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If you’ve been paying attention, you will notice a major change in the Pickens Plan.

The original plan was this: Use wind energy to replace the use of natural gas in generating electricity, and take the saved natural gas and use it in compressed natural gas cars, like the Honda GX (NYSE: HMC), to replace gasoline. This shift would greatly reduce the amount of oil that we need to import. T. Boone Pickens said that this would get us started toward energy independence while we are waiting for the development of other technologies like plug-in electric cars, which he described as ‘not quite there yet’.

Mr. Pickens’ has clearly changed his mind about the near-term viability of electric cars. Now he is promoting the use of compressed natural gas (CNG) in big rig trucks. The rationale is that battery technology has enough energy for practical use in small vehicles, but not enough for big rigs.

The viability of the electric car is confirmed by the recent announcement that the MidAmerican Energy Holdings subsidiary of Berkshire Hathaway (NYSE: BRK.A and BRK.B) is spending $230 million for a 10% stake in the Chinese battery outfit BYD Company (HKSE: 1211:HK) which will soon be mass producing a range of electric cars and electric car batteries. A quarter-billion dollar bet by Warren Buffet is a serious indication of a technology’s viability…..

Mr. Pickens is good buddies with Aubrey McClendon, CEO of Chesapeake Energy Corp (NYSE: CHK), the largest producer of natural gas in the United States. Pickens also is a director and the largest shareholder in Clean Energy Fuels Corp (NASD: CLNE), the company that has developed CNG fuelling stations.

What we’re not being told is this: a cubic foot of compressed natural gas has about 1/4 of the energy of a cubic foot of diesel fuel. So, for the same size tank, CNG will only take a truck 1/4 as far as diesel fuel. But CNG tanks are space hogs because, unlike the diesel tank that can be any shape to fit in any space, a high-pressure tank must be some combination of spherical and cylindrical.

The technology that will make the Pickens Plan work (and be a big part of our future in general) is hydrocarbon synthesis. The research group that is out ahead on this is the Loker Hydrocarbon Research Institute at USC Davis. Late last year they partnered with UOP LLC, a Honeywell company (NYSE: HON) to develop clean burning alternative liquid fuels.

First on the agenda is to make methanol and dimethyl ether from natural gas. Methanol can be used in any flex fuel vehicle. Dimethyl ether, on the other hand, is very interesting because it runs exceptionally well in diesel engines. It is like propane in that is a liquid when held in a relatively low pressure tank (about 75psi).

Disclosure: No positions held

Source: The Pickens Plan Changes Its Strategy