Natural Gas: America's Energy Salvation

Natural gas will be America’s energy salvation.

If you think solar, biomass, wind, lithium ion-powered, ocean thermal, currents and tides, and even tried-and-true geothermal and hydroelectric will somehow in the aggregate equal natural gas as a share of energy production, read here and here.

It’s time we stopped hiding our heads in the sand about today’s energy problems while spending / wasting tens of billions of dollars on taxpayer-funded grants, incentives and subsidies for tomorrow’s solutions. We need – and have readily available – an American source of relatively clean energy today for today’s needs, if only the politicians would stop spending on pork and get the hell out of the way of private industry that is trying to provide this source: clean-burning natural gas.

We pay much more for the electricity to power and light our homes and offices, the coal, heating oil or gas to heat our homes, and the gasoline to fill our automobiles, than we typically recognize.

We pay once to the utilities or at the pump, and once more when our taxes are withheld from our paychecks. Big government pork for ethanol subsidies, solar subsidies, biomass subsidies, and every other kind of can’t-stand-on-its-own-economics power are costing us, not just in monetary terms but in time value – we are looking so far down the road we don’t even see the 30-foot drop-off right in front of us. Think $4 a gallon for gasoline is high? Add in the subsidies your tax dollars are diverted to for a $0 return and you’re probably paying closer to $6 a gallon.

I say remove the subsidies, credits, and grants from all sources of energy. Big oil gets no special allowances for depletion. That’s the industry you chose, bubbas. You knew it was a wasting asset when you decided to enter the business. Same for natural gas and coal companies. And the same for nuclear, wind, solar, biomass, et al.

Clean renewable energy that is not a wasting asset remains the Holy Grail of energy production. If we shut off the spigot of vote-buying that comes from dispensing grants and subsidies, energy companies will still seek ways to harness the power of the sun and the wind. As long as the sun still shines, those who can turn this diffuse energy into a concentrated form will make money. But I’m tired of effectively paying $6 a gallon for gasoline when alternatives exist that are being ignored. Why are they being ignored? Mostly, so some people can feel morally superior while they freeze in the dark. Me. I’m not into moral superiority. I’d rather have a clean, well-lit place to work and live than to feel smug about my energy “consciousness.”

I’d like to see clean solar and wind as much as the next guy, but I won’t wear rose-colored glasses. I can’t ignore the fact that, after 30 years and $30 billion in subsidies, wind now meets 7/10 of 1% of US energy needs (about the same as when farmers used windmills 150 years ago) and solar is 12/100 of 1%. Let’s round those up to 1%. There are 1,440 minutes in a day. Are you willing to have your lights, air conditioner, computer, stove and every other appliance and convenience on just 14.4 minutes a day? Welcome to Baghdad.

Why Natural Gas

Natural gas is the second-most abundant fossil fuel in America. Coal is first. We are the Saudi Arabia of coal worldwide. China and India together don’t have as much coal as the US, which has 28% of the entire world’s reserves. But coal is dirty. Lots of for-profit firms are doing breakneck research to clean it up, but it’s – currently – dirty.

So is our choice dirty polluting coal or 14.4 minutes of power a day? Of course not. There’s imported oil. However, with the exception of tar-sands oil from Canada, when you add, to the $70 a barrel oil costs when ready for export, the transportation costs, the cost of keeping the Straits of Hormuz open, the costs of foreign wars to assure the continuing supply, the cost of the inevitable oil spills from time to time, and the foreign aid and sweetheart deals our nation makes to keep tyrants, misogynists, and perverts atop otherwise-shaky regimes, the true cost of oil is probably already $200-$300 a barrel (click to enlarge).




That leaves natural gas as the only fuel we actually use in abundance and have in abundance right now, today, this minute.

I created the chart below from the raw numbers of quadrillions of BTUs reported by the Department of Energy’s Energy Information Administration of the current mix of fuels used in the United States to produce energy.






Journalists, however, are more enamored of something new! and different! and therefore write reams on renewables and virtually nothing about something old and boring (but tried and true) like fossil fuels, so it’s easy to believe renewables constitute a larger proportion than they really do. Note, for instance, in the previous chart, the less-than-amazing ascent of heavily-subsidized solar from 8/100 of 1% 20 years ago to 12/100 of 1% today. That’s not to denigrate solar or to “wish” that it couldn’t have gone from 8/100 to 8% or 100%. But we must deal in facts if we are to ever wean ourselves from foreign oil and stop walking on eggshells around despots and ideological and religious fanatics.

HERE’s “Why Natural Gas”

1. According to Oil & Gas Weekly and the Energy Information Administration we have upwards of 100 years of natural gas remaining in the US at current rates of usage.

2. The estimate of proven reserves leapt *35%* in just the past year (creating downward pressure on prices in the short term.) No surprise to me. Every year of my 40 years in this business, I’ve been hearing about peak oil in some variation or another. “The world is running out of fossil fuels! We’re all going to freeze to death! We must subsidize unproven technologies to save us from Armageddon!”

