The United States uses ~25% of the world’s oil and imports ~65% of it. The economic, environmental, and national security issues arising from this dependence on foreign oil are obvious. The chart below summarizes American wealth transferred overseas to purchase the oil it must have.
Barrels of Oil Imported
Money Sent Overseas
2010 (January only)
Today oil prices are over $80 a barrel - very high considering the U.S. is muddling through the worst economic contraction since the Great Depression and oil consumption is down some 7%. Imagine the price of oil if the unemployment rate was 5% instead of over 10% (18% according to some economists). It is clear the United States must reduce foreign oil imports if it is to survive as a viable economic power. It won’t matter what is done (or not done) on health care, for instance, if the U.S. economy crumbles due to its reliance on foreign oil. President Obama, like all U.S. presidents since Eisenhower, admitted as much:
And for the sake of our economy, our security, and the future of our planet, I will set a clear goal as president: In 10 years, we will finally end our dependence on oil from the Middle East.
So how is the Obama administration progressing on this goal? In a word: terribly. The energy “policy” of the Obama administration is a “clean coal” strategy to charge electric vehicles. At the same time, U.S. Energy Secretary Chu is “agnostic” about natural gas transportation. Boone Pickens recently said America will go down as the dumbest country in history if we don’t leverage our huge natural gas resources to reduce foreign oil imports. With the current administration, we might as well start printing those history books now. Why do I say this?
First of call, “clean coal” is a myth and an oxymoron. Simply mining the coal out of the ground is hazardous to the environment. Secondly, burning coal emits 50% more CO2 than does natural gas. Lastly, the dirty secret that the coal industry, politicians, and the media have been so successful in keeping from the American public are the billions of tons of heavy metal toxic “fly-ash” remnants and particulates which need to be dealt with after burning coal. Fly-ash is toxic heavy metal cocktail of mercury, lead, arsenic, chromium, molybdenum, dioxins, and other undesirable elements. 1.1 billion gallons of this stuff was released into the Tennessee River system after the December 2008 disaster in Kingston, TN. Yet you never hear Obama or Chu mention this in the same breath as “clean coal”.
Apparently, the administration believes in carbon sequestration. However, if it is carbon we want to sequester, instead of spending billions building “clean coal” plants that will, in the end, fail to successfully pump CO2 into the Earth, why not start with a fuel that emits 50% less CO2 to begin with (natural gas)? Even if the CO2 could be sequestered (it cannot), why are Obama and Chu, the supposed environmentalists, ignoring the issue of what to do with the fly-ash that is destroying America’s lakes, streams, rivers, and water tables?
Next, the “clean coal”/EV energy policy “architecture” is relying on vehicles which don’t meet the criteria many of Americans have for an automobile. First, they will be very expensive and middle-class Americans are already reeling from high unemployment, lower wages, the housing market, and investment portfolios that have been decimated by the blatant mismanagement of the American economy and financial markets. How will Americans afford expensive EVs?
Next, there are serious range limitations with EVs. As much as I like electric vehicles (if they are re-charged with electricity from natural gas generators) they simply won’t be realistic solutions for many suburban dwellers with long commutes. Those of us who occasionally tow a boat, trailer, or have other needs for a powerful vehicle or live in mountainous terrain won’t be pleased with how fast the batteries on their EVs drain when driven with a substantial load. From an efficiency standpoint, does it make sense to generate electricity inefficiently from coal, transmit it across the electric grid to the house, only to then store it in a battery in an EV? How much power is lost simply transmitting the electricity? Further, will America simply trade in its dependence on foreign oil for a dependence on foreign sourced elements needed to fabricate EV battery packs? Does anyone really believe the U.S. will become a major manufacturer of battery packs, or will they more likely be sourced from Asia? Clearly the “clean coal”/EV architecture Obama and Chu have bet the ranch on has some serious negatives. Not least of which the plan to date has not reduced foreign oil imports one iota. A more successful policy of reducing foreign oil imports is apparently to keep the economy in a downward spiral. THAT is working…
So what is the best way to reduce foreign oil imports? Natural gas transportation. Natural gas vehicles have been around for decades and are a proven technology. Despite the fear tactics by those wanted to stay addicted to foreign oil, there are no credible independent studies showing NGVs are statistically more dangerous than gasoline powered vehicles. Indeed, smarter countries like Brazil, Italy, and Iran and some states like Utah and Oklahoma have successfully and safely deployed millions of NGVs. Moving half the American car and truck fleet over to natural gas could save 6-7 million barrels of oil a DAY. This would keep $50,000,000 per day in the U.S., which would go toward creating jobs in the energy, automobile, and infrastructure sectors. Millions of jobs would be created. Natural gas royalty payments would be made to American farmers and landowners instead of foreigners. The money kept in the country would circulate into the retail and municipal sectors. As a kicker, natural gas vehicles are the cleanest vehicles on the road, emitting 30% less CO2 than gasoline and 100% less of the toxic particulates which cause smog and health problems.
