Skip to comments.Steffy: Pickensí new plan to break OPECís grip on U.S. energy markets
Posted on 02/27/2013 5:35:31 AM PST by thackney
T. Boone Pickens was headed to a private lunch with outgoing Energy Secretary Steven Chu when I caught up with him by phone this week.
In the four years that Chus been in office, hes never met privately with Pickens, the outspoken former oilman turned investor whos been a proponent of natural gas vehicles.
For the past few years, Pickens, who lives in Dallas, has been promoting his plan to wean the country off foreign oil. Critics are quick to point out that Pickens agenda would promote his investments in natural gas and a company that makes natural gas vehicles. Others call that putting his money where his mouth is.
But his latest proposal, which he outlined in a speech to the Energy Department on Tuesday, bears consideration. He wants to leverage recent increases in domestic oil and natural gas production to break OPECs grip over the U.S. economy.
To understand why this is important, look no farther than the nearest gasoline pump.
The persistent increases at the pump undermine the recent talk of oil abundance or U.S. energy independence. Its a reminder that we remain beholden to a global oil market that is anything but free.
OPEC is a cartel, Pickens said. They control prices with production. Since October, the Saudis have sharply curbed production, and consumers are seeing the impact at the pumps today.
For decades, weve relied on Saudi Arabia to keep its production high enough that crude prices remain affordable. Yet in the past year, as our own production surged to an 18-year high, the Saudis cut theirs to a 19-month low.
The reduced production from Saudi Arabia and other OPEC members has kept global oil prices high, and those costs are passed on by refiners to the pump.
Gasoline prices are a complex calculation, and as always, other factors also come into play. Most U.S. refineries, thanks to decades of processing overseas crude, lack the ability or the infrastructure to process oil from the interior of the U.S., forcing them to rely on higher-priced imports.
The dynamics of the global oil market arent likely to change, and with about 80 percent of the worlds oil controlled by state-owned oil companies, we need to rethink our approach.
The U.S. cant beat OPEC at its own game, and we shouldnt try. Instead, Pickens is calling for fuel competition, especially for motor fuels.
It isnt going to be with oil, he said. Natural gas is the answer.
Thanks to hydraulic fracturing, natural gas is abundant and cheap, making it the logical choice to bridge the gap between current transportation needs and the more viable renewable fuels well need in the future.
Im still skeptical that natural gas vehicles will catch on with the public faster than electric cars, but fleet vehicles are already being converted. For trucks that return to the same place every night, such as delivery vans and city buses, natural gas makes a lot of sense.
Its that fuel diversity that will best insulate the U.S. from global price shocks.
Pickens has a new set of proposals that he was planning to bounce off Chu, although he didnt know how they would be received.
They included a review of federal tax policies to eliminate measures that favor diesel over natural gas. His most radical proposal is also the most interesting: eliminating the Strategic Petroleum Reserve. The reserve was created 40 years ago in response to the Arab oil embargo, and like many of our energy policies, its rooted in decades of dependence and a presumption of scarcity.
The 700 million barrels in the reserve were amassed at an average price of $28 a barrel, which means the government stands to make a nice return on its investment, assuming it disposes of the reserve carefully.
You can mess up the oil market with it if you sell it all at once, Pickens warned. He proposes we dribble it out over 10 years then use the proceeds to fund renewable energy initiatives.
Pickens is quick to note that while he supports renewables he once planned a massive wind farm in the Texas Panhandle most arent viable based on current technology, and they dont address our biggest use of oil: transportation.
Renewables do not move an 18-wheeler, he said.
I first interviewed Pickens in 1990, when he was beginning an effort to promote natural gas vehicles. Regardless of how you feel about his plan, you cant fault his persistence.
Pickens plan isnt perfect, but hes been effective at getting the country talking about energy issues, and his latest ideas deserve consideration. They outline a pragmatic progression to fuels of the future.
Even if Chu didnt listen to him, someone at the Energy Department should.
“Do you agree the investment into this fueling system has already started?”
It has been started on a very small scale. I’ve done some research and calling to companies on my own. I live right above the Marcellus Shale in PA, so it would make sense that I would see some activity. The word I got from gas distributors, utilities, etc. were that they were looking into it but everyone was waiting for some type of tax sweetener from the Feds, which is what I posted. Personally I am 100% for expanding the use of CNG.
CLNE earnings for 2012 just released. The top line numbers look good but this company just keeps losing money year after year and has never shown a profit.
The production, gathering and transmission lines for the gas is really just getting started. Give it a little time before they add new uses as well.
but everyone was waiting for some type of tax sweetener from the Feds
That is sad. We have become so accustomed to getting government subsidies that they don't consider the economics alone.
Do you believe it is the responsibility of other tax payers to make it profitable?
Quit floggin’ it Thackney. You very well know that the electrification of America was accomplished only by government assistance. The same thing goes for the transportation systems, road, bridges, etc., etc. I look at this issue strictly as an investor. That’s how I make my living. You make your money working in an industry that receives government subsidies. Quit this holier than thou crap. We both do what we can, as little guys, just to get by in this country where we have alarmingly diminishing control.
You want to make money from tax payer subsidies.
You sound like you are making Obama’s argument of “you didn’t build that” at this point.
I think we will have to agree to disagree and move on.
“I think we will have to agree to disagree and move on.”
I do respect your knowledge and opinions regarding energy issues. I’ve learned a lot from you.
May I respectively offer for your future consideration, without a nasty sounding like Obama crack ( I offer my apologies for stating that ), that increased governmental intervention like subsidies are one of the causes of diminishing individual control.
Thanks for those words.
I do appreciate it and agree with you in my heart about: “... increased governmental intervention like subsidies are one of the causes of diminishing individual control.”
Bear with me here. I’ve been digging into the bowels of the CLNE press release. I do this because I’m interested in this company and am very much in agreement with their business plan and want them to succeed (as I recall, you were the inspiration for me to look into CLNE five or six years ago). Over the years I’ve been long and short the stock and made money both ways. Here’s a little tidbit from the press release I posted earlier:
“The American Taxpayer Relief Act, signed into law on January 2, 2013, reinstated VETC through December 31, 2013 and made it retroactive to January 1, 2012. We expect to recognize ~$20.8 million of VETC revenue in the first quarter of 2013 attributable to 2012 sales of CNG and LNG.”
As near as I can tell, ‘VETC revenue’ has something to do with the Honda hybrid car (maybe you know something about it)??? This is just one little example of the world we live in and the way it has been in the American system of capitalism ever since there was a stock market and lobbying. Until we can elect enough politicians who agree with our position on the evils of governmental intervention and subsidies to do something about it, we have to get by as best we can.
Now, in spite of missing the bottom line by $0.05, the stock will pop tomorrow, buy on the open. Call me crazy but that’s my free stock advice - and it’s worth every penny of it.
VETC - Volumetric Excise Tax Credit for Alternative Fuels
Crap. I missed that this was reinstated.
I believe that means we are paying to subsidize ethanol, biodiesel, Natural Gas and other Alternative Fuels again. I will have to do more research later.
Maybe the same as:
Alternative Fuel Excise Tax Credit
A tax incentive is available for alternative fuel that is sold for use or used as a fuel to operate a motor vehicle. A tax credit in the amount of $0.50 per gallon is available for the following alternative fuels: compressed natural gas (based on 121 cubic feet), liquefied natural gas, liquefied petroleum gas, P-Series fuel, liquid fuel derived from coal through the Fischer-Tropsch process, and compressed or liquefied gas derived from biomass. For an entity to be eligible to claim the credit they must be liable for reporting and paying the federal excise tax on the sale or use of the fuel in a motor vehicle. Tax exempt entities such as state and local governments that dispense qualified fuel from an on-site fueling station for use in vehicles qualify for the incentive.
(P-Series fuels are a family of renewable, non-petroleum, liquid fuels that can substitute for gasoline. It is a mixture of ethanol, methyltetrahydrofuran (MeTHF), “pentanes-plus”, and butane. The formulas can be adjusted for cold weather and for ‘premium’ blends.)
- - - - -
Biodiesel Mixture Excise Tax Credit
A biodiesel blender that is registered with the Internal Revenue Service (IRS) may be eligible for a tax incentive in the amount of $1.00 per gallon of pure biodiesel, agri-biodiesel, or renewable diesel blended with petroleum diesel to produce a mixture containing at least 0.1% diesel fuel. Only blenders that have produced and sold or used the qualified biodiesel mixture as a fuel in their trade or business are eligible for the tax credit. The incentive must first be taken as a credit against the blender’s fuel tax liability; any excess over this tax liability may be claimed as a direct payment from the IRS.
- - - -
There are so many, and sometimes the names changes on the renewals, that it is hard to keep track of them all:
Federal Laws and Incentives
OMG! What a list - there sure is a bunch of ‘em. Anyhow, disregard my stock advice - the market will open low but if CLNE goes below $12, I’m gonna’ put my toe back in.
Re my #59, the last time I said that in my heart I knew something was right, I voted for AuH2O and we know how that turned out.
More on CLNE:
Thanks, I agree with what they said.
“The chicken-and-egg problem”
This is the reason I would like to see the Gas-To-Liquids process by Shell, Sasol and/or others to work economically in the US (without subsidies).
If we can use existing vehicles, delivery and distribution infrastructure, only the product needs to be supplied at a competitive price. It doesn’t force consumers to spend money prior to being able to use it.
I don’t actually care which would “win”. My career path is one that would likely benefit from either gaining a market share. Anything of increased oil/gas/petrochem domestic infrastructure is good for me both as a consumer and as worker in the industry. I’ve done a little more gas work than oil over the years. Currently I’m 100% in Alaskan Oil field production, but a significant amount of our projects involve getting more gas to the Kuparuk field area to power the infrastructure.
“...no different that Brazil promoting sugarcane ethanol to get them away from OPEC...”
Sugarcane ethanol...gotta be a better deal overall than using food (corn) to make ethanol...using corn for fuel makes our food costs higher...and it downgrades the quality of the fuel. We pay through subsidies, then we pay again at the grocery store.
Sugarcane ethanol obviously is a better conversion than corn. Besides sugarcane grows like a weed in Brazil.
They have been wanting to export sugarcane ethanol to us, but US corn growers block it.
“US corn growers block it.”
It’s the big ethanol producers like Archer Daniels Midland (ADM) that are the blockers. Ask the livestock producers how happy they are about the use of corn for fuel.
The US has imported sugarcane based ethanol for quite some time.
U.S. Imports from Brazil of Fuel Ethanol
However, the US production of Ethanol has grown to be so large that this import amount is nearly insignificant.
U.S. Oxygenate Plant Production of Fuel Ethanol
Ethanol Production Stalls in Brazil
November 28, 2012
Brazil experienced a biofuel boom in March 2007, topping out at second in world output behind the USA. The fermentation of sugars produced motor fuel that lowered carbon dioxide emissions, and Brazil became a model for how it was possible to stop relying on fossil fuels.
Five years later, biofuels have been criticized and critics charge that devoting millions of hectares of agricultural land to fuel crops is driving up food prices and the climate benefits of biofuels are modest. The policies of the Brazilian government have compounded the effects of the global economic downturn.
The domestic consumption of liquid ethanol in 2012 has been 26% lower than for the same period in 2008 and forty-one of Brazils roughly 400 sugar cane ethanol plants have closed during that span. The price of pure ethanol is so high that in most states its cheaper to fill up with petrol blends that contain 20% ethanol. The shift back to fossil fuels, combined with the rapid growth in the number of cars on Brazils roads, has worsened smog and caused emissions in the transport sector to spike.
Brazils ethanol experience is an example of what can happen when climate and energy planning clash with economic decision-making. Problems began with the 2008 economic crisis, which stalled new investments in the sector just as it was expanding rapidly. The industry fell back on harvesting cane from older, less productive sites instead of developing new plantations. Average yields plummeted from 115 tonnes per hectare in 2008 to 69 tonnes in 2012. This has forced Brazil to import 1.5 billion liters of maize ethanol from the USA in the last 2 years.
Been a year since I was in Brazil, then the price of E85 or whatever the max is, was significantly lower than E20. Never saw anyone gassing up with anything but “alcol”.
I would suppose Brazil’s new found offshore oil has them reconsidering ethanol to some degree.
Modern day Howard Hughs?
Overview data for Brazil, Total Oil Production
Brazil, Oil and Other Liquids, Ethanol
These together are almost entirely used domestically, but there is plans for greater export. They are building refineries optimized to produce low sulfur diesel for export to Europe (and US if we need it).
So, why is it even legal to do oil business with the likes of the murdering moslems and chicoms?
Ska-rew the "global market".