Here is a transcript of what Warren Buffet said this morning on CNBC about his visit to the oil sand last Monday. I’ll still bet I was right, that Gates and Buffett did play some Bridge on this trip.
QUICK: Welcome back, everybody, to this special edition of SQUAWK BOX. We'vebeen talking all morning long with Warren Buffett of Omaha, Nebraska, sincewe're live in Omaha today.And, Warren, we've covered a range of topics, but there has been an awful lotof people who are interested in the trip you made this week. On Monday youheaded up with Bill Gates and you got to take a look at the tar sands. What happened?
Mr. BUFFETT: Well, what happened was Bill and I talked some months ago aboutjust how interesting the whole thing was from a geology standpoint and fromthe standpoint that that represents one of the few big upcoming sources ofmore oil production in the world, or very few. And we both thought we'dunderstand a little bit better if we went up and looked at it than simply byreading about it. So on Monday six of us, Bill and a few other fellows--theKiewit company arranged it. They're--they've done a lot of construction upthere. And we went up to northern Alberta and we saw a very big mining-typeproject. There are two ways that they recover oil from the tar sands. Andthen we went to this in situ project also, and we had some perfect peopleexplain a lot about how it worked both from a economic standpoint and from a physical standpoint.
QUICK: Uh-huh. And was this something that you came up with, that Bill cameup with, your friend, Walter Scott, from the Kiewit company? Who came up withthe idea?
Mr. BUFFETT: Well, Walter Scott arranged it for us.
QUICK: Right.
Mr. BUFFETT: Walter's a whole lot smarter than I am about what goes on inmining and all of--anything to do with the real world. I'm good with numbers.And so he arranged the trip for us. But it was something that Bill and Icooked up by--a couple of months ago when we were talking about the tar sands.We said why don't we go up and take a look? And so we found a date when sixof us could do it. Walter arranged the trip. We had some wonderful people upthere in Alberta at both projects that explained how the things really work,the costs involved. And they just couldn't have been more helpful.
QUICK: OK. So having seen that, there's already been a lot of people who'vebeen speculating that you must be interested in investing in this arena. Areyou?
Mr. BUFFETT: No, no. I go to the movies, but I don't buy movie companies.I mean, I--I'm always interested in understanding the math of things andunderstanding as much as I can about all aspects of business. And what Ilearn today may be useful to me two years from now. I mean, if I understandthe tar stands today and oil prices change or whatever may happen, I'm--I'vegot that filed away and I can--I can use it at some later date. And that'sreally the wonderful thing about investments is your knowledge is cumulative.So if you learn about coal or you learn about retailing or something, 40 yearsyou--it's useful at some point.
QUICK: Wait, does that make you think that an investment in a tar sands company, somebody who's making--taking advantage of that would not be worth it at $120 a barrel for oil?
Mr. BUFFETT: Well, the biggest variable in whether it's a good investment isthe price of oil. Now, it's important to know how much they can get out andwhat their costs are going to be and what the capital costs--all of that isimportant and that fits into it. But you still have to figure out what yourown feeling is about what oil's going to be selling for three years from nowor five years from now. Because you could be the world's greatest miningengineer, but if you were wrong about the price of oil in a big way it wouldnegate all that knowledge. So it--I can tell you that if 100--if you had $120oil from now till, you know, 50 years from now, that the tar sands wouldbe--would work out very well. But I don't know the answer to that. And I mayform an opinion at some point, and I've got it--I'm prepared to form thatopinion now.
QUICK: But you are not actively looking right now to invest in any of thesecompanies?Mr.
BUFFETT: Do I have a buy order this morning? The answer's no.
If you are interested in the video of the interview - here is the link:
http://www.cnbc.com/id/15840232?video=828981936&play=1
Ken,
ReplyDeleteI guess one reason I've been watching the China-Canada relationship is because of the potential for the US to go belly-up and not be in the mood to buy any oil (although might be in the mood for taking it, if the taking's good...). If the US isn't in the mood to buy it, then at least we could sell it to China if our relationship were better. If the US is in the mood for taking it, I guess China probably wouldn't stand in their way, hmph.
What do you make of the US economic situation, speculation that lenders will stop funding the US, and that the US is bound to go into inflationary recession and possibly worse?
Do you think it's possible, and if so, where will that put us?
Buffett will probably invest in some company that provides goods and services to the tarsands rather than investing in a tarsands compnay directly.
ReplyDeleteBuffett is already invested in ConocoPhillips - not an insignificant oil sands player.
ReplyDeleteAs for China and the US. The world order is changing. China has a huge trade surplus and caches of foreign reserves - especially US Dollars. China is actually financing the US borrowings to wage the Iraq war.
Almost a year ago to the day I did a blog post on this US vulnerability to China. http://ken-chapman.blogspot.com/2007/08/china-is-holding-bush-by-short-and.html
As for Alberta and Canada - we are acting like a colonized nation shipping out our unfinished raw material out to the imperialist occupier. The only difference is we have ourselves to blame because we have taken the easy way out of servicing the US market and largely ignore the rest of the world.
I'm not surprised by this easy way out appraoch - just dismayed it continues. This is not an anti-American stance at all. It is a multi-market approach I am advocating for Canada.
I think you might want to take a look at the Embridge pipeline from Alberta to the West Coast.
ReplyDeleteThat's the route of export for tar sands oil to China and the West Coast.
Now, tar sands need a lot of natural gas to process, and Canada is at max production. Tar sand expansion needs a new source of energy. Some wild-eyed folks want to build nuclear power plants on top of the tar sands for steam generation... and if you think that's a bit crazy, consider Russia's floating nuclear-powered desalination plants... or don't, it gives one a headache.
In any case, the only real source of extra gas for Alberta is Alaska's North Slope (and the Mackenzie valley line, but hey... who will pay for that? Canada?)
Warren Buffett's MidAmerican Energy was the original contender for the Alaskan natural gas pipeline in 2006 when Palin came into office.
The previous pipeline hit corruption-related snags - it's likely that Stevens and Murkowski were just the tip of iceberg, and MidAmerican backed out over worries about the Buffet-Palin relationship.
The letter from MidAmerican's CEO to Palin on their position is here:
www.eeo.state.ak.us/agia/PublicApplications/Declined/midamerican_letter.pdf
My take is that Buffet is concentrating on distribution, not production, and views the cost-risk production picture as somewhat unfavorable. It's equally possible that the oil majors have production locked up and are not looking to share.
The sheer scale of this project means that it will almost certainly run into giant cost overruns.
Basically, the current plan is to take North Slope gas, pipeline it to Alberta (transit fees to be collected by ?), use the gas to produce steam to melt the bitumen tar, make heavy crude, and pipeline that to heavy crude refineries in the Midwest and the West Coast, or direct to China to refineries there. Chinese demand is endless - as long as U.S. consumer demand stays high. Madness, isn't it?
Crude supplies are drying up, and refineries are tailored to specific grades of crude. Venezuelan supplies are in question.
This is a touch-and-go situation on the global oil markets, tight as a drum. Threats of supply interruption send stocks skyrocketing.
It's a whole new world. I'm worried that the dinosaurs won't be able to adapt, and will cause a lot of damage on their way down, to tell you the truth.
I'm for natural gas, though - but the best option is to take Alaskan North Slope gas, run it by pipeline to Valdez, and from their to LNG tankers and off to Asian and West Coast markets.
See Buffet congratulating Palin on becoming Alaska's governor:
http://www.youtube.com/watch?v=_BGE3cX3ZWQ