelines.
BHE, and a few other infrastructure companies like Enbridge, will be at the heart of any ‘transitioned’ energy system, one that incorporates more renewables as the system can handle them, but relies heavily on hydrocarbons for next to forever.
Many other energy commentators, the New Energy Experts that fill the news and that we have to listen to because they get the airtime, are a write-off, intellectually speaking. After the recent Texas fiasco in which the grid regulator failed to ensure adequate power for peak and unusual weather events, a whole section opened up in Google News, which I, unfortunately, perused in search of relevant updates.
The section was called “Wind Turbine News” and it consisted of pages of news organizations’ proclamations that “renewables were not to blame.” The entire section had nothing to do with news, it was like a sports coach explaining a bone-headed coaching blunder. It was so outlandishly stupid that it seemed surreal, but that’s just the news these days.
As far as a real ‘transition’ goes, the ground is starting to move beneath our feet. There is an unprecedented rush in the hydrocarbon industry and in engineering campuses to adapt to a world that thinks it is against hydrocarbons. Advances in carbon capture/sequestration are coming fast – witness these multiple options being advanced at MIT, and Rice University’s Carbon Hub is looking to ‘move the needle, far and fast’ where “clean hydrogen energy and advanced carbon materials are co-produced efficiently and sustainably from natural gas and oil.”
Think about this when comparing relative challenges: The hydrocarbon industry knows how to deal with CO2 sequestration and all sorts of chemical processes. If the industry can find a way to do something similar to what a catalytic converter does and strip/nullify CO2 from exhaust streams, it is game over for hydrocarbon haters. They may well be on the run anyway because the entire industry is rising to this challenge.
On the flip side, opponents say they can eliminate hydrocarbons through wildly expensive schemes to rewire the entire world, and hinge their hopes on a scalable technology that does not yet exist either – but will be a far harder nut to crack. A battery-backed world is so far from reality as to be comical in concept; a breakthrough in economically sequestering CO2 from exhaust streams is vastly more plausible and possible.
We can watch the world’s smartest businessperson spend $18 billion to update a small fraction of the U.S. electrical grid over a 24-year period, and then watch inept governments try to do that to the whole system. It will take them 100 years and be five times over budget. Furthermore, BHE’s energy upgrades were in the sparsely populated interior-western U.S.; any such changes on either coast where much of the population is will be an endless cavalcade of all the issues Buffett mentions, times a hundred.
Buffett’s chronicling of what it actually entails to make large-scale change happen is one of the first ‘vaccinations’ against the epidemic madness of forcing a quick energy transition. The Texas fiasco was another. California’s rolling blackouts last summer were another.
Let’s look at this another way. I’ve been reading about giant battery breakthroughs since I was a baby. There have been some advances, primarily lithium-ion and heat management thereof. Beyond that, a lot of arm-waving and not much else. Solid-state batteries are always just on the horizon, for example, forever.
In the past few years, there has been a massive awakening of carbon capture/storage techniques, and these developments are accelerating rapidly. In the past weeks alone I’ve heard of massive initiatives from university consortia around the world, with big cash prizes, backed by Big Oil’s big bucks.
This world is changing incredibly fast, and one can see why. If carbon capture/storage costs come down, we can achieve the New World Order’s carbon reduction goals without trashing our energy infrastructure systems, without killing off the vital hydrocarbon industry, and without spending trillions on endless acres of batteries that won’t solve anything anyway (hint: in extreme weather, exactly when reliable and sustained power is most needed, is when batteries are at their weakest, both in terms of life and rechargeability form intermittent sources. Going that route would be the dumbest, most expensive mistake in financial history).
Don’t worry too much, hydrocarbon people; the world is being exposed to energy transition madness, and will soon develop immunity. Keep up the good work and in 2050, when Charlie Munger turns 127, we can laugh about this present chapter in the temporary delusion of mass crowds.