Warren’s Blind Spot Led To This Big Energy Blunder
Inside today’s Daily Journal…
Essay: Why Buffett Is About To Lose $100 Billion
Reaching Trump’s T-bond threshold level
Another strong Hershey quarter
War-related commodity prices higher
Chart Of The Day… Alphabet (GOOG)
Today’s Mailbag
Editor’s note: On May 16, 2025, Porter released The Better Than Berkshire Index, designed to show Complete Investor subscribers that they can outperform Warren Buffett’s Berkshire Hathaway. Yesterday, Porter detailed how Warren Buffett long held onto his misguided belief in Peak Oil – a belief that led to some very questionable investments… Porter details those investments today.
Next week, using the insights he has learned from Buffett himself over the decades, Porter will continue to explain exactly what’s gone wrong with Berkshire and how investors can build a portfolio that can do better…
I first made the case against Peak Oil as early as 2006. At first I did so almost purely on philosophical grounds. I am a student of Austrian economics. I have studied the work of economist Julian Simon, and knew about the Simon-Ehrlich Wager, where in 1980 Simon bet the neo-Malthusian author Paul Ehrlich that the inflation-adjusted price of any five commodities Ehrlich chose would fall, not rise, over the next decade. Simon won decisively – all five commodities fell in real terms.
In the intellectual circles I frequent, the question of running out of oil is laughable. Free markets and human innovation have dramatically increased the supply of every commodity necessary for life on this planet, easily, for centuries and that’s overwhelmingly likely to continue. In fact, as is now only beginning to be recognized by economists outside of the Austrian school, the only possible shortage is humans. The real threat to our civilization isn’t running out of commodities, it’s running out of people.
Twenty years ago, these ideas were far from mainstream. And I might have been the only financial analyst in the world that was predicting a massive renaissance in U.S. oil and gas production. I certainly was among the first financial writers in the world to describe the full ramifications of the fracking revolution.
My first report, in Stansberry’s Investment Advisory in April 2010, about the enormous scope of the energy opportunity in Texas was written about the Eagle Ford Basin, the first big shale oil play discovered in Texas:
I expect Eagle Ford to yield more than $2 billion in oil by 2013 and to increase steadily for at least 20 years. These numbers mean Eagle Ford will probably produce hundreds of billions worth of oil and gas over the next 30 to 40 years. I know these numbers must sound like pie in the sky. After all, U.S. oil production fell every year from 1991 until 2009. The decline led some pretty smart folks to declare we’d reached “peak oil.” They believed onshore oil production would continue to decline until there was literally no oil left. I never believed any of that nonsense. I knew eventually prices would rise enough to support the development of new technologies for finding more oil and extracting it more efficiently. Not surprisingly, that’s exactly what has happened.
My Eagle Ford prediction was woefully conservative, even though at the time it seemed delusional. The basin generated $36.8 billion of oil revenue in 2013 alone – not the $2 billion threshold I had set, but 18x that figure in a single year. Cumulative oil and gas revenue from the Eagle Ford through 2025 has reached approximately $515 billion. The “hundreds of billions” figure has already been delivered, with 15 of the original 30-to-40-year window still ahead. The University of Texas Bureau of Economic Geology projects continued production from the basin through 2040 to 2050.
Understanding the American oil-production boom did not require any industry connections or even much insight. The well-by-well economics were published quarterly by every shale operator. The directional pattern and the magnitude of the enormous growth in production were unmistakable.
As I detailed yesterday, Berkshire Hathaway CEO Warren Buffett and Vice Chair Charlie Munger did not seem to care. They stayed wrong, on a falsifiable forecast, for 15 years. Worse, they stayed wrong while their largest single capital commitment was being deployed under the assumption that they were right.
As I wrote yesterday,
Berkshire Hathaway Energy is the only Berkshire subsidiary whose capital-allocation strategy was explicitly premised on the worldview that the United States was running out of cheap, accessible hydrocarbons. The investment only makes sense if the country must fund, at utility-rate-based expense, a multi-decade build-out of wind, solar, and high-voltage transmission infrastructure to replace cheap, abundant, hydrocarbon energy.
Meanwhile, the reality – that a continent-wide shale energy revolution was producing more cheap hydrocarbons than the United States could consume – never seemed to enter their minds.