What a bunch of hooey. Every year since the first Cassandra screamed this nonsense in my ear, we have increased our estimates of proven reserves. As technology allows us to find and produce gas from previously unknown or inaccessible formation, we’ll find even more.

3. Add Canada’s natural gas to the mix, since Canada is our biggest trading partner and the US is their closest (thus cheapest-to-transport-to) customer, and they have an abundance of nat-gas beyond the needs of their population. And since liquefying natural gas is expensive and potentially dangerous, it’s best to pipeline it from close-by fields rather than ship it liquefied across the world’s oceans.

4. If we use more U.S. natural gas, we can tell the likes of Saudi Arabia, Iran, Iraq, Russia, Nigeria and Venezuela “no thanks” to their bribery, corruption and fleecing.

Take a look at the map below (click to enlarge). These are our now-known, proven shale gas reserves. Now note how close most are to population centers...





Okay, But Why NOW?

In previous articles, I began making the case for both nuclear and natural gas. I still believe both offer remarkably good investment opportunities in the months, years and decades ahead -- but I think natural gas will be the first to benefit. Why?

1. People are beginning to realize, in spite of Al Gore’s conflict-of-interest hawking of renewables he’s invested in, that nat-gas is the cleanest burning fossil fuel, is available in quantity right here at home, and is used to heat our homes, cook our food, power the electricity that turns on our lights and fuel the 7 million natural gas vehicles currently in use around the world.

2. The glut in supply of natural gas is both temporary and price-sensitive. The glut was created by new production coming online from shale gas plays. But at today’s prices, those wells are being shuttered. What company could stay in business if they were to sell gas at $2.56 per million BTUs (MMBtu) when it costs them $5.15 per MMBtu to get it out of the ground?

3. The natural gas glut is not only price-sensitive, it is seasonal, as well. As the winter season cranks up over the coming months, utilities will need to produce more natural gas-generated heat. As the days grow longer, we’ll turn our lights on earlier in the day and, if this year is like every other, we’ll settle in, turn up the electric blankets, play more electronic games, and cook more at home – primarily benefiting nat-gas and coal as the two primary generators of electricity in this country. (With nuclear close behind, the three of them accounting for 90% of our electrical generating fuel sources. Add hydroelectric and that leaves just 4% generated by oil, biomass, vegetable oil, solar, wind, etc.)

I believe natural gas is unlikely to remain depressed.

This is a seasonal play that hasn't changed in 50 years, yet the media always project declines or rises -- in any commodity, trend or stock -- as if they were linear. The market, however, is cyclical, not linear...

4. The Farmers' Almanac is predicting a cold winter. The squirrels, chipmunks and birds in my large yard seem to agree. All are scurrying about hiding food from each other earlier than I’ve ever seen. The Almanac predicts numbing cold from the Rocky Mountains to the Appalachians, with milder weather on the coasts. The National Weather Service is calling for a warmer-than-normal winter because of El Nino. In my experience, the animals get it right more often than the humans…

5. Natural gas-fired plants are currently operating at less than 50% capacity. If this administration and this country is really serious about cutting carbon emissions we will turn to natural gas now, not when two guys in their garage find the solar Holy Grail.

Next week, I will write an article on the three E&P (exploration and production) firms I believe will benefit most from an increase in America’s reliance upon “home-grown,” abundant, and cheap natural gas. I’ll also review what I think are the smartest natural gas pipelines for both income and growth.




If you can’t wait until then, here’s an ETF that I believe accurately covers the whole industry: the First Trust ISE-Revere Natural Gas Index Fund (FCG). I know and respect some of the principals at Revere (“Revere Data”) and am quite familiar with their methodology and hierarchy that creates a product- and service-based classification system to map where and how companies interact and compete.

FCG would be a good adjunct to the pipelines mentioned above in that it selects companies on the exploration and production side of the business. It selects only the top 30 stocks based upon an internal ranking system, then rebalances on a quarterly basis. Be aware that this methodology will add a level of “active” management versus the passive nature of many ETFs. That might be good, it might be bad, but I see FCG as a great way to give us broad exposure to the entire industry.

Full Disclosure: We are long pilot positions in FCG.

The Fine Print: As Registered Investment Advisors, we see it as our responsibility to advise the following: We do not know your personal financial situation, so the information contained in this communiqué represents the opinions of the staff of Stanford Wealth Management, and should not be construed as personalized investment advice.
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Comments

[one eye]

FCG is a great tool for those seeking Appreciation in the NG world without taking the risks any one selection may entail.

Income orientated people should consider the Pipeline companies like KMP or WMZ but you expect to cover this at a later date while I include these Just in case something happens between now and then.

I have a question on Hydro though, why has it declined over the years? Is it just that overall production has increased while the sources of Hydro have remained fixed?

The BTU % generated by oil seems excessively high since only 2% of Utilities still use oil to generate electricity, what have you included to get it to that percentage?

Solar may be your Holy Grail, Mine is an Environmentally safe way to extract the Shale Gas, using water is not the answer.

