(John Kemp is a Reuters columnist. The views expressed are his own)
Warren Buffett’s acquisition of the remaining 77.4 percent of Burlington Northern Santa Fe (BNSF) railroad his Berkshire Hathaway does not already own looks like a strategic bet that America’s future energy needs will be met, in large part, through a massive expansion in coal-fired power generation coupled with carbon capture and storage (CCS).
Coal is the most important item moved on BNSF’s railroads. It accounted for almost half the tonnage moved by BNSF in the first nine months of the 2009 (214 billion revenue ton miles out of a total of 444 billion) and a quarter of the company’s revenues ($2.7 billion out of a total of $10.4 billion).
BNSF’s track and rights of way are perfectly positioned to benefit from a massive expansion of the country’s coal-fired output in the next 20 years, coupled with CCS technology to curb the carbon-dioxide emissions.
BNSF controls the crucial rails linking the massive domestic reserves of the Powder River Basin, the Northern Great Plains, the Western Interior Basin and the Illinois Basin east to the main industrial centres of the Midwest and west to the major electricity demand centres in southern California.
* http://pubs.usgs.gov/of/1996/of96-092/Comp/main.gif
* http://www.eia.doe.gov/cneaf/coal/reserves/chapter1.html#fig1
* http://www.bnsf.com/tools/reference/division_maps/?menu=5&submenu=0
* http://graphics.thomsonreuters.com/109/US_ENRGY1009.gif
When Warren was talking about the collapse of the market we all should have been buying, however I'm going to have to say that history will say that this purchase should have been an interim sell indicator.
Warren, despite his historic success, has become emotional about the market. He is becoming less of a student of the market and more of a teacher and anyone who thinks they can 'teach the market' is about to learn a lesson. No matter how you are, the market is bigger.
Warren's 'All in' on the recovery is a bad bet.
The macro trade has been to fade Warren.
I think his recent purchase by Berkshire is a good indicator that the market is overbought and investors should raise cash.
In short, Sell.
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Maybe it’s not about coal, but about “right of ways” The BNSF network maps run right through areas where solar and wind power can be generated, to areas that need power (cities), and because of coal, to power plants, so you have sources of green power, transformer capabilities, and users all connected by transmission right of ways.
docdonn
[...] will look a lot different with carbon taxes than the rail looks alone. This point is also made by John Kemp at Reuters: the marginal boost to rail freight could be easily offset by a marginal hit down on coal. Does [...]
Unfortunately, CCS is a technological fantasy with no grounding in scientific reality - basically, all attempts have ended in failure for the following reasons:
1) The coal combustion stream is just too dirty - it takes way too much energy to remove all the various metals, sulfur, arsenic, partially burned fuel residues - and that’s before you remove the CO2. Many people are now pointing this out.
2) The energy return for CO2 capture looks negative, meaning it takes all the energy produced by coal combustion to capture all the emissions. This is why so-called “prototypes” that only capture 1% of the emissions are frauds - if they use 1% of the plant’s output to capture 1% of the carbon, then they” use 100% of the output to capture 100% of the carbon. No energy efficiency numbers have ever been released, to my knowledge.
The proprietary wraps placed upon “carbon capture technology” are probably only there to hide these facts from the public. Even though this is a federally funded DOE program, the public doesn’t get to see the details. Someone needs to do an outside scientific analysis of the issue - but who? The National Academy of Sciences is probably the best choice.
So, if the gamble is based on CCS, it’s a very bad bet. Investments in large-scale solar, wind and grid connectivity would be much wiser.
The problem with oracles, as Julius Caesar discovered, is that they’re awfully vague.
I don’t think that you have much evidence to go on with this argument about coal. There are plenty of other reasons that don’t involve speculating on the fate of two bills in congress to invest in BNSF.
I wrote an expanded post on it here.
http://www.greenenergyreporter.com/2009/ 11/warren-buffett-goes-long-coal-no-wait /
[...] Reuters’ John Kemp says much the same. [...]
[...] half of Burlington Northern Santa Fe
Its also pretty notable what Buffett is selling …. Berkshire stock is being used to fund the purchase, so there is an effective dilution of the existing businesses.
This is interesting in part because the last time this occurred in size (the Gen Re acquisition in the late 90’s) Buffett was essentially trading overpriced Coke stock (and other equities) for a bond portfolio. Ie in addition to being an insurance acquisition, it also had the effect of a big re-weighting out of stocks at quite a good time.
Its not quite so clear to me what specifically is being diluted/diversified away here.
I was reading 10 years ago that Buffett was “washed up”. I don’t believe it. Respect the man. He bet on Goldman. He bet on Wells. He bet on U.S. Bank. He’s good.
[...] columnist John Kemp argues that Warren Buffett’s big bet on Burlington is a gamble on the future of coal - and, by [...]