Investing in the Pickens Plan, One Year Later 25 comments
-
Font Size:
-
Print
- TweetThis
This month marks the one-year anniversary of the Pickens Plan. The Plan, which aimed to end America's growing dependence on foreign oil, calls for investing $1 trillion in new wind turbines for power generation in the middle of the country that he said could meet 20% of the nation's electricity needs. While wind is generally regarded as an unreliable source of energy, a key component to the Pickens Plan is the use of natural gas. It proposes moving U.S. heavy trucks toward compressed natural gas (CNG).
Transportation accounts for about 28% of domestic energy consumption. (Fig 1) According to the American Council for an Energy-Efficient Economy (ACEEE), trucks used in freight (medium- to heavy-duty) account for 63% of energy used to transport freight, guzzling 2.4 million barrels of oil a day (MMbd).
According to the U.S. Dept. of Energy (DOE), the United States consumed 20.7 MMbd of petroleum products during 2007 making us the world’s largest petroleum consumer, importing around 60% of it. If these trucks were converted to natural gas engines over the next few years, as proposed by the Pickens Plan, then domestic oil consumption would theoretically fall by about 12% (2.4 MMbd used in freight divided by the 20.7 MMbd consumption).
A recent study done on behalf of the California Energy Commission concludes that CNG vehicles produce up to 29% less greenhouse gas emissions than comparable gasoline vehicles and up to 22% less than comparable diesel vehicles. Therefore, trucks are an important place to look for energy savings in the transportation sector.
Based on a June 2008 study by Navigant Consulting, the U.S. has enough natural gas reserves to last more than 100 years. New drilling technologies such as hydraulic fracturing are unlocking substantial amounts of natural gas from shale rocks. For example, the Haynesville shale play is expected to produce 7 to 8 billion cubic feet of gas a day by 2016. In fact, the amount of natural gas available for production in the U.S. has soared 58% in the past 4 years.
The huge increase in estimated natural gas supplies comes just as concerns about energy security and climate change are prompting the most profound shift in energy policy since the oil shocks of the 1970s. The finding also raises the possibility that natural gas could emerge as a substitute for other fossil fuels to help combat global warming as it burns cleaner than both coal and petroleum.
Natural gas currently accounts for about a quarter of the nation’s total energy use, and 29% of electric power generation (Fig. 1). Coal accounts for about half of the nation’s power generation (Fig. 1), while oil dominates transportation fuels (Fig. 2).
So, it is logical to push some of the coal and petroleum market share towards natural gas, since we have ample domestic supplies.
However, using natural gas in transportation is not without its issues. In its recent Annual Energy Outlook, the Dept. of Energy (DOE) projected a 6% annual growth rate of natural gas used in the transportation sector from 2007 to 2030, the DOE also estimated that transmission of gas to market, compression, and taxes equivalent to those levied on diesel will add at least $7 per million BTUs to the price of gas for trucks and other transport users (Annual Energy Outlook 2009, AEO 2008, Table 13) thereby causing natural gas to lose its price advantage.
There are about 150,000 natural-gas vehicles on U.S. roads today, and 1,500 natural-gas vehicle fueling stations, with only about 750 available for public use. The majority are used by bus and transportation fleet companies like UPS. But according to a UPS case study, CNG technology has a fuel economy penalty of 10%-15% compared with diesel technology.
The UPS study also indicated that CNG trucks require greater use and longer preventive maintenance inspection cycles to contain the otherwise 29% higher maintenance costs in comparison with diesel trucks.
Infrastructure poses another challenge, as the CNG sector has been unable to make any inroads with the consumer market. Until consumers can find natural-gas stations on their way to work, the alternative fuel won't attract commuters. NGVAmerica also says the very limited distribution network for natural gas stations would better serve commercial fleets and long-haul trucks.
For now, Honda (HMC) is one of the very few manufactures using CNG technology to target consumers with its Civic GX at 36 mpg highway gasoline gallon equivalent (GGE).
There are also issues that could potentially affect the supply side of the natural gas equation. The sudden increase in supply, combined with a drop in demand amid the recession, has led to a gas glut, pushing prices down to $3.60/mmbtu on Friday, July 5, 2009 at NYMEX close, down approximately 73% from the 2008 high of $13.69/mmbtu. The current low natural gas price has made it uneconomical to drill for gas wells, evidenced by more than 50% rig count drop since September 2008.
In addition, the extensive use of water and chemicals to fracture shale rocks have raised environmental concerns that hydraulic fracturing will pollute drinking water, and Congress is considering tighter regulation of the practice, which could add an additional cost to natural gas drilling and production.
