Brahm

The Pickens Plan Changes Its Strategy

The cylinder or space issues for CNG is not a significant issue in the case of CNG fired trucks.. The author's suggestions on liquid fuels, also advocated by many others and Mr. Pickens himself, is in my view a foolish intellectual contribution to the whole idea of global warming or energy independence due to the following reasons and others.

Synthesis of liquid fuels (diesel) involves a thermal efficiency of about 50%. That means it takes about 2 MM BTU of CNG to produce one MM BTU of diesel! This chips off significantly the advasntage for a tacit objective of putting out less carbon to contain global warming. The author should not forget that rather than the volume of the tank it is the weight of the fuel and its BTU density which determines the overall performance (mpg) of the engine, if other issues such as engine burn characteristics, etc remain equivalent for the two fuels. BTU to BTU diesel is much more weighty than CNG!

There is an economic dimension to the issues I have raised. The fuel material input costs, i.e. the cost of natural gas input for diesel, is double that of CNG as a direct firing fuel (low synthesis efficiency!). In other words, the present $6 per MM BTU CNG becomes a $12 per MMBTU input cost for diesel. Add to this plant capital, depreciation, interest on capital borrowed, ROR, etc, you have $16 per MM BTU cost. Quite a lot more than $6 CNG!!! A massive shift to the use of this kind of diesel will roil gas markets, bring gas supply concerns, etc, etc and etc. MY guess is there would be no advantage vis-a-vis oil, especially if OPEC or other oil intersts turn themselves as upsetters of the apple-cart. Competition!!!

There are other profound issues which I will leave you, MR. Pickens and others to think and browse about. But there are there. Without good thinking we may go down a sticky wcket again. Please! Us, little people, and OBAMA does not need another mess on our hands through shoddy thinking and slickness. Please continue the good work with my blessings! And, if you have the energy to do it check it out with me. I am "retired", though, but would not mind giving my inputs

Buying Dow for a Better Deal than Warren Buffett Got

I am a long term (plus 10 years) investor in DOW, and consider my investment in it (appreciation + dividend of plus 4%) a good investment, since the risk has been low. Following the announcement of the acquisition of ROH, I added up more DOW to my current position. I intend to add more to the position next week.

I had been considering adding to my position in DOW, especially after the announcement of the foreign joint-ventures, for the last few weeks. The primary reasons have been the intended transformation of DOW to a specialty chemical company, the commodity chemicals joint-ventures with raw material suppliers abroad (Middle East, North Africa and Russia), and the partial spin-offs of some bulk chemical operations in the US through joint-ventures with parties in the Middle East, and the gradual evolution also of the company into a strong agricultural (and bio-food seed) player.

There is tremendous vision on the part of management to transform this company into new growth areas (specialty chemicals, bio-foods, and agricultural chemicals). Its traditional areas in commodity chemicals manufacuring also will grow significantly using the joint-ventures abroad. The benefits provided by joint-venture partners will be formidable in terms of raw material costs. As the costs of energy remain high or even increase, the benefits of the joint-venture with raw material suppliers will have very high pay-offs in future.

I expect earnings for DOW to increase significantly, probably more than double, in three to five years. I believe that as DOW gradually transforms itself it will merit a much higher P/E than it has had as a predominantly commodity chemicals company.

Who has the better deal? I believe short term it is Buffet. In the intertmediate term (3 to 5 years) it is shareholders, especially those who are significantly increasing their positions in DOW. Long term, it is almost even for both shareholders oand Buffet. However, we must remind ourselves that without Buffet or someone like him the deal would not have been easy to happen. Capital is hard to come by in the prevalent atmosphere.