2009 Sep 06 06:38 AM

[wind4me]

the world as we know it today is going to wind whether U agree or dont, the next megatrend is wind energy plain and simple

and, I have NO idea where U get your distorted figures from but they are so OLD and SO BEHIND, it aint funny how U can distort the truth of the matter!

Spain, Portugal, Denmark, Germany all get over 15% from Wind, we could too once the Obama administration gets another term!

2009 Sep 06 06:49 AM

[apppro]

There is no doubt that NG will become our preferred energy of choice. It is clean (and XOM is building a plant to make it even cleaner), the technology to use it is here now, the technology to distribute is here now, we have loads of it, etc., etc.

BUT what we don’t have is a market place where suppliers, end use industries, and long-term investors can buy & sell it. The option traders/traitors have destroyed the spot market by making it a place for gambling and speculation. The media has portrayed some investor instruments as villains, and are relentless with their destruction.

We have allowed the Bush years of deregulation of the markets to foster a short-term mentality that has infected every corner of our financial world and even our energy world, too. Until we put an end to all this manipulation due to short-term traders/traitors we will never have a cohesive energy policy no matter what fuel we use.

2009 Sep 06 08:13 AM

[Ferdinand E. Banks]

I don't believe that natural gas is going to be the energy salvation of the US, not of the basis of the very close look that I gave it a few years ago. But for what it is worth I might have been wrong, and so the value of this article is that it might have something valuable to say that many of us who think that we know everything missed. Thanks

2009 Sep 06 08:34 AM

[John Petersen]

In spite of the current romantic and wholly unrealistic political fever for PHEVs and EVs, I'll give long odds that the customer's preference will ultimately be a micro, mild or full hybrid with a CNG engine. Gas is already the cleanest fuel on the market. Enhancing CNG with hybrid vehicle technologies that cut fuel use by up to 40% through a combination of idle elimination, electric launch and recuperative braking only makes the good better.

2009 Sep 06 08:41 AM

[Michael D.]

Author said it: There is 100 years of NG. When do you want to start preparing for the end? You can start now and have a smooth transition, or bury your head in the sand.

Policy leadership through carbon taxes, subsidies, and research is required to produce a smooth transition. If we removed taxes/controls from the market, it would be boom and consume until critical shortages occur. A steep decline into Anarchy, at which time it is doubtful there will be the ingenuity remaining to manage the transition.

2009 Sep 06 09:00 AM

[grey road]

I would bet the truth lies somewhere between you guys. You are obviously a wind freak , he a Nat Gas freak. Obviously Nat Gas will play a bigger role too. I am a making money freak which is why I would consider investing in both.


On Sep 06 06:49 AM wind4me wrote:

> the world as we know it today is going to wind whether U agree or
> dont, the next megatrend is wind energy plain and simple
>
> and, I have NO idea where U get your distorted figures from but they
> are so OLD and SO BEHIND, it aint funny how U can distort the truth
> of the matter!
>
> Spain, Portugal, Denmark, Germany all get over 15% from Wind, we
> could too once the Obama administration gets another term!

2009 Sep 06 09:04 AM

[grey road]

the customers preference means nothing.. and meaning less all the time. Hybrids and electrics will be huge in a few years.


On Sep 06 08:41 AM John Petersen wrote:

> In spite of the current romantic and wholly unrealistic political
> fever for PHEVs and EVs, I'll give long odds that the customer's
> preference will ultimately be a micro, mild or full hybrid with a
> CNG engine. Gas is already the cleanest fuel on the market. Enhancing
> CNG with hybrid vehicle technologies that cut fuel use by up to 40%
> through a combination of idle elimination, electric launch and recuperative
> braking only makes the good better.

2009 Sep 06 09:08 AM

[AO]

Natural gas manifesto; May the flame be light unto us!

Every “mcf” of United States natural gas that is produced and consumed will not only benefit every citizen of our nation, it will also make this world a better place and pay real and tangible dividends to future generations.

Total world demand for oil will be reduced and the world price for oil will be lower. Energy for developing nations will be less expensive.

The world’s ecological / environmental situation will be improved due to lower “greenhouse gas” emissions.

Development of this nation’s natural gas provides real and absolute stimulus to our economy and credit system. This type of tangible absolute stimulus with its multiplier effect will produce significant and ongoing dividends for our nation.
Not only will the United States’ economy be stimulated, the dollar will be strengthened. Our nation’s deficits will be reduced more quickly.

The United States will be less vulnerable to “financial coercion” by foreign powers; the wealth now being transferred to oil producers will remain in the United States and can be used to benefit this nation’s future generations.

As the tangible benefits to the world and the United States are significant and compelling, there must be a single historic legislative act that articulates, memorializes, and provides gravitas to this monumental undertaking to ensure the future of the American dream and our national security.
To wit;

The United States of America Proclamation for Increased Energy Security (US PIES); Natural Gas Act of 2009

To move as expeditiously and conclusively as possible to avoid any further energy crises and in light of the now abundant supplies of natural gas with which our nation is blessed, the Congress of the United States of America hereby sets forth the Natural Gas Act of 2009 to bridge this nation’s destiny to increased energy independence.