Oil imports cost the U.S. about $21.6 billion in May. Increasing natural gas market share as a power source for vehicles and industrial applications means less dependence on imported oil and would strengthen America's energy independence. In the power sector, utilities have been switching to natural gas from coal, thereby taking advantage of low commodity prices and hedging against costly climate-change legislation.
However, in order to achieve a large scale of natural gas transition, there has to be a concerted and coordinated effort from both the government and energy industry. It will take a non-partisan effort to work out details like CNG transportation, taxes, and the CNG stations for natural gas to be competitive with conventional fuels. With both a thoughtful energy policy and a collaborative energy industry, natural gas definitely has a niche to fill as a substitution fuel as well as a transition from fossil fuels to renewable fuels, due to the long lead time and scalability issues of renewable fuels.
For investors wanting to participate in this market sector, gas-weighted producers like Chesapeake Energy (CHK), and Quicksilver Resources (KWK) could be attractive as both stocks are trading at 60% discounts to their respective estimated net asset values. But they also present a higher risks due to their substantial level of debt. On the other hand, EOG Resources (EOG) and EnCana Corp. (ECA) currently trading at 36% and 7% discounts respectively to their estimated net asset values, would be more conservative long-term plays in this sector.
Disclosure: No Positions
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largestSee all
increase in followers
in the last 7 days
Fastest Climbers » -
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most active
Instabloggers.-
1
David Fry
-
2
TraderMark
-
3
Don Dion
-
4
Cliff Wachtel
-
5
Mike Havrilla
Top Instabloggers » -
1
-
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
This article has 25 comments:
Transportation of goods throughout this country uses substantial fuel which could contribute a large reduction in imported oil "IF" only we moved to natural gas for this part of the transportation equation.
Congress will of course use the newly approved political word
" comprhensive " applied to the infrastructure nessary to support the fuel needs of a switch to natural gas.
In their quest to maintail political $$$ they are incapable of admitting that we can start toward our goal with a first step involving strategic placement of the natural gas tankers at the many active and closed weigh stations along our highways and even supplement these temporary measures. Jobs and reduced transportation costs would help the economy for "ALL" .
On Jul 06 06:39 AM John Petersen wrote:
> Natural gas has gotten the bum's rush by the DOE of late but that
> perspective may well change in coming months as it becomes more clear
> that many of the alternative energy beauty queens (including wind
> and PV solar power) are subject to substantial raw materials input
> constraints that will severely limit their ability to contribute
> to the ultimate solution. I'll be starting a series on these issues
> toward the end of the month.
replace long distance freight hauls using diesel trucks with rail using electric locomotives powered by juice from the wind farms, solar farms etc.
> jack
From the transportation perspective, methanol has several advantages over natural gas. It is a liquid fuel that is more easily handled, stored and transported than a gaseous fuel. It can be mixed with gasoline in a 50/50 ratio (M50) and be used in flex fuel vehicles. It is a necessary ingredient for the transesterification of vegetable oils to biodiesel. Methanol could allow the US to leverage two of its most plentiful resources (natural gas and agricultural oils) to reduce petroleum demand with little modification to current engine technologies or fueling infrastructure.
I will admit though that I might be mistaken where this resource is concerned, but about Mr Picken's other darling - wind - I judge him to be completely and totally wrong. Yes, there should be more windpower in the US (and elsewhere), but I happen to know where he got the idea of a wind corridor from the Rio Grande to the Canadian border, and as far as I am concerned it is too much too soon.
Natural gas can be used to produce methanol but lets look a bit beyond that to an even better outcome. Natural gas, petroleum, coal, ethanol, biodiesel, biomass and even sugar can be used to produce a single common fuel, hydrogen by the steam reforming process in various forms.
If we take this route we can move to total energy independence within very few years and at the same time create a situation in the market where price competition will occur among the various producers of hydrogen fuel which can only benefit the consumer and spur technological development.
It is estimated that H2 fuel cell cars can be mass produced at a retail price comparable to IC engine vehicles within 5 years. This being the case the Pickens Plan of using CNG fuel makes more sense as a bridge to this H2 economy. Exxon is already running commercials on TV talking about their development of an on board fuel reformer system as well as their investing 100 million into building a natural gas to H2 plant.
Personal opinions of Pickens are really irrelevant to me since it is the Plan and the exposure it has brought to renewable energy and energy independence which really matters in the end.
On Jul 06 09:15 AM mbr wrote:
> In discussing natural gas effectiveness the article misses a new
> technology which is electric hybrid vehicles with an onboard microturbine.
> See www.capstoneturbine.co...
