Warren Buffett and his fossil fuel investment strategy
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Posted by MoneyController on 27.07.2023
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Contrary to what one reads in the investment world (the growing interest in ESG in recent years), Warren Buffett's Berkshire Hathaway continues to invest in fossil fuels. Pierpaolo Molinengo writes about this in Wall Street Italia and explains Buffett's strategy in more detail.
Fossil fuels are considered one of the biggest contributors to global warming. From a financial perspective, the growing sensitivity to sustainability on the part of both institutional investors and savers has led to heavy disinvestment in the sector, so much so that the sector's price-to-earnings ratio is currently the lowest in the S&P 500. However, as Molinengo writes, cash flow per share is currently the highest.
The strategy of Warren Buffett and Charlie Munger, vice president of financial conglomerate Berkshire Hathaway, is, as Molinengo explains, more articulate than it might appear. For example, Buffett said he saw interesting potential in shale oil. Not only has he invested in shale oil, but he has divested more than 20 per cent of his stake in oil company Chevron to invest in companies such as Occidental Petroleum and liquefied natural gas company Cove Point LNG (the $10 billion investment in Occidental, in particular, is to beat Chevron to the purchase of Anadarko Petroleum).
Interestingly, Molinengo continues, the investments in Cove Point LNG are linked to those in some Japanese companies. Cove Point LNG is involved in the liquefaction of natural gas and has seen an increase in demand for its products from Europe since the outbreak of the war between Russia and Ukraine. However, the company is also a supplier to the Asian market, particularly Japan's Tokyo Gas and Sumitomo. Berkshire Hathaway is the second largest shareholder in the latter.
As Vaclav Smil points out in his book 'Numbers Don't Lie: 71 Stories to Help Us Understand the Modern World', despite the undeniable progress of renewable energies, there are still many sectors of the economy that cannot do without fossil fuels. The goal of replacing 80 per cent of fossil fuel energy with renewable resources by 2050 seems unrealistic at the moment (based on current technologies): for Smil, it will take several decades to achieve this goal.
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