Also, it makes no sense for Americans to have to ditch their $30-40K SUVs in order to purchase an electric car. What we should be doing is converting these vehicles to run on natural gas. These conversion kits would cost much less than buying a new electric car and the cost of the kits would be drastically reduced were the volume to go up with prudent government policy changes.
The "Phill" - One in every American garage is REAL Freedom.
How sad is it that U.S. automakers like Ford (NYSE:F) and GM make NGVs yet don’t sell them in the United States? How sad is it that Americans could be cheaply refueling NGVs in their garages with a “Phill” appliance from Fuel Systems Solutions (NASDAQ:FSYS) yet cannot buy such a simple refueling appliance in this country? How sad is it that other countries, some of them oil exporters to the U.S., have adopted natural gas transportation yet the U.S. has an Energy Secretary in Steven Chu that is “agnostic” about it and a president that has never used the three words “natural – gas – transportation” in the same sentence? This is an Obamination. Secretary Chu should resign immediately or President Obama should fire him. Am I politicizing the issue? Absolutely not. I made similar observations about the Bush administration. This is ECONOMICS, not politics. There is nothing more economically important to the U.S. than reducing foreign oil imports.
A Natural Gas/Electric Hybrid Vehicle
Think a Prius That Runs on Natural Gas
The Best Vehicle Architecture on Earth Today
If the United States is to remain a global power, we must adopt a strategic long-term comprehensive energy policy like this one. Meanwhile, with Obama and Chu in charge, pro natural gas transportation legislation in Congress, like HR1835, is languishing as health care is apparently more important. Big mistake. The U.S. should be adopting NGVs, bi-fuels, and natural gas/electric hybrid vehicles as quickly as possible. We are not. My only beef with Pickens is that he is only focused on 18 wheelers. To significantly reduce foreign oil imports over the next 5 years, which is a goal the current oil crisis demands, we must push natural gas transportation down to middle class Americans.
From an investment perspective, like Exxon Mobil (NYSE:XOM), the time is right to invest in natural gas companies because natural gas is so cheap right now. The United States will eventually be forced to adopt natural gas transportation because no other domestic fuel will be able to replace the oil we won’t be able to afford or procure. So, be wise and be early. Since this may take some time, buy oil companies that will benefit from skyrocketing oil prices, have large exposure to natural gas, and pay decent dividends while you wait. Some of my picks are BP (6% yield), COP (4%), and STO (4.3%). For oil production growth, I like Petrobras (NYSE:PBR) very much at these levels.
To protect yourself from further U.S. economic weakness, one should also have some exposure to gold and silver bullion or the GLD and SLV ETFs. More speculative investments (with higher reward potential) would be Fuel Systems Solutions, Westport Innovations (NASDAQ:WPRT), and Clean Energy Fuels (NASDAQ:CLNE). Meantime, read about all the exciting things happening around the world in NGV development here.
If energy policy in the United States was driven by economics, technology, and pragmatism instead of the power of the few and the lobbyists, America could enter a new age of economic prosperity few today can even visualize. Reducing foreign oil imports should be priority #1.
Disclosure: Long BP, COP, STO, PBR