Going Green: Not as Easy as It Seems

This year was rushed in with the new administration in Washington announcing that energy independence was back on the front burner right after they get the economy back on track. I apologize in advance to Kermit the Frog for my blatant misuse of his theme song in the title of this article about the new age dawning for the U.S. petroleum industry.

The world of oil is about to change and the usual responses will no longer suffice. But the petroleum industry has been through boom and bust cycles before in its 150 year history.

The first well drilled by Edwin Drake in 1859 struck oil at 69 feet near Titusville, Pennsylvania—and became the world's first successful oil well. This source of crude oil, or petroleum, opened up a new inexpensive source of power and quickly replaced whale oil in lamps.

The reaction from the well drillers, whom Edwin Drake tried to enlist for his project at that time, was: "Drill for oil? You mean drill into the ground to try to find oil? You're crazy!"

That has been much of the reaction so far by the petroleum industry experts looking at President Barack Obama's plan of making the U.S. energy independent in ten years. Nevertheless President Obama has announced that he will be keeping his pledge, made during his campaign, to push for the country to use 60 billion gallons of "advanced" bio fuels by the year 2030.

Compare that to the fact that we have consumed just 197 billion barrels of U.S. oil since the first domestic oil well was drilled in Pennsylvania in 1859. He had also promised to require all new vehicles sold in the country to be "flex fuel" vehicles, which will be able to use fuel containing mostly bio fuel by the end of his first term.

In order to accomplish these lofty goals the U.S. government will need money, a lot of money, to fund those programs. The elephant in the room is that President Obama will have to institute yet another tax on gasoline and diesel fuel to create the necessary cash to pay for these high flying projects.

The Senate Finance Committee just last week approved $31 billion in tax credits and financial incentives to boost alternative energy supplies and promote conservation.

The plan includes most of the $20 billion in energy tax breaks cleared last week by the House Ways and Means Committee, plus more incentives to help alternative energy companies.

One of the ways for funding these plans is to institute the Value Added Tax (VAT) program, which will be one of the avenues for the U.S. government to collect the vast revenues required to subsidize the development of the alternative energy ideas.

The VAT could be collected at the source of the refining process. Thereby it will be hidden from the consumer by adding the tax it into the wholesale price of gasoline and diesel fuel before it is sold to the retailer and subsequently added to the price on the pump.

This type of proposal for a national sales tax program could not come at a better time for the government as consumers are currently enjoying record low fuel prices. The justification for the additional tax will be based on their attempt to discourage the use of fossil based fuels as the primary energy source for our automotive and industrial needs.

Nariman Behravesh at IHS Global Insight is now forecasting that crude oil prices will (easily) fall below $40 a barrel in 2009, and could tumble all the way to $30 a barrel. That is good news as the drop in gasoline prices is the equivalent of a $230-billion savings to the gasoline users. In other words the decrease in energy prices has been like a tax cut for households and businesses.

But for the moment fossil fuels will have to remain to be the answer as we search for alternate energy sources to replace a larger percentage of the products refined from crude oil. Solar power, nuclear, wind and even natural gas will only be able to replace a small percentage of our total energy requirements in the next decade. Following is the list of some of those alternative energy sources:

Alternative Energy Sources
Nonrenewable	Renewable
Oil sands, heavy oil	Wood/other biomass
Natural gas	Hydro-electric power (not renewable with reservoirs)
Coal	Solar energy
Shale oil	Wind energy
Gas hydrates	Wave energy
Nuclear fission	Tidal power
Geothermal	Fusion
(renewable for	Ocean thermal energy conversion
space heating)

But the transition to alternative fuels will not be simple as it sounds nor as convenient as is the use of crude oil today. It will involve much time and substantial financial investment. For instance installing Liquefied Natural Gas (LNG) tanks at your local gas station for filling of trucks and busses having fuel cells is economically impractical. Also diesel fuel and natural gas are not interchangeable so energy carriers will have trouble with the handling and storage of these alternative fuels on a large scale.

In deference to the old saying: "The grass is not always greener on the other side of the fence."

Disclosure: I hold no positions in any of the commodities or equities mentioned in the above article.

Comments

[Stockguy456:]

The internet seemed like a daunting task as well!

Leonard Kleinrock publishes his first paper entitled "Information Flow in Large Communication Nets" is published May 31, 1961.

Dr. Martin Cooper makes the first cell phone call at Motorola.1973

World changing, billion dollar making industries do not happen over night!

Feb 02 03:40 PM

[Abe Mishima:]

Wasn't the time spread from early concept to realization almost as large as the gap between Arpanet and Internet? Anyway, the breakthroughs we need to get alternative energy on the same playing field as oil and gas are pretty daunting, and infrastructure is just one of many major hurdles. The important thing is not to give up. Take the first step, America. Electric cars, solar generation, wind power, whatever.

Feb 02 04:04 PM

[k9s-4-k8:]

The title of this article led me to assume that the most perplexing dilemma of biofuels might be addressed. Alas, that wasn't the case. I agree that Obama will administer some type of fax on oil that will help pay for and subsidize the production of biofuels so as to make them competitive. I believe the problem is that will be seen as a solution to the transition. I can't imagine anyone would be so short-sighted. Let us imagine for a moment we follow this Euro strategy. Our competitiveness will be greatly affected. We will need to either outsource ALL manufacturing of any kind or we'll need to subsidize business specifically which will lead to court time with international trade. Do you think China and India will follow our example and tax energy as well? I think not. This whole green initiative must survive without subsidy or it will be just another ethanol boondoggle that we can not afford.

Feb 02 04:49 PM

[simon shain...:]

There is a very interesting site on the Marcellus shale in Berwick, Pennsylvania that is getting alot of recent attention. It is a former heating oil fuel depot on the Susquehana river near a nuclear power station. Alot of activity is going on. I think they once were a Sunoco( Sun Oil ) hub. They are next to the river and RR tracks.

Feb 02 06:04 PM

[longtermstocks:]

Nice article thanks

Feb 02 08:13 PM

[john s. gordon:]

successful oil wells were in business @ sarnia (oil springs), ontario before drake's well.
the expertise of the personnel @ sarnia was of value to drilling/production activities in a number of countries after 1860.
> jack

Feb 03 08:31 AM

[billp37:]

BTUs OUT for renewable energy sources do not appear to be close to that of BTUs OUT for oil, coal, and natural gas.

Fossil fuels output stored energy.

Nonetheless, there appears to be opportunity to make lots of money trying to develop alternate renewable energy sources.

Selling wind farms and solar electric generation system to those who do not under stand the laws of thermodynamics, HEAT RATE, and CAPACiTY FACTOR looks equally lucrative too.

Liberal arts graduate investors may be suckers for alternate energy scams?

home.comcast.net/~bpayne37/whitman59/w...

Feb 03 09:14 AM

[Bob van der...:]

For the record Wikipedia confirms Jack's comment about Sarnia, Ontario, Canada being the birthplace of the world oil industry: "Oil discovered in nearby Oil Springs led to the massive growth of the petroleum industry in this area. Since Oil Springs was the first place in North America to commercially drill for oil, the knowledge that was acquired there and strengthened in Sarnia led to Sarnians traveling the world teaching other nations how to drill for oil. What is now known as the Chemical Valley, located down river of Sarnia proper, once adorned the back of the Canadian ten dollar bill." Let's give credit to the Canucks for being the first to built an oil derrick to explore for black gold.

Feb 03 09:20 AM

[toobad41:]

It seems to me that in order to get from where we are to where we want to be economics will have to be on the side lines. When oil is gone we will have to have another energy source. Our way of life depends on it. Regardless of the cost something will have to step up and replace oil. We will have no choice.

Feb 03 09:42 AM

[Brunomat:]

The article failed to mention hydrogen which is available worldwide , cheap, non-polluting. Fuel cells the size of a medium suitcase are providing power to Japans homes. The reason stated that they are not available here is that most homes do not have natural gas service which is Bull____. If the us auto makers would develope a fuel cell auto powered by hydrogen there would be no problems of them facing bankrupancy.

Feb 03 02:42 PM