2014: What does Buffett think of the oil sands industry?

AUDIENCE MEMBER: Hi, Warren, Charlie. My name is Vishal Patel (PH). I’m visiting from Toronto, Canada, and my question is about the oil sands.

Can you please share with the audience your view on the oil sands industry and their impact on Berkshire Hathaway?

WARREN BUFFETT: Well, in terms of —are you thinking of the oil sands or are you thinking of shale production?

AUDIENCE MEMBER: I’m thinking oil sands, Alberta.

WARREN BUFFETT: Alberta, yeah.

AUDIENCE MEMBER: Keystone XL.

WARREN BUFFETT: It’s not a huge impact. We have a crane business at Marmon that does a lot of business in oil development, generally. But, certainly, is active in the oil sands.

We will soon have a transmission operation that will cover 85 percent of Alberta. Alberta’s a big place. It’ll have 8,000 miles, or something like that, of transmission lines, for example.

But the oil sands business is — I mean, you know, oil sands are huge. And we own some Exxon Mobil, when they’ve got an operation in the oil sands, obviously.

One thing you might find kind of interesting, you know, we are moving 700,000 barrels a day of crude oil on our railroad. We’ve got — probably got — maybe, nine unit trains — now [BNSF Executive Chairman] Matt [Rose] can correct me on that — you know, that carry 100 cars or so.

And each one has 650 barrels, or so, of oil so that — oil, you may find interesting, not only is there a significant advantage in terms of the flexibility of where you take it, so that spreads are different in different places, and you can move it to refineries that you might otherwise have trouble moving it to. Rail’s flexible that way.

But rail, actually, you know — mentally, you think of oil gushing through pipelines. But rail is probably, I would say, close to twice as fast in moving oil as is — as are pipelines.

But we recently bought a company from Phillips 66. We got it in an exchange for our Phillips stock. We bought a specialty chemicals company.

And its main product is a chemical additive that causes oil to move through pipelines about 10 percent faster than it would otherwise. So it may take a day off of a trip.

So we’re actually in the pipeline business in a small way — the crude pipeline business — in a small way, through that.

I don’t think — I think the oil sands are an important asset for mankind, obviously. There’s a huge amount of oil there. They’re an important asset for mankind, you know, in — over the centuries to come.

But I don’t think there’s — I don’t think it will dramatically change anything at Berkshire.

Matt might have a different view on that. I’ll ask Charlie to talk. And then if Matt would like to say anything, I’d be glad to hear from him, too.

CHARLIE MUNGER: Well, but, a lot of the oil sand production uses natural gas to produce the heavy oil.

So it’s a very peculiar thing. It’s economic only if oil stays at a very high price, and it’s delightfully economic only if natural gas is too cheap.

So it’s a very peculiar business. And it is good for mankind. But whether it’s a great investment or not, I haven’t the faintest idea.

WARREN BUFFETT: Matt, would you — do you have anything to add on the crude situation there?