"US Energy Independence Is a Terribly Stupid Idea"
Charlie Munger & American Oil
I always remembered Mr. Munger saying this about EBITDA...
“I think that, every time you see the word EBITDA, you should substitute the words "bullshit earnings.”
...but it wasn't until one of my readers introduced me to Mr. Munger's insights into American oil and American oil exports did I realize how wonderfully brilliant this man actually was.
Charlie Munger: Energy Independence is a Terribly Stupid Idea
Everyone wants energy independence. Everyone—from politicians and business people to academics—says that our reliance on foreign energy is bad.
But have we really thought about this? Does it make sense?
I’ve never really shared the opinion that energy independence today is a good idea (when it comes to oil, coal, and other non-renewables). Neither has Charlie Munger, the billionaire business partner of Warren Buffett at Berkshire Hathway.
As you’ll see from the excerpts below, Munger is a clear thinker. His talk on The Psychology of Human Misjugment could be the most profitable hour you ever spend.
At a recent conference he explains (lightly edited):
If energy independence was such a good thing, let’s just imagine that we go back to 1930 or something like that and we were hell bent to have total energy independence from all the foreigners. And we just drill and use every technique we can and we produce our hydrocarbon reserves which are absolutely certain to be limited.Well, by now have way less in reserve and are way less energy independent. In trying to get energy independence we would have destroyed our safety stock of oil within our own borders.
Oil and gas are absolutely certain to become incredibly short and very high priced. And of course the United States has a problem and China has a worse problem.And China has the correct solution.
Imported oil is not your enemy it’s your friend.Every barrel that you use up that comes from somebody else is (one less) barrel of your precious oil which you’re going to need to feed your people and maintain your civilization.
And what responsible people do with a Confucius ethos is they suffer now to benefit themselves, their families, and their countrymen later. And the way to do that is to go very slow on producing your own (domestic) oil. You want to produce just enough so that you keep up on all of the technology. And don’t mind at all paying prices that look ruinous for foreign oil. It’s going to get way worse later.Every barrel of foreign oil that you use up instead of using up your own — you’re going to eventually realize you were doing the right thing.
Economists are Part of the Problem
Why are the policy makers in both countries so stupid on this single issue because they are not stupid generally?I think that it’s partly the economists who have caused the problem. Because they have this theory that if people react in a free market that it’s much better than any type of government planning but there is a small class of problems where it’s better to think the things through in terms of the basic science and ignore these signals from the market.
Now if I’m right in this, there are a whole lot of lessons that logically follow: (1) Foreign oil is your friend not your enemy; (2) You want to produce your own assets slow; … (3) The oil in the ground you’re not producing is a national treasure;… running out of hydrocarbons is like running out of civilization. All this trade, all these drugs, fertilizers, fungicides, etc. … which China needs to eat with a population so much, they all come from hydrocarbons. And it is not at all clear that there is any substitute.
When the hydrocarbons are gone, I don’t think the chemists will be able to simply mix up a vat and there will be more hydrocarbons. It’s conceivable, of course, that they could but it’s not the way to bet. I think we should all be quite conservative and we should pay no attention to these silly economics and politicians that tell us to become energy independent.
A Question
It’s 1930. Oil in the United States is in glut. We have cartel’s to get the price up to 50 cents a barrel in some places. Everywhere we drill we find more oil in our own country. Everywhere we drill in Arabia we find even more.And what would the correct policy of the United States have been in that time?Well the correct policy would have been to issue $150 billion in long term bonds and cart 150 billion worth of Middle eastern Oil into the United States and throw it into our salt caverns and leave it there untouched until the current age.It’s easy to see that in retrospect. But who do you see ever points this out? Zero.
What Should We Do?
We have a brain block on this issue. We should behave now to do on purpose what we did by accident. We conserved some of our oil because we were not aggressive enough and smart enough to get it out faster, that was accidentally doing the right thing. Now we should do on purpose what we formerly did by accident. We should conserve and subsidize new forms of energy … we should suppose these big national grids.
Charlie Munger...
“It’s great that we found all this shale oil, but I want to conserve oil and gas in the United States to the maximum extent we can,” Munger said
Warren Buffett...
He (Buffett) noted that it wasn't that long ago that the U.S. was "woefully dependent on foreign oil." However, thanks to a significant improvement in the economics of shale drilling, the U.S. is now a major oil producer. That means OPEC isn't the dominant force it once was in the oil market, and Occidental is playing a key role. It has become a major oil producer, which is good for the country.
I'm with Charlie on this issue...
US oil exports will prove to be the biggest bluder In US energy policy history.
Remember, everybody that thinks US exports are a good idea, make money from those exports. They will make all kind's of shit up to get you to go along with their way of thinking because they are putting their own personal finances before the long term well being of the country. They need your support. They want you to be a short-term thinker.
Hauling ass, inbound, for Corpus Christi, thru the jetties at Port Aransas, to get another load of Occidental Delaware Basin oil for Singapore and points East,,,,including China.
Best not get in the way of draining America, first. You will get your ass flat run over.