The Pickens plan envisions a large quantity of wind turbines located in the central plains, but the power generated must be transported to distant markets. This requires a major (and expensive) change in our electric grid. Perhaps a better solution is to utilize off shore wind farms where the wind availability is higher and the nearby population density eliminates the electric grid transportation problems.
"The UPS study also indicated that CNG trucks require greater use and longer preventive maintenance inspection cycles to contain the otherwise 29% higher maintenance costs in comparison with diesel trucks."
The real opportunity lies in converting natural gas to the liquid methanol and mixing that with 15 % gasoline to produce M-85 auto fuel. For the diesel fuel make dimethyl ether.
Of course this would annoy the oil industry but maybe they can't buy every one forever. The Chinese are into this at a 2 million bbl.a day level and doing it from a much more difficult feed stock, coal.
On Jul 06 10:15 AM George Marchetti wrote:
> Another way to look at natural gas as a transportation fuel is as
> a methanol feedstock. Industrially today, natural gas is steam-reformed
> to yield methanol. Using the UOP LLC process (a/k/a the George Olah
> process), natural gas, water and carbon dioxide can also be readily
> converted to methanol.
>
> From the transportation perspective, methanol has several advantages
> over natural gas. It is a liquid fuel that is more easily handled,
> stored and transported than a gaseous fuel. It can be mixed with
> gasoline in a 50/50 ratio (M50) and be used in flex fuel vehicles.
> It is a necessary ingredient for the transesterification of vegetable
> oils to biodiesel. Methanol could allow the US to leverage two of
> its most plentiful resources (natural gas and agricultural oils)
> to reduce petroleum demand with little modification to current engine
> technologies or fueling infrastructure.
On Jul 06 06:39 AM John Petersen wrote:
> Natural gas has gotten the bum's rush by the DOE of late but that
> perspective may well change in coming months as it becomes more clear
> that many of the alternative energy beauty queens (including wind
> and PV solar power) are subject to substantial raw materials input
> constraints that will severely limit their ability to contribute
> to the ultimate solution. I'll be starting a series on these issues
> toward the end of the month.
The author states: “the DOE also estimated that transmission of gas to market, compression, and taxes equivalent to those levied on diesel will add at least $7 per million BTUs to the price of gas for trucks and other transport users (Annual Energy Outlook 2009, AEO 2008, Table 13) thereby causing natural gas to lose its price advantage.” There are about 7.5 diesel-gallon-equivalents in one million Btu. That’s $0.93 per gallon. When gas is selling at $4 per million Btu (the author points out the price was only $3.60 on July 5th), the price of the fuel in the field is only $0.53 per diesel-gallon-equivalent. That’s $1.46 per diesel-gallon-equivalent delivered into the vehicle or at least $1.00 per gallon less expensive than diesel fuel. For a transit bus, trash truck or other large truck that uses 15,000 gallons per year, that’s a $15,000 savings per truck! This does not factor in any federal and state incentives. It seems that natural gas for vehicles has a significant price advantage.
The author states: “But according to a UPS case study, CNG technology has a fuel economy penalty of 10%-15% compared with diesel technology.” That study was done in 2002, and therefore is totally useless for discussing future costs. Since then, the EPA diesel engine emissions standards have been tightened twice – with another tightening coming up in 2010. At each tightening, the cost of buying, operating and maintaining diesel vehicles have increased while, because of performance improvements in heavy-duty natural gas engines, these costs have actually come down.
The author states: “Infrastructure poses another challenge, as the CNG sector has been unable to make any inroads with the consumer market. Until consumers can find natural-gas stations on their way to work, the alternative fuel won't attract commuters. NGVAmerica also says the very limited distribution network for natural gas stations would better serve commercial fleets and long-haul trucks.” Since this is a discussion of the Pickens Plan and the Pickens Plan focuses on the truck and bus market, the state of NGVs in the consumer market is irrelevant. The NGV industry can’t be all things to all people all at once. That is why the industry has been targeting return-to-home fleet vehicles where a national network of natural gas fueling stations is not necessary.
On Jul 06 02:37 PM rkolodziej wrote:
> The author states: “According to the U.S. Dept. of Energy (seekingalpha.com/symbo...),
> the United States consumed 20.7 MMbd of petroleum products during
> 2007 …If these trucks were converted to natural gas engines over
> the next few years, as proposed by the Pickens Plan, then domestic
> oil consumption would theoretically fall by about 12% (2.4 MMbd used
> in freight divided by the 20.7 MMbd consumption). ” What Mr. Pickens
> has been focusing on is displacing oil in on-road transportation
> applications. I have been unable to find the 20.7 MMbpd number the
> author quotes in EIA’s tables. However, when you look at EIA’s Annual
> Energy Outlook (April 2009; Table 7), it says that in 2007, we used
> 14.68 MMbpd in transportation. That’s all transportation, including
> pipeline fuel, planes, boats, rail, etc. On-road vehicle fuel used
> was 11.66 MMbpd (trucks, bus, cars) of which diesel (freight trucks
> and buses) 2.92 MMbpd or 22% of on-road transportation. This seems
> like a more relevant and impressive number
>
> The author states: “the DOE also estimated that transmission of gas
> to market, compression, and taxes equivalent to those levied on diesel
> will add at least $7 per million BTUs to the price of gas for trucks
> and other transport users (Annual Energy Outlook 2009, AEO 2008,
> Table 13) thereby causing natural gas to lose its price advantage.”