In that our national security and economy are threatened and may be perilously further threatened and compromised by our nation’s current over dependence on imported oil and the concomitant transfer of our national wealth, it is imperative and essential our nation move with purpose and urgency to employ our God given natural gas resources and in so doing ensure the future strength and prosperity of our nation by increasing our energy security by reducing our dependence on foreign oil.
Elucidation: May God Almighty help forge these words with the flame of His Truth and Wisdom.

Illumination: Let the guiding light for this nation’s energy future be the glowing embers of the spirit of the Americans’ that have sacrificed and continue to sacrifice for our freedom, security and liberty to prosper. May these flames be light onto us.

The United States currently imports the majority of its oil from overseas National Oil Companies (NOC’s). This debilitating situation can be remedied.

Recent American technological breakthroughs, horizontal drilling and multi-stage fracture stimulation of reservoirs, have made the drilling and completing of natural gas wells much more efficient and productive and vast new reserves new of natural gas accessible here within our borders.

According to a recent study by Navigant Consulting Inc., the United States now has an estimated 2,247 trillion cubic feet of natural gas reserves, enough to last approximately 118 years at 2007 demand levels.

In that the world’s ecological future and world peace may be threatened by “global warming” and or having reached or in time soon reaching “world peak oil production”, it is imperative and essential our nation move with purpose and urgency to employ our God given natural gas resources and in so doing ensure to the maximum extent of our ability the energy security of the Untied Stats, the future world’s peace, prosperity and environmental harmony.

Note; this would be an expanded version of the New Alternative Transportation to Give Americans Solutions Act, that includes incentives for gas fired power generation and natural gas producers.

I realize all the above is easy to write and will require great effort and will not be unanimously embraced; however, there is much to be gained if we act.

There is all too much to be lost, if we do not act.

It is our American spirit and energy that make this nation great.

This natural resource is no longer supply constrained. It is demand constrained. U.S. gas supply increased by an unprecedented 8% in 2008 compared to 2007. The aforementioned new technologies make further substantial increases in our natural gas supply and consumption viable.

The development, distribution, and consumption of these abundant natural gas reserves provide the currently sought economic stimulus and creates powerful lasting long term dividends to this nation not seen since the construction of the interstate high system in the fifties or the WPA.

Natural gas is the fuel to power this nation’s economic resurgence as the world’s largest and most dynamic economy.

Natural gas is the “fast lane bridge” to this nation’s reducing dependence on imported oil.

Natural gas is the cleanest burning hydrocarbon fuel. Natural gas emits 45% less carbon dioxide than coal and 30% less carbon dioxide than oil. This transition fuel will provide the “time bridge” until solar, hydro, wind-power, and cleaner coal technologies become more available and cost effective.

New clean burning “natural gas” powered electric plants need to be constructed to reduce “greenhouse gases.”

Natural gas is the fuel for this nation’s future prosperity and growth. Increasing demand for natural gas will create tangible and lasting economic benefits for this nation; tangible and real and long lasting economic dividends and expeditious environmental benefits.


In line with the previously cited Navigant Consulting Inc. study, if we immediately doubled our current annual consumption we would have approximately sixty years to implement current “renewable” energy technologies and other heretofore undiscovered new technologies.

Boone Pickens Plan has stated every thousand cubic of domestically produced natural gas used for transportation could reduce the need for eight gallons of imported gasoline.
20,000,000,000,000 twenty trillion cubic feet per year =
20,000,000,000 20 billion MCF per year =
160,000,000,000 gallons of gasoline per year @ eight gallons per MCF =
3,809,523,810 barrels of gasoline per year =
10,437,052 barrels of gasoline per day

NYMEX April natural gas futures are now under four dollars per million cubic feet. In gross BTU parity terms before pipeline transportation charges and taxes; eight gallons of gasoline can be purchased for fewer than four dollars.

Assuming $55 per barrel of imported oil, then for every additional trillion cubic feet of natural gas produced and utilized annually, we can reduce payments for imported oil to produce gasoline by approximately ten billion dollars per year.

Our nation currently consumes roughly 20 trillion cubic feet of gas a year. So doubling are current consumption of natural gas would reduce annual payments for imported oil by approximately $200 billion per year. The U.S. dollar would be stronger. To continue as the world’s leading nation, we need a strong dollar in this global economy.

In addition to this national savings, there would be tens of thousands of good high paying careers created in this country.

Every “drilling rig” directly employees about 40 people; indirect job creation can be expected to be 5 times the 40 direct jobs; or 240 direct and indirect jobs per drilling rig.

Current drilling rigs can be expected to have a useful life of at least 20 years.
Every one thousand additional drilling rigs would create 240,000 potential careers and the concomitant opportunities for advancement; careers, not temporary employment. These careers, these jobs cannot be transferred to other lesser developed countries.

Each new state of the art drilling rig required will cost about $ US 16 million
So, 1000 new rigs will provide an economic boost to machinery manufacturers, steel fabricators and others equal to $US 16 billion.
Additional tens of thousands of new jobs and opportunities will be created by expanding and revamping the nation’s natural gas pipe line and local distribution infrastructure.

The American automotive industry can be revitalized by being incentivized to manufacture compressed natural gas vehicles. In concert with the auto manufacturers, the car dealerships and automotive aftermarket industries should gear toward retrofitting existing vehicles with natural gas fuel capability.

A natural gas refueling” infrastructure will need to be added to the current refueling infrastructure; this will create further economic activity.

Legislation should require all government vehicles to be powered by natural gas.

United States industries such as steel, other metals, chemicals, and fertilizer will become more competitive in U.S. markets and possibly internationally. With lower fuel/power other U.S. industries will have the opportunity to return as competitive forces in the global market.

The misguided and wasteful “ethanol debacle” needs to be terminated immediately. Productive agricultural land needs to be used to feed the world’s hungry children. Natural gas should be used to fuel our automobiles. The United States can feed the world’s hungry children.

The United States needs to move will all haste to capitalize the new found abundance of this environmentally friendlier and plentiful resource.

The future of North American natural gas requires the development of unconventional resource basins, which require better economics for E&P companies.

• The basins require large scale drilling programs, advanced drilling techniques and technologies, and large amounts reservoir stimulation.

• These basins include shale gas, tight sands, and coalbed methane (CBM)

In the early 1980’s there were over 4,500 drilling rigs operating drilling for oil and gas on land in the U.S.A. 4,500 rigs active rigs is the all time high for this nation. Advanced technology produced 2008’s unprecedented supply increase with the natural gas rig count reaching a peak of 1,606 in late August

Right now, natural gas exploration and production companies are cutting their capital budgets and suspending drilling operations at unprecedented rate because the price of natural gas is too low.

The United States active drilling rig count has fallen precipitously to under 900 rigs at this time; tens of thousands of jobs and careers have been put on hold or lost.

An excerpt from the March 2009, Land Rig Newsletter Monthly Report follows:

Small oil and gas operators are worried about changes to federal tax law affecting the amortization of intangible drilling and completion costs. Operators say they can withstand efforts to change the item from an expense to amortization over three years, or even five. Get beyond half a decade and the impact on drilling would be devastating for the small, privately held companies who account for more than 40 percent of rig activity.

There is an oversupply of natural gas in storage as we continue to import foreign oil and dilute the U.S. dollar.

Increased natural gas consumption is the most logical, expedient and beneficial means for keeping the USA moving forward as the world's economic and international leader.

The greater the focus and effort put on powering our transportation and electricity generation needs with this now abundant resource, the sooner we, the USA, will move forward with tangible and lasting economic dividends for our nation.

• Reduced imported oil for gasoline

• Reduced greenhouse gases from cleaner burning natural gas

• Real and lasting tangible economic growth in the United States

• Strengthening of the U.S. dollar

It is sinful in light of the blessed abundance of this natural resource and national treasure, that we, the American people, currently send our hard earned dollars overseas to those who, in too many instances, oppose our best interest and even our existence.

Our nation’s currency is no longer backed by gold…

This all the more reason our energy security, economic prosperity and freedom, and our environmental future should be backed by “U.S. natural gas”.

Immediate and increasingly urgent economic, environmental, and national security issues will be powered forward by increase usage of natural gas.

The stifling national debt will be reduced and future generations' "American dream" and way of life will be illuminated and preserved by this value adding investment in America.

What is required to achieve this is the American peoples' supporting this vision (why would we not) and leadership with the courage to passionately ensure moving proactively forward with the vision.

I am very proud to work for
• an American company,

• a company registered in the United States,

• a company that pays its full United States taxes,

• a company that has recently invested billions of dollars in U.S, manufactured drilling equipment and machinery,

• a company that created thousands of safe high paying American jobs,

• a company that has been in business for nearly 90 years creating value and wealth for its shareholders and employees; a company I pray that will be in business for many more generations,

• an industry that has invested hundreds of billions of dollar to better the American peoples’ standard of living

• an industry that has provided millions of careers and hard earned well deserved retirements for its employees

• that has and will protect and preserve this nation’s interest by providing cost effective energy,

• an industry to which this nation can and must turn in this nations great time of need; I pray this nation’s government will not turn its back to this great industry in this great nation’s time of need.


My father, a World War 2 veteran, had only a sixth grade education, but because of his work ethic and the opportunities in the great American oil and gas industry he was able to retire with a good pension and medical benefits from a major oil company. I am sure there are hundreds of thousands of similar American “big oil” stories.

American “big oil” has led the effort throughout our history to bring energy and a higher standard of living to the people of the world while investing hundreds of billions of dollars and creating hundred thousands of careers. Yes, “big oil” has profited, but not any more so than other capital intensive and innovative enterprises. There have been mistakes, but the benefits to this nation and the world outweigh by order of magnitude the negatives.

