Energy Secretary Chu's Overdue Departure Could Be Bullish For Natural Gas Transportation

by: Michael Fitzsimmons

U.S. Energy Secretary Steven Chu is stepping down after directing fours years of failed and costly energy policy initiatives. In the picture at right, Chu seems to be thinking, "how in the world can I continue to rationalize my refusal to adopt clean and cheap natural gas in the transportation sector?"

Hopes were high when Chu, a Nobel prize-winning physicist, became Energy Secretary when the new Obama administration came to Washington in 2008. Fans of nat gas transportation had their hopes dashed in April of 2009 when Secretary Chu made his infamous "I'm agnostic" about natural gas transportation comment and expressed his preference for biofuels. Really? Biofuels?

Henry Hub Natural Gas Spot Price Chart

Henry Hub Natural Gas Spot Price data by YCharts

As the chart above shows, Chu's "agnostic" statement came just as natural gas spot prices had dropped from over $12/MMBtu to under $5. By this time, most energy analysts were acknowledging the new fracking revolution and realized it was not a short-term phenomenon. Indeed, production was increasing quite strongly and prices continued to drop for the remainder of Obama's first term. Yet Chu never changed his "agnostic" natural gas transportation view, despite the absolutely compelling economic, environmental, and national security benefits of doing so.

I was incensed and called for Secretary Chu's resignation, or for President Obama to relieve him of his duties. America could simply not afford to have an Energy Secretary that was "agnostic" about the country's most abundant, clean, and cheap energy source. Natural gas was clearly the only domestic fuel capable of being scaled up to significantly reduce the economic, environmental, and national security issues facing the country as a result of its addiction to oil. America's huge reserves of natural gas, coupled with its 2 million+ miles of natural gas pipelines, is its #1 economic advantage against all other countries. It could be leveraged to create millions of new high paying jobs and clearing up our air and water. Obama and Chu have completely squandered a gift of nature wedded with technology and American ingenuity.

Obama And Chu: One Failed Energy Policy After Another

But no one listened to the Fitzman, and Chu kept his job. The result: four years of energy policy that rewarded failure and punished success:

  • Solar-panel maker Solyndra filed for bankruptcy in 2011 after receiving a $535 million loan guarantee from Chu's Energy Dept (i.e., U.S. taxpayers).
  • The administration's focus on electric vehicles (EVs) was a huge distraction and accomplished nothing other than wasting large sums of taxpayer dollars. Chu directed over a quarter of a billion dollars to battery maker A123, which also filed for bankruptcy.
  • Chu endorsed "clean coal", an oxymoron if there ever was one. So much for the Obama administration's reputation as "environmentally friendly." One "clean coal" project after another has been shuttered. Apparently pumping CO2 into the Earth is not such a snazzy idea. And the heavy metal toxic particulates left over after burning coal still have to be dealt with. Those focusing on coal's CO2 emissions don't understand the half-life of toxic heavy metals. "Clean Coal?" Don't drink the Kool-Aid.

Meanwhile, the natural gas revolution unleashed by new fracking and drilling technology was happened right before the physicist's eyes. Yet I don't believe Chu uttered the three words "natural gas transportation" consecutively in the same sentence during his entire 4-year tenure.

Ultimately, President Obama must take responsibility for all the failed energy policies during his first term. Obama supported all the wrong-headed initiatives itemized above. It is clear that this administration, like so many before it, was under the complete control of special interest, who wanted no change in the status quo (other than to waste huge sums of money on new distractions). Now that Obama has been reelected, will he change course and adopt strong natural gas transportation policies for the good of the country? We will get a good feel for that once Obama names Chu's successor.

China And The EU "Get It"

It's ironic, and quite sad, that two of the world's largest economic powers (China and the EU) have both adopted strong natural gas transportation policies in the last 6 months. I discussed China's new energy policy in my article, "China Vs. The U.S.: Who Is Winning The Natural Gas Transportation Race?" and the EU's new nat gas transportation policies here. The EU's plan is impressive. The plan is to install LNG import facilities at all ports within the European Union. In conjunction with nat gas import capability, the plan is to build out LNG and CNG refueling stations at strategic points on its highway system.

The U.S. policy response is seemingly to support China and the EU by exporting our cheap and clean U.S. natural gas to them so we can continue to burn expensive and dirty gasoline ("oil") here at home. Unbelievable.

How is it that two major economic powers that don't have significant natural gas production, import the vast majority of their natural gas, and pay over 3x the U.S. price (11.79 USD/MMBtu for Dec 2012) for nat gas, see the need to implement strong natural gas transportation infrastructure and policy measures, yet U.S. policymakers do not? It's simply amazing. The lack of a U.S. natural gas transportation policy initiative is a testament to Obama and Chu's terribly failed view of world energy fundamentals and their denial of the natural gas revolution that has taken place right in front of their noses.

The Good News: "America's Natural Gas Highway"

In spite of the Obama administration's refusal to embrace natural gas transportation, the economics behind nat gas transportation are so compelling, substantial progress is being made. Clean Energy Fuel's (NASDAQ:CLNE) "Natural Gas Highway" project is proceeding very nicely. More and more states are adopting natural gas transportation policies to cut costs and balance their budgets. If only the Federal Government would learn from their efforts.

Efforts by CLNE, China, the EU, and some U.S. states, are providing powerful demand for natural gas transportation related stocks. In my article, "5 Natural Gas Transportation Stocks For 2013", I listed 5 investment choices for this sector. Let's see how they have done in the one month since that article.

Not too bad. My top pick, Cummins Inc. (NYSE:CMI), appreciated 9.75%. General Electric (NYSE:GE) was the top overall performer: up over 10%.

Exxon Mobil (NYSE:XOM), which last Friday posted Q4 and full year 2012 earnings, was up close to 5% for the month. For the full year, earnings were $44.88 billion, up 9%. Earnings per share increased 15% to $9.70.

Westport Innovations (NASDAQ:WPRT) and ConocoPhillips (NYSE:COP) were less impressive considering the jump in the overall market. I still like both stocks for the long run. In the case of COP, how can you go wrong with the biggest E&P company, yielding 4.6% and growing oil production?

Natural gas transportation is growing fast. With Energy Secretary Chu gone and President Obama not worried about being reelected, perhaps the U.S. will catch up with the rest of the world and enact a strategic long-term energy policy centered on natural gas transportation. Even if they don't, the companies mentioned in this article stand to prosper. CMI is still my favorite pick in the sector due to its exposure to China and China's focus on using natural gas in the transportation sector.

For supporters of natural gas transportation, it is clear one huge impediment has been removed: U.S. Energy Secretary Steven Chu.

Disclosