Warren Buffett and T. Boone Pickens Are Betting Big Money on This Energy Boom

America is in the middle of a energy boom, and two of the country's richest men are betting it will continue. Here's why.

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The famous faces
Warren Buffett, with a net worth north of $65 billion, is the chairman and CEO of Berkshire Hathaway (NYSE: BRK-A  ) (NYSE: BRK-B  ) the conglomerate composed of countless operating businesses, including energy businesses.

T. Boone Pickens is also an avid investor and billionaire himself, who made his money through activist and takeover investing in the energy industry. Yet he is perhaps better known for his noble initiative entitled the "Pickens Plan," which he began with $100 million of his own money as a "grassroots campaign aimed at reducing America's crippling dependence on imported OPEC oil." 

The surprising similarities
While many people rightly think of Buffett as an investor in companies, fewer realize he, like Pickens, has billions dollars tied to the industry energy -- and specifically natural gas -- through Berkshire Hathaway.

Source: Company Investor Relations.

Sure he has a $4 billion position in ExxonMobil (NYSE: XOM  ) that he began amassing in the second half of last year. But MidAmerican -- the utilities and energy business in which Berkshire Hathaway owns nearly 90% of -- delivered almost $13 billion in revenue last year. In fact, nearly $1 billion worth of that revenue was from its natural gas pipelines. 

In total, the utilities and energy business had $1.5 billion in net income in 2013 and represented almost 8% of the total $19.5 billion at Berkshire Hathaway. In other words, Warren Buffett has a lot riding on the energy boom.

Just a few months ago, Berkshire Hathaway acquired NV Energy for $5.6 billion, which provides electric and natural gas power to almost 1.5 million customers in Nevada. This means the sizable business positioning in the energy landscape by Berkshire Hathaway will only continue to grow in the coming years.

And this discussion even excludes the railroad arm of Berkshire Hathaway, Burlington Northern Santa Fe, which itself had $5 billion in revenue transporting coal across the U.S. 

All of this is to say, while many may think of Buffett and T. Boone have different interests, each are invariably tied to America's energy industry.

T.Boone Pickens. Source: Flickr / Steve Jurvetson

The recent remarks
Recently, a few employees of The Motley Fool ate lunch with T. Boone Pickens to conduct a fascinating interview, covering a wide range of topics, speaking to the seemingly endless benefits of the energy industry in America. Yet a particular insight worth noting was a remark by T. Boone Pickens when he said:

"I was with the CEO of Burlington Northern last week. He says they're going to natural gas. If the rail goes, they all have to go – trucking, everything."

This comes almost exactly one year after the announcement from Burlington Northern in which it declared would begin testing the use of liquefied natural gas in a limited number of trains.

In the release its CEO, Matthew Rose remarked, "the use of liquefied natural gas as an alternative fuel is a potential transformational change for our railroad and for our industry.

While Burlington Northern hasn't officially announced such a transition, one has to think such remarks by Pickens would indicate the test has gone well. Yet this move can have a major impact to not only Pickens but also to Buffett and Berkshire Hathaway.

The key takeaways
Berkshire Hathaway is clearly dependent on its railroad, energy, and utilities business, which represented nearly one third of the $485 billion in assets on its balance sheet, and these businesses generated roughly $8 billion of the $29 billion in pre-tax income last year.

But Berkshire could benefit twofold from expansion of the natural gas industry. First, its energy businesses will see direct impacts to their bottom lines as demand for continues to rise. Yet in addition, a switch to natural gas would lead to reduced expenses at the railroad -- it spent $4.5 billion on fuel alone in 2013 -- leading to increased profits.

All of this is to say expansion of the natural gas industry would benefit not only Pickens, but also the top and bottom lines of Berkshire Hathaway, adding one more line on the long list of Buffett's successes.

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Read/Post Comments (27) | Recommend This Article (25)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 26, 2014, at 3:16 PM, Realist wrote:

    umm... a railroad can never switch over to using natural gas. Railway Engines use Diesel, they have to, diesel fuel is the only source strong enough to actually give the engines enough power to move their vast loads. Both Natural Gas and unleaded fuel burn at a lower temperatures, and provide a much lower compression ratio for power. It's the same reason all Semi-Trucks run on Diesel, it is the fuel source that has enough umph to move big loads and additional weight. I'm sorry, but recommending investors to buy stock in these two companies based off this experiment is poor advice at best. Do some research next time before you write.

  • Report this Comment On April 26, 2014, at 3:28 PM, Diamondick wrote:

    T Boone, You've used your wealth to do a lot for OSU. Good for you. How about using some of that wealth to put some hurricane shelters in Oklahoma elementary schools. Sports stadiums and weight rooms are cool, but they don't save lives.....

  • Report this Comment On April 26, 2014, at 4:30 PM, toomuchgas wrote:

    To Realist,

    I don't think you are right about using natural gas to run a locomotive. Natural gas needs to be liquified first and mixed with a small amount of diesel to run a turbine. Both GE and CAT are working on building engines that would run this way. There have been several railroads who have experimented with this. The natural gas may not be as efficient as diesel but it is 10 times cheaper which makes the difference. You can Google it.

  • Report this Comment On April 26, 2014, at 4:37 PM, Drillship wrote:

    This is a very good article, and keep informing the misinformed.

    Realist says to do your homework, well I say he needs to do his homework. He has no understanding of how locomotives work. The diesel runs a generator, which in turn runs an electric motor to propel the train. This doesn't operate like a Semi Truck with direct drive through a transmission..

    Many offshore deepwater drilling vessel companies who run diesel electrics are now building 300' vessels to run their generators. This is the future. Bershire also owns interest in several major NG pipelines that travel in the right of way of their railroad track.. This is very smart of Warren.

    I say do your homework and due diligence before criticizing what you don't know about. Good work FOOL.

  • Report this Comment On April 26, 2014, at 5:26 PM, quasimodo007 wrote:

    Oh Yeah another GREAT American RIP OFF on Consumers .

    when the USA has such overabundance

    of OIL and Gas yet because there are few refineries in the USA we are at the Mercy of BIG USNew OIL MAFIA to Increase the Inflated Prices

  • Report this Comment On April 26, 2014, at 5:30 PM, WDG wrote:

    After about 30 minutes of listening to some nut case who promises to tell the name of the country they end up trying to pry money our of you. I don't give a damn about their sales pitch, they ain't gettin my money. They call it Motley Fool because they are suckering a bunch of fools into the motley origination they have and it's the motley fool who wins.

    The danger of running LNG on a railroad is ridiculous. One train wreck would level a couple of counties.

  • Report this Comment On April 26, 2014, at 5:35 PM, WDG wrote:

    Click here for a FREE video that gives you what you need to capitalize on the little-known company behind this concept. NOT! It's a time wasting video that will try to suck you into sending money to Motley Fool. You WON;T get the name of the company.

  • Report this Comment On April 26, 2014, at 7:56 PM, loveshockey wrote:

    I have news for you, here on McCook, Il. Home to Electromotive, they are already tested and are ready and are selling natural gas burning locomotives.

  • Report this Comment On April 26, 2014, at 7:59 PM, kentito24 wrote:

    Not a very well written article, and at best, highly speculative. Buffett is buying utilities because they are nearly recession proof, and have the ability to endlessly spin off cash. As for the ability to run railroads and trucks on LNG, it is actually not a great technical barrier, nor is it a safety concern. But it isn't right around the corner either.

  • Report this Comment On April 26, 2014, at 9:14 PM, rlp2451 wrote:

    LNG trucks have been on the road for years but are not are common as CNG. Just Google "LNG Trucks" and you'll get over 2 million hits. UPS plans to have deployed between 900 and 1,000 liquefied natural gas-fueled tractors at more than a dozen locations by August.

    Whether LNG locomotives are practical remains to be seen, but GE and the railroads are spending a lot of money to find out.

  • Report this Comment On April 26, 2014, at 9:21 PM, Actuary1 wrote:

    Attached is the Fool article on the research and timetable for converting locomotives to natural gas:

    http://www.fool.com/investing/general/2013/04/28/locomotives...

    Earlier in the year CSX announced a partnership with GE to begin the process, and it's a railroad that has been shipping a lot of goal in the US.

    One has only to look at what has happened to Peabody and Arch to understand how much we are now moving towards a cheaper, abundant and less polluting energy source.

    There are many ways to play this trend - GE, NOV,NE,RIG,COP,MRO,WRES, DNR to name a few.

  • Report this Comment On April 26, 2014, at 10:16 PM, brydels1 wrote:

    i absolutely despise these "tease articles" by Motley Fool.

    i was dumb enough to be sucked in by one of these articles, and, i watched an entire stupid video that NEVER revealed the information that was promised in the article.

    i wrote a scathing comment to Motley Fool customer service, that was never answered.

    Motley Fool, you are dishonest.

  • Report this Comment On April 26, 2014, at 11:30 PM, kankemike wrote:

    MF boo

  • Report this Comment On April 27, 2014, at 12:12 AM, stocktrader2012 wrote:

    I agree brydels1, .the long, repetitious,rambling, tease videos, not good.

    I cheapens the MF brand.

  • Report this Comment On April 27, 2014, at 12:31 AM, dario25 wrote:

    I thought I was the only one fooled by Motley Fool. Now, I don't feed bad anymore.. Anyways, they are all like that. You will be directed to watch a video then in the end, you will be ask for membership fees.

    I like this article though. Keep posting.

  • Report this Comment On April 27, 2014, at 7:04 AM, Gdhthree wrote:

    Please search "dual fuel" or "bi fuel". Diesel engines are being supplemented with up to 70% natural gas. Right now, the stationary Diesel engine (think huge generators) is injected with natural gas to save money, and reduce NOx emissions with tremendous success. There is no drop off in performance. The electronic control systems make this all possible. For the vehicular Diesel engine (think Class 8 truck), the market is even larger, but the acceptance is slower because of the uncertainty of refueling locations. The cost savings is again huge. When the engine runs out of LNG, the electronic control reverts to 100% diesel. It's really very amazing and the shift is happening, just slowly, and under the radar. There are private and public companies in this expanding market. American Power Group (APGI) is one public company working especially hard in the vehicular market.

    As far as the train market, the same principle of carrying tanks of both diesel and LNG would apply. Can't see how it would be any different (other than the size of the tanks!)

    But please, do some homework and check this technology out. I think the reason it's quiet is because it is both environmentally friendly AND super cost effective. They can coexist! Good stuff.

  • Report this Comment On April 27, 2014, at 8:52 AM, franmail2003 wrote:

    Motley Fool has a habit of trying to sell you on stocks with little future...just hype. I purchased many of the stocks in the big "One" build-up offering hype...most are now DOWN 20%. Way to go Fool.

  • Report this Comment On April 27, 2014, at 9:06 AM, madmilker wrote:

    There is over 2 million miles of pipeline under US now....

    and a few turnips think 1400 more miles will be harmful to the environment...

    duh...!

    One super cargo ship pollutes as much as 50 million automobiles each year...

    Wal*Mart commissioned five (5) of those ships years ago to bring Made In China to America...

    and partnered on a port in Mexico...

    duh..! and I'll be dip....

    Warren buys a Choo! Choo! shortly afterward...

    Now, if 1975 was the last year America had a trade surplus...

    Is any of the above in the interest of the American taxpayers if...

    Wal*Mart has its Global Procurement Office in China....

    puts less than 5% foreign in all its stores in China...

    It takes better than $9 billion a year in American tax dollars to clean the ballast tanks of ships...

    Sad, really sad...

    Total US Government debt in 1975...a mere $533 billion dollars and in only a short 38 years it be over $17 trillion...

    and you people sit here daily writing about things you think will benefit US as an investor...

    DUH..!!

    What about writing something that will make US a better American....

  • Report this Comment On April 27, 2014, at 2:21 PM, AnsgarJohn wrote:

    The stock is National Oilwell Varco, it isn't expensive. The Motley Fool has a great track record in stock picking. Increased demand for LNG might mean the price will not stay as low as Cheniere Energy (ticker LNG) speculators would like it to.

  • Report this Comment On April 27, 2014, at 5:37 PM, nosmiley wrote:

    Personally , I don't have a lot of confidence in Boone Pickens. It was just a few years ago , he took to the TV with ads about all the windmills he owned. Not a bad comment. The gist of his ad was that he expected the big power companies to erect all the high tension electrical lines ( high lines ) to his property, and buy his electricity.

    As far as I'm concerned this is a cheap, tightwad proposition.

    In the South where I live, the folks that produce the electrical power, whether by water, steam, coal, natural gas, wind, etc. etc. build and pay for their own distribution lines. This holds true for Progress Energy, TVA, and the other power producers. Boone simply is a Republican feeling he is deserving of a "special deal" that the other commercial power producers can't get. To be fair, TVA got some money from the government in the 1940's to bring power to large areas of the south where there was NO electricity. One of the ways they have returned the favor was the development of an early laboratory near Muscle Shoals, Ala. that developed the formulas, and know how, for producing the high analysis fertilizers that this country uses today. These " recipes" are available free to anyone desiring to produce this type of fertilizers. Most of TVA's home power users aren't even aware of this.

    I don't see T.Boone giving away anything he thinks he can make money with. Apparently selling electricity for a profit doesn't satisfy him. He wants you and I to subsidize our tax dollars to him , so he doesn't have to go through any monetary depreciation struggle with his power idea.

  • Report this Comment On April 27, 2014, at 6:27 PM, nosmiley wrote:

    @Madmilker Turnip:

    If you would honestly study the plans of the pipeline, you will find that the intent all along, has been to pipe the oil/sand slurry all the way across the country to a port in south Texas, refine it , a bit, and do something with the waste product that ends up there along with the oil, and put it on ships , heading overseas. This low grade petroleum is not planned for usage in the U.S. If it was, why not fully refine it in Oklahoma, Nebraska where there are up and running refineries that the pipeline goes close to ?? Don't want to talk much about that? Also, if it is such a wonderful product, why doesn't Canada refine it, and use it in their country, or sell it to us in the form of gasoline, motor oil , etc. ?? The Canadians haven't been hoodooed like some of us have. They know the stuff is essentially junk, and more problem than it's worth. They don't even want to build a pipeline in their own country to a port for selling overseas. For some interesting entertainment , go to You Tube, and look up some of the clips about an Exxon pipeline carrying tar sands crude , rupturing in an upscale Arkansas neighborhood, and running down the streets, into storm drains, into a fishing lake, and water supply. One of the clips is produced by a homeowner in the neighborhood before it got closed off, even to the people that lived there. He discusses the smell, which is still probably very noticeable . Exxon had a helicopter in the area, threatening news helicopters, and attempting to herd them away. It's on You Tube, via several news sources. The FAA declared the area a "no fly" zone so less people would find out about it. " ExxonMobil Tar Sands Oil Spill- What happened in Arkansas." is a good clip, that includes the homeowner footage . But if you think I'm biased, please choose your own clip, there are over a dozen.

  • Report this Comment On April 27, 2014, at 7:45 PM, richak28 wrote:

    What I see here is a bunch of loonies who's trying to

    to write about things they know nothing about...

    Furthermore, if you don't know how to invest, Motley

    Fool or anyone else can't help you...

  • Report this Comment On April 27, 2014, at 10:11 PM, jegarakshagang wrote:

    Lot of buses run on Natural Gas

  • Report this Comment On April 27, 2014, at 10:24 PM, ferdiefor wrote:

    It really gets boring listening to all the whiners that think they are entitled to cheap gasoline as if it were a birthright.

    You pay far more for designer water and Starbucks and everything it takes from extraction to refining to delivery to your local gas station..... you should all be grateful.

    Seems Obama has started the final chapter in the US entitlement sweepstakes convincing more and more Americans that certain industries have some great moral duty to provide their goods and services to you for as little profit as possible.

    The only thing really working in America right now is the energy revolution precisely because they can charge enough to make the profits needed to reinvest in finding more oil and gas.

    Too bad the entitlement crowd fails to understand that profits must also go to shareholders like me and so many others in order to reinvestment to occur too.

    Its called at least for now capitalism and if you don't like the cost of gas you can hoof it to work and everywhere, take the bus...... whatever.

  • Report this Comment On April 28, 2014, at 9:21 AM, yardomd wrote:

    Warren Buffett is a genius with numbers and valuations. He and Charlie Munger are excellent communicators and public speakers, openly sharing their knowledge with the public. They may be the best in USA since the beginning.

  • Report this Comment On April 28, 2014, at 6:57 PM, GETRICHSLOW2 wrote:

    T. Bone might attract more interest in his gas plan if he didn't come across as a grouchy old fart.

  • Report this Comment On April 29, 2014, at 2:08 PM, jeffhre wrote:

    ferdiefor wrote: "Its called at least for now capitalism and if you don't like the cost of gas you can hoof it to work and everywhere, take the bus...... whatever."

    ferdiefor, I drive an electric car. Thanks for the kind words of encouragement, and investment advice, and definition of economic systems though.

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