Charlie Munger on Energy Independence, Future Oil Prices, and Energy Policy

Here’s Charlie Munger, Vice Chairman at Berkshire Hathaway on energy independence, future oil prices, and energy policy. Charlie was a panelist at a roundtable discussion on “U.S. — China Bilateral Investment: Managing Challenges, Optimizing Choices” at the 21st Annual Conference of the “Committee of 100.”

Charlie Munger, Vice Chairman of Berkshire Hathaway Oil is absolutely certain to become incredibly short in supply and very high priced. The imported oil is not your enemy, it’s your friend. Every barrel that you use up that comes from somebody else is a 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 Confucian ethos is suffer now to benefit themselves and their families and their countrymen later. The way to do that is to go very slow in producing domestic oil and not mind at all if we pay prices that look ruinous for foreign oil.

It’s going to get way worse later.

The oil in the ground that you’re not producing is a national treasure … It’s not at all clear that there’s any substitute [for hydrocarbons]. When the hydrocarbons are gone, I don’t think the chemists are going to be able to just mix up a vat and create more hydrocarbons. It’s conceivable that they could, I suppose, but it’s not the way to bet. We should spend no attention to these silly economists and these silly politicians that tell us to become energy independent.

Let me pose a question for you. It’s 1930. Oil in the United States is in glut. We have cartels to get the price up to $0.50 a barrel. Everywhere we drill we find more oil in our own country; everywhere we drill in Arabia we find even more.

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 of very long-term bonds and cart 150 billion barrels 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 who ever points this out? Zero. We have a brain-block on this issue. We should behave now to do on purpose what we did on accident then.

The roundtable discussions were moderated by Dominic Ng, Chairman and Chief Executive Officer, East West Bank. Other than Charlie Munger, the speakers included Victor K. Fung, Chairman, Li & Fung Group and Jim Sinegal, Co-Founder and Director, Costco Wholesale Corporation.

On a related note, in an interview with Charlie Rose, ExxonMobil’s CEO Rex Tillerson thinks energy independence may actually put America at risk:

I don’t think that’s in our best interest to be independent. We need to be connected to multiple sources.

Clearly, the world is — has a lot of places in the world today where stability is an issue. And that can — that can influence the price. It’s probably not going to dramatically alter people’s access to energy, but it can alter the price at which they have to pay for that energy because a piece of the supply comes off the market, the capacity gets very tight, and the price goes up.

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