> There are about 7.5 diesel-gallon-equivalents in one million Btu.
> That’s $0.93 per gallon. When gas is selling at $4 per million Btu
> (the author points out the price was only $3.60 on July 5th), the
> price of the fuel in the field is only $0.53 per diesel-gallon-equivalent.
> That’s $1.46 per diesel-gallon-equivalent delivered into the vehicle
> or at least $1.00 per gallon less expensive than diesel fuel. For
> a transit bus, trash truck or other large truck that uses 15,000
> gallons per year, that’s a $15,000 savings per truck! This does not
> factor in any federal and state incentives. It seems that natural
> gas for vehicles has a significant price advantage.
>
> The author states: “But according to a UPS case study, CNG technology
> has a fuel economy penalty of 10%-15% compared with diesel technology.”
> That study was done in 2002, and therefore is totally useless for
> discussing future costs. Since then, the EPA diesel engine emissions
> standards have been tightened twice – with another tightening coming
> up in 2010. At each tightening, the cost of buying, operating and
> maintaining diesel vehicles have increased while, because of performance
> improvements in heavy-duty natural gas engines, these costs have
> actually come down.
> The author states: “Infrastructure poses another challenge, as the
> CNG sector has been unable to make any inroads with the consumer
> market. Until consumers can find natural-gas stations on their way
> to work, the alternative fuel won't attract commuters. NGVAmerica
> also says the very limited distribution network for natural gas stations
> would better serve commercial fleets and long-haul trucks.” Since
> this is a discussion of the Pickens Plan and the Pickens Plan focuses
> on the truck and bus market, the state of NGVs in the consumer market
> is irrelevant. The NGV industry can’t be all things to all people
> all at once. That is why the industry has been targeting return-to-home
> fleet vehicles where a national network of natural gas fueling stations
> is not necessary.
tonto.eia.doe.gov/ener...
Sorry fo rosting an invalid link previously. Above is the correct link from the U.S. EIA where I cited the 20.7 MMbd cosumption for 2007. Thanks.
On Jul 06 03:13 PM Dian L. Chu wrote:
> tonto.eia.doe.gov/ener...
> is the lik from the U.S. EIA site citing the 20.7 MMbd consumption
> during 2007. Thanks.
Notice all the exotic ideas arebrimming full with new infrastructure,lousy science and things that go bump in the night.It'sall crap.
Windpower you say,bah humbug,just ask Teddy Kennedy.
"Roses are red,violets are blue, don't stick that windmill in here to screw up my view."
Swift boating, waterboarding,nobody's dead from it yet but we still got this energy problem.
Primarily dealing with what happens when a small car, regardless of how it is Powered, stands up against an SUV, full sized car or pickup.
The American Public bought them to Protect their Families.
On Jul 06 10:32 AM Ferdinand E. Banks wrote:
> Hmm. I wonder why I can't buy this natural gas thing. One reason
> might be that I wrote a book on natural gas about 20 years ago and
> came to a different conclusion about the availability of gas than
> Mr Pickens and his supporters. In addition I still think that I am
> the leading academic energy economist in the world, and wouldn't
> under any circumstances accept a plan cooked up by someone who supported
> the 'Swift Boat Captains' against the man who should be the US president
> today.
>
> I will admit though that I might be mistaken where this resource
> is concerned, but about Mr Picken's other darling - wind - I judge
> him to be completely and totally wrong. Yes, there should be more
> windpower in the US (and elsewhere), but I happen to know where he
> got the idea of a wind corridor from the Rio Grande to the Canadian
> border, and as far as I am concerned it is too much too soon.
www.pickensplan.com/ne.../
Here is the Reuters link for this article www.reuters.com/articl...
With the exception of that attempted Swift Boat scam however, I'm prepared to admire Mr Pickens for his understanding of the bad news that might be served up with another escalation of the oil price - and he understands because in reality the people who are now calling the shots in e.g. the Middle Easthave mentalities similar to his. But his wind and gas departures are unrealistic..