I have spent the past two-and-a-half years promoting an energy plan for America — The Pickens Plan. On Monday, I read that the plan has been adopted not by the U.S. Congress, but by China.
The plan I am advocating has two parts. First, a dramatic expansion of renewables — wind and solar in particular — in power generation, and advancing the use of domestic fuels — most logically natural gas — as a transportation fuel alternative to OPEC oil/diesel/gasoline. You cannot crack the OPEC oil dependency nut without a focus on transportation. It accounts for two-thirds of our oil use.
Our OPEC oil dependence is a national crisis. It threatens our economy and our national security and our environment. How much of a concern is it? Well, eight presidents have now pledged to solve the problem, and none have achieved success. Instead, the dependency problem has only worsened.
Natural gas is a domestic resource that we have to develop and put to work in transportation. I'm convinced that if we don't, we're going to go down as the dumbest generation ever.
A new report by Morgan Stanley has indicated that while we are shuffling along attempting to come to grips with our transportation energy issues, the Chinese have adopted the Pickens Plan and are aggressively changing out their truck fleets from petroleum to natural gas.
According to its research report, Morgan states: “We believe Liquefied Natural LNG-fueled vehicles are fast becoming a reality in China, as China effectively adopts the "Pickens Plan". China is forging ahead with LNG as a transport fuel for heavy trucks and buses, according to industry contacts.”
So, while the U.S. Congress shuffles slowly toward adjournment with a real shot at jump-starting a natural gas transportation industry here, the Chinese have listened to me and are doing just that.
In the Spring of 2009 the Potential Gas Committee, which is affiliated with the Colorado School of Mines, released a report showing we have over a 100-year supply of natural gas. Prior to that report, natural gas was considered a limited resource whose recovery and uses needed to be closely monitored. The chemical and pharmaceutical companies who use natural gas as a feedstock for much of what they produce were especially concerned about yet another component of their cost structure which was destined to cause them to pass along higher prices.
The majority of this “new” natural gas is contained in the enormous shale deposits which lie under Louisiana, Texas, Arkansas, and perhaps the largest of the group, Appalachia. These are known, in order as the “Shreveport,” the “Barnett,” the “Fayetteville,” and the “Marcellus.”
Geologists had known about the gas contained within these shale plays, but until the development of drilling techniques using water and some chemicals to release the gas from within the shale, it was not available for commercial recovery.
According to CNBC, natural gas opened Thanksgiving week selling at about $4.24 per Mcf. Natural gas is the benchmark which is used to price alternative energy sources — notably wind and solar. When we say they are “priced on the margins” we mean they go up or down with the price of natural gas.
This is because natural gas is used for about 20 percent of our electricity generation. It is largely used as a “peak” fuel — when the major sources like coal and nuclear — can’t supply enough energy during a peak period, then the natural gas-fueled plants are fired up to meet the higher demand.
At $4.24, wind farms and solar ranches are not economically feasible. In fact, at that price it is barely profitable to drill, treat, and ship natural gas domestically. When oil prices spiked in the summer of 2008, natural gas was selling at $11.32. But, because of these enormous new supplies, natural gas prices have not followed oil back up to its current price of about $85 per barrel.
We can artificially raise the price of natural gas by simply taxing it. I’m not sure I know anyone in the industry who thinks that is a viable idea — it wasn’t prior to the mid-term elections and it certainly will not be viable when the new Congress opens on January 5th. The better solution is to expand the uses of natural gas.
We are importing nearly two-thirds of the oil we consume. The majority of that oil is used as the principal transportation fuel for our 250 million cars and light trucks and our 8 million heavy trucks — 18-wheelers.
We have an abundance of a natural resource which is selling at the bottom of its replacement price. The Chinese need that resource. Anyone who has seen me on Squawk Box has heard me say over and over again: “It’s cheaper, it’s cleaner, it’s abundant, and it’s ours.”
If we adopt the Pickens Plan here in the United States, we can make a huge dent in the amount of oil we import, we would lower our trade imbalance, we would create jobs, we would have a cleaner environment, and we would not be at the mercy of OPEC nations for our economic and security future.
Legendary oil and natural gas executive T. Boone Pickens is chairman and CEO of Dallas, TX-based BP Capital. You can follow him on Twitter @boonepickens