Today, America’s much maligned “big oil” companies are faced with severe and unfair restrictions, terms, and conditions leveled at them by “national oil companies” that now control the vast majority of the world’s oil and gas reserves. These national oil companies in the large majority of the cases subsidize the cost of fuel and energy for their internal economic industries.

The “national oil companies” are controlled by governments that choose to artificially control prices, limit free enterprise, confiscate American investments, and maintain the American addiction to foreign oil and liquefied natural gas. There is great danger that U.S. natural gas industry will be inundated by a deluge of imported LNG, if this nation’s government does not act swiftly and decisively to counter our nation’s increasing dependence on foreign sources of energy.

Today our nation’s economy is melting from the destructive heat of criminal avarice.

Greed that seeks to gain at the imperilment of the innocent people of this nation; premeditated greed and avarice that have stolen innocent peoples’ dreams while decimating the value of years of hard work and destroying hopes for higher education or golden years.

Meanwhile, the great American oil and gas industry that has once again discovered and created new value through visionary investment, innovation, technology, and plain old hard work finds itself being slowly and painfully paralyzed while our government flounders about attempting to bail the masters of greed out of their self-created toxic morass.

By supporting natural gas development in the United States we can begin to end the misguided and senseless dissolution of the "health and wealth of this great nation’s and this planet's future".

The American dream is not a pipe dream! Wake up!

Our government needs to step boldly forward out of this toxic quagmire and put forth the necessary legislation and tax incentives to stimulate natural gas usage in this country! This is real economic stimulus. This is absolutely imperative for the security and the well being of future generations of this great nation.

We have to move forward purposefully with the development of the God given resources we have to create value and wealth for this nation’s people. Let’s get on with it!

We owe it to future generations! Exploiting and developing this nation’s abundant natural gas supply is simply the common sense use of this nation’s God given resources. To paraphrase the heroic passengers of 11 September 2001, “Let’s roll with natural gas!”

May God speed and continue to bless this nation.

Alan Orr
Executive Vice President
Engineering & Development
Helmerich & Payne I.D.C.

Mr. Orr has worked over 33years at H&P and prior to his current position was Vice President and Chief Engineer from 1991 to 2005. He holds a B.S. in General Engineering from the United States Military Academy at West Point.
He has worked in H&P’s U.S. and international divisions in both operations and engineering assignments.
In field operations he has worked as roughneck, driller, toolpusher, and superintendent and division operations manager. In engineering assignments, he has worked as drilling engineer, project engineer, and Chief Engineer.
As Executive Vice President Engineering & Development he is responsible for development of all H&P engineering functions, technology, new rig construction, and upgrade projects – both onshore and offshore. Mr. Orr has pioneered numerous innovations and advances in the drilling industry and holds several patents.
Recognizing his role as the principal architect of H&P’s industry changing FlexRig and other significant industry contributions, Mr. Orr was the 2005 recipient of the International Association of Drilling Contractors’ Contractor of the Year award. The prestigious Contractor of the Year award, sponsored by Reed-Hycalog, was established in 1988 to recognize an individual drilling contractor representative’s outstanding lifetime achievements in technical innovation, safety, and economic efficiency in the drilling industry. It is the only award that exclusively honors drilling contractors.

2009 Sep 06 09:17 AM

[[e-mail]]

Thank you Mr. Shaefer for your uplifting recommendation regarding investing in natural gas, uplifting because it focuses on a workable, economic and environmentally comparatively clean energy priority -- the greater utilization of our own vast natural gas resources. By doing so, the United States will more expeditiously be able to reduce our huge over dependence on oil from Saudi Arabia and other Arab countries, both an economic and political nightmare.

In addition, your explanation and prognosis for America's expanded reliance on our own vast natural gas resources hopefully may encourage investors to make sensible energy portfolio choices that, first, will enable our natural gas industry to have sufficient capital to expand natural gas utilization, resources, and infrastructure. Moreover, such investments represent a more sensible investment then speculating over dramatic short-term market turnarounds, e.g., UNG. In contrast, a longer-term investment horizon in the natural gas industry together with prudent patience may be the safest bet one can make these days, one that has a pay off for both the country and for the investors. U. S. workers rightfully cry out: "buy American." U.S. investors might be wise to cry a little louder: "invest America!" . Thank you.

2009 Sep 06 09:23 AM

[whisperonthewind]

AO, very impressive, and if we do get to NG-powered vehicles, I'd be proud to drive one. (Can you please work on an NG-Mini?) I'm very tempted to put some of my unemployment money into HP, and may do that very thing. I'd be more tempted if they had a dividend that was higher. Perhaps you could pass that word on to the 'powers that be.'

Thank you for a very thorough response to an interesting article.

2009 Sep 06 09:54 AM

[receipt]

Long Natural Gas = Horizons BetaPro NYMEX Natural Gas Bull Plus ETF (HZBBF).

2009 Sep 06 10:08 AM

[Hazel Henderson]

I have written for years that natural gas is the best transition fuel for both economic, energyu and environmental reasons. How soon can coal fired planet already using nat ,gas for peaking convert to using it for baseload too ? And does this mean that coal is now too expensive ( even without all the subsidies and the "externalities : mountantop removal, mercury emissions , soot ,CO2 and other harmful effects ). ? We can post answers to these questoins at EthicalMarkets.com

2009 Sep 06 10:15 AM

[laservet]

I agree with both the NG group and the alternate energy group. There is plenty of room for all and no real down side over a five year investing plan. I think that the T. Boone Pickens lovers are alittle too optomistic about NG but it will take over 10 years for a real alternate energy plan to drain through the oil lobbied government, and only after the oil monopoly has positioned themselves to gain from both NG and alternate energy. So lets all get on the EFT's and have some fun. Don't invest what you can't afford not to spend at Star Bucks.
Laserveteeg

2009 Sep 06 10:35 AM

[BlueOkie]

The only solution is that we use all the different energy sources. We need them all! Each has pro's and con's. It is like a diversified portfolio of energy - the synergy is the best answer.

2009 Sep 06 10:36 AM

[Old Trader]

Mr. Shaefer,

An excellent article! Now, if you'd only pass it along to TPTB (and if they'd only read it). Fwiw, I agree with the commentor who suggested pipeline MLPs for those of us who construct/hold portfolios geared towards income generation.
Disclosure: long KMR, MMP

2009 Sep 06 10:37 AM

[Temperance]

Thank you, Mr. Shaefer, for your well written article and to Mr. Orr for his comments supporting this article. I know that I am not alone in feeling confused about the state of our economy in the United States. We have always been a nation of people who believe in hard work, integrity and charity. A very small percentage of our citizens have decided that personal wealth and power are more important than the success of our great nation. Financial manipulations and greed have spread like a fatal disease. Our priorities have becomes skewed. We have a country rich in resources, yet we import energy from other nations. Natural gas development is a "no brainer". It is good for manufacturing, employs our citizens and provides for a cleaner planet. Although not renewable, it gives up the time that we need to develop and fine tune alternative energy resources for our future. What are we waiting for?

2009 Sep 06 11:00 AM

[cjwirth]

Regarding the future potential for natural gas as a replacement for gasoline and diesel:

HOUSTON CHRONICLE
August 31, 2009
A little shale gas skepticism from Matt Simmons

This weekend we reported on a perspective that the oil industry's 150th anniversary may be the beginning of a natural gas era in the U.S., thanks to the lower CO2 releases from the fuel and the abundance of gas-bearing shale.

Matt Simmons, (he of Twilight in the Desert) believes the excitement of huge domestic reserves of natural gas in shale is overblown and outright incorrect.

"In the 40 years I've followed the industry I've been continuously amazed at the tangent people are willing to go off on without any data, or by getting the data wrong," Simmons said.

When producers tap natural gas in shale formations the output is very high at first, with as much as 70 percent of the reserves tapped in the first year, Simmons said. Another 20 percent of the total is tapped in the second year while the remaining 10 percent, in theory, plays out over the next decade or more.

Simmons simply doesn't believe all the gas is there that many believe and that the process of getting at it - the water-intensive hydraulic fracturing method - is a huge waste of otherwise drinkable water. A report linking contaminated drinking water to the process could be troubling for the procedure, he says.

"I don't think natural gas will be this bridge fuel to the future," Simmons said. "I don't think the reserves will ever prove up enough to make them viable in the long term."

blogs.chron.com/newswa...

And see:

www.theoildrum.com/nod...

And the EIA concludes much the same, see the section "Substitution of Natural Gas for Petroleum Consumption" a little more than half way down the page:

www.eia.doe.gov/oiaf/a...

and then these data about how fast oil supply reduction is occurring for the U.S:

survivingpeakoil.blogs...

The capital for natural gas conversions and supply infrastructure will disappear as oil supply reduction impacts the U.S. economy.

And these article do not even take into account declining oil supplies and how that will impact the economy:

seekingalpha.com/insta...

www.commodityonline.co...

www.guardian.co.uk/wor...

And the IEA indicates that "the oil crisis begins to grip after 2010:"

survivingpeakoil.blogs...

Best regards,

Cliff Wirth

2009 Sep 06 11:14 AM

[Joseph L. Shaefer]

Going out to use up some clean, renewable (though regrettably not inexhaustible!) energy which requires only a little protein, fat and carbohydrates to power it. That would be muscle power to kayak on Lake Tahoe.

Before I do, let me thank all those who have already commented and answer some questions posed.

One eye, my best guess as to why hydro has declined is that it has only barely declined in absolute terms and then only for sound environmental concerns. In RELATIVE terms, however, we’ve probably tapped every major river we can and hydro’s percent of power generation will continue to slide relative to all the other sources. As for the BTU % generated by oil, I took these numbers directly from the Dept of Energy website. My GUESS – and it is only that – is that the 2% of utilities using oil slurp up a huge amount of the stuff because they are the oldest and biggest utilities near the biggest population centers. Newer plants built in the later-settled sections of the country use newer sources of fuel. If someone knows another reason, I’m all ears.

Wind4me, as stated in the text above the chart, I get my – what you in your blind obeisance to an appealing Siren song call “distorted figures” – from DOE. If I’m not mistaken, I believe the head of that organization, which currently spends $26 billion a year to maintain its vast bureaucracy of grants, subsidies and pork, is a direct report of President Obama.

John Peterson, there will always be those who hide their head in the sand and pretend that just because electricity is clean AT THE OUTLET, why, Santa’s elves must produce it at the North Pole. You are spot on. Clean-burning hybrids make the most sense economically, geopolitically and environmentally.

Grey Road, have the mighty fallen so far that the choices are “wind freak” or “Nat Gas freak”? //grins // I don’t believe espousing a sane, geopolitically, environmentally and economically feasible solution to our energy crisis is freaky at all!

And, last, AO. Thank you for your stirring words written from someone inside the business from roughneck to EVP... I tend to downplay the geopolitical side on an economic and investing forum like SA only because my many years as a world and regional geopolitical analyst in the US Intelligence Community already predisposes me to be more concerned about those issues, and I don't want to stray too far from how an investor might approach all this. They are clearly, however, the most important national strategic consideration. How can we maintain our strength as a nation if our leaders are blind to this massive drain on America’s future? “There are none so blind as those who will not see…” Thank you for taking the time to address all the issues attendant to this state of affairs.
Parenthetically, when I was a wee lad just entering this business there were two companies I became very familiar with and recommended to my clients as being run by ethical, smart and aggressive energy leaders. Helmerich & Payne was one and Houston Oil & Minerals (if anyone even remembers that name so many years, national mis-steps, and OPEC-inflicted pain later.)

Finally, my comments, in the past, in this article, and in the future, are not about some food fight over whether natural gas or wind or solar are cooler to contemplate, but about advocacy for a sane national energy policy. Let the facts lead us to the most intelligent course of action, not the volume of rhetoric.

2009 Sep 06 11:25 AM

[jerrydd]

First I'd like to applaud the author for his call to stop all subsidies and we should tax fuels for all their costs. These subsidies are the cause of our current energy problem. Once each energy source pays it's full true cost, only then will a true free market happen to pull us out of this mess.

NG is the best fossil fuel by far with the least subsidy. Oil, coal by far is the most subsidized.

Oil subsidies especially has brought our country to it's knees. Oil subsidies for pollution, tax breaks, sweetheart royalty deals, depletion allowances and even more the huge military costs of the Persian Gulf and oil wars, balance of payments need to be in it instead of in our income taxes. This comes to $1.5T/yr now and rising. It's enough to balance our budget in 10 yrs!!

Coal costs in destroying land, water and air are huge and should be in it

Let's get to the solutions. NG is fairly clean, plentiful and the best fuel to power the future that RE can't.

I take exception to anyone who thinks RE can't be the major future energy source. The only reason it isn't is the massive subsidies oil, coal get.

Why is wind, solar CSP are very simple, eff, low cost once in real mass production in home. small business sizes. You can now buy wind at $2k/kw if you search with inverter. $1k/kw for DC versions to charge EV's, PHEV's and home batteries for 24-7 availability. Magnets4less and google axial flux wind generators to find those prices among others. 2kw of wind makes 8-30kwhrs/day avarage depending on site.

Solar CSP is just a 5hp steam engine with a 200sq' trough collector plus a 3kw alternator that directly connects to the grid, no inverter needed. This makes 9-20kwhrs/day in electric and 27-72 kwhrs/dat heat as a bonus. A larger collector can up power in cold areas and heat storage of $1k/kw can or a wood pellet of any other fuel can make it 24/7/365 availability. This in mass production would cost under $3k/kw.

Not a chance coal, nuke or oil can beat that now with their $4k/kw, $9-18k/kw new plant prices for coal, nuke. Oil is just too expensive to consider in the coming yrs.

Another tech, kinetic hydro. We have river/tidal resources in the US enough to replace every coal plant. Sadly they haven't made good generators yet but they will. I built 10 back in the 70's that put out so much they had to be turned off most of the time.

Facts are these are simple, low cost though almost all up front but they last 50 yrs. No reason 50% of homes, businesses can't use these at far less cost than any fueled source once they are widely available.

Sadly for cars, NG isn't a good option as it takes too much space and can't go through tunnels. But it's the only smart choice for trucks, semi's who have the room.

But EV's charged from NG, RE is very viable. I as many people drive them every day though most use lead batteries. My 2 seat EV sportwagon gets 250mpg fuel cost equivalent and about the same battery cost. As Lithium matures it will make them even better.

All this is current tech though it isn't in mass production though that will change very soon as oil, coal prices rise, forcing this to happen. Luckily we could produce enough of them in 10 yrs to become energy independent with many making their own energy. Those that bet against this will pay the price.

2009 Sep 06 11:41 AM