Buffett's OXY buy and view on inflation

Again, no disrespect. I value your contributions to the board.

None taken. Or intended.

Yes, some CO2 does remain in the reservoir as you state. But it is still the CO2 produced from below ground elsewhere and has no contribution to reducing CO2 from fossil fuels. And it is relatively minor. Sorry if I blew it off.

I agree we’ve about having beaten this one to death.

On a broader note - nothing to do with OXY - I’m beginning to think that instead of trying to replace fossil fuel use with renewable energy, it might be better to keep it for many applications and instead concentrate on capturing the CO2 being emitted. That energy source is already in place, it just needs to be cleaned up. I know that CC&S is recognized as a need, but it is not getting the focus compared with renewable energies that may be justified.

It was the article on the materials required to implement wind and solar as a major source of energy for transportation that caught my attention. The number of new mines, the amount of materials required, and the environmental impact of those mines are staggering. And it’s not clear it can happen - especially in the time needed.

I wonder if any realistic studies have been made on the comparative costs of carbon capture versus the costs - and ability to implement - of replacing fossil fuels with renewable sources? Are we spending our money and time in the right places?

Maybe I’m just musing to myself. Will renewable energy have to first fail before CC&S becomes a major goal of governments and citizens?

At that time, will it be too late?

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If memory serves CVX and XOM have much higher exposure to petrochemical refining than OXY. Highly highly capital intensive. Prone to hurricane damage as most US refining is along the Gulf Coast. Margins are tiny.

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If memory serves CVX and XOM have much higher exposure to petrochemical refining than OXY. Highly highly capital intensive. Prone to hurricane damage as most US refining is along the Gulf Coast. Margins are tiny.

Agree except for chemicals margins. They are very good now with low cost ethane from natural gas driving feedstock costs down. 2021 was unusually profitable because of a supply shortage. That’s come down some.

Premium products such as special performance polymers and lubricants are consistantly profitable. Base refining is the drag area, especially during the pandemic when there was lots of excess capacity. That’s slowly coming back to within the normal cycle margins. In 2021, XOM upstream earned $15.8 billion, downstream $2.1 billion, and chemicals $7.8 billion. Corporate & Financing was ($2.6) billion.

And, while these downstream and chemicals are capital intensive, most of that is sunk costs except for new petrochemical facilities - which have the feedstock advantage noted above. Incremental investments in refining can be good return projects but they are relatively small.

OXY gets a big tailwind when oil prices go up, and vice-versa.

With CVX, and especially XOM, downstream and chemicals tend to go in the opposite direction and provide a partial balance wheel.

So OXY is advantaged as an oil price focused investment as you suggest.

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Maybe I’m just musing to myself. Will renewable energy have to first fail before CC&S becomes a major goal of governments and citizens? At that time, will it be too late?

Renewable energy won’t fail, but price improvements might slow and so limit deployment. I would like to see CC&S technology researched and piloted in case it is needed. And if CC&S was successful it would make all of that OXY oil more valuable.

Research for US healthcare is being prioritized by the US federal government because that’s what we can agree on. The old people in charge see the value of advancing healthcare. Fully funding CC&S research is a less obvious roadmap with some vehement opposition. CC&S is now only about 0.1% of emissions.

— links ----
“Swanson’s law is the observation that the price of solar photovoltaic modules tends to drop 20 percent for every doubling of cumulative shipped volume. At present rates, costs go down 75% about every 10 years.”
https://en.wikipedia.org/wiki/Swanson%27s_law

“Moore’s prediction has been used in the semiconductor industry to guide long-term planning and to set targets for research and development, thus functioning to some extent as a self-fulfilling prophecy… Microprocessor architects report that semiconductor advancement has slowed industry-wide since around 2010, below the pace predicted by Moore’s law”
https://en.wikipedia.org/wiki/Moore%27s_law

“Electricity is also produced from renewable sources such as hydropower, biomass, wind, geothermal, and solar power. Together, renewable energy sources generated about 17% of the country’s electricity in 2019.”
https://afdc.energy.gov/fuels/electricity_production.html

“Although renewable energy (excluding hydropower) is a relatively small portion of total energy supply both globally and in the United States, the installed renewable energy capacity in both the world and in the United States has more than tripled between 2000 and 2009. Including hydropower, renewable energy represents nearly 12% of total installed capacity and more than 10% of total generation in the United States in 2009.”
https://www.nrel.gov/docs/fy10osti/48178.pdf

Figure 3. Federal R&D Funding by Budget Function, 1955-2020
Most US federal R&D funding goes to Health and National defense.
https://sgp.fas.org/crs/misc/R44307.pdf

“Large-scale carbon capture and storage facilities worldwide had an annual storage capacity of 36.6 million metric tons in 2021.” The world emits about 43 billion tons of CO2 a year (2019).
https://www.statista.com/statistics/726634/large-scale-carbo…

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“OXY is also attempting to recover CO2 from the atmosphere and reinject it.”

They are, but color me skeptical. A one million ton per year direct air capture (DAC) plant is tiny compared to the 43 billion tons per year that humans produce, or the 20 billion or so tons that the oceans absorb each year. I guess it’s more significant compared to the CO2 produced from burning the oil and gas that OXY alone produces. We’ll have to see how much profit OXY’s DAC plants make from enhanced recovery and from carbon credits. We’ll also have to see how much of the CO2 sequestered underground stays there. I hope they release the data.

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Boris,

Have you seen and read this article about the materials needed to implement wind, solar, and batteries as a replacement for fossil fuels?

https://issues.org/environmental-economic-costs-minerals-sol…

The opening statement is rather mild:

Today’s plans to decarbonize global energy systems center on a massive expansion in the use of solar, wind, and battery technologies, with the goal of these becoming the dominant means to power society. But scaling up these energy sources entails a radically heavier materials footprint than is associated with fossil fuels, paradoxical though it may seem. The unavoidable scale of materials demand will have significant impacts on commodities markets and prices, as well as on the environment. Most policy formulations fail to account for these implications. The country is long overdue for thoughtful and realistic planning that honestly acknowledges the tradeoffs and consequences arising from the materials needed to accelerate what is being called the energy transition.

The article, however, gets much more explicit.

In a recent report from the Geological Survey of Finland, researchers considered the minerals implications for achieving a so-called full transition; that is, using solar and wind to electrify all ground transport as well as to produce hydrogen for both aviation and chemical processes. They found the resulting demand for nearly every necessary mineral, including common ones such as copper, nickel, graphite, and lithium, would exceed not just existing and planned global production capabilities, but also known global reserves of those minerals.

A recent analysis by the Wood Mackenzie consultancy found that if EVs are to account for two-thirds of all new car purchases by 2030, dozens of new mines must be opened just to meet automotive demands—each mine the size of the world’s biggest in each category today. But 2030 is only eight years away and, as the IEA has reported, opening a new mine takes 16 years on average.

I didn’t find this article - someone on either the BRK or the METAR board did. But it startled me. Wish I could give that person credit.

I had long suspected that the aspects of supplying material for the transition from fossil fuels would be a challenge. However, before reading the article, I had not seen that quantified.

The article continues:

Despite these and similar analyses, many countries, and many US states, are now proposing to accelerate deployment of solar, wind, and battery technologies without clear plans for overcoming the material shortfalls. One study sponsored by the Dutch government offered a blunt statement of reality: “Exponential growth in [global] renewable energy production capacity is not possible with present-day technologies and annual metal production.”

The article goes on to basically dismiss recycling as a solution to these problems.

Point being, costs may go up going forward, not down.

The article concludes:

The material realities associated with solar, wind, and storage technologies do not obviate an expanded, or even a substantial, role for these energy systems. However, believing that such technologies make possible a rapid and wholesale replacement of fossil fuels ignores the underlying physics, engineering, and economics. Even more troublesome, putting so much effort and money into those technologies will lead the world down a path that won’t meet targets to reduce carbon dioxide emissions, but would cause massive collateral damage to economies and the environment. If Feynman were alive today, one suspects he would repeat another of his favored aphorisms: “For a successful technology, reality must take precedence over public relations, for nature cannot be fooled.”

Worth a read and some deep thought.

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They found the resulting demand for nearly every necessary mineral, including common ones such as copper, nickel, graphite, and lithium, would exceed not just existing and planned global production capabilities, but also known global reserves of those minerals.

So finding some ETFs that will reward price rises in these materials might be a good play? Hmmmmm.

“OXY gets a big tailwind when oil prices go up, and vice-versa.” (Texirish)

I see the big move into oil as:

  1. Price driven (value)

and

2)leveraged (in the manner stated by Tex) hedge against inflation

What was more interesting to me from today’s information was the big exit from financials…

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RE: CHEVRON stake…

“ What was more interesting to me from today’s information was the big exit from financials…”

What do you mean? Financials up $10b

Which financials were exited??

guess I should be more precise in comments…

"The difference now is that instead of that concentration being in a handful of financial and consumer stocks, such as American Express, Wells Fargo, Gillette, and Coca-Cola, it is in the market’s largest company. But if four companies in the past could represent half of its stock portfolio, it is logical that in a market dominated by technology today, the biggest company in the world might represent even more.

“No single stock has ever reached the value of the operating companies,” Shanahan said. “There has never been a position that large. But don’t forget, the way we’ve been thinking about it is that the operating companies are largely ‘old economy’ and industrials, manufacturing, retail, services and transportation. The pivot to tech, namely Apple, as an investment provides some balance to that.”

https://www.cnbc.com/2022/02/25/for-warren-buffett-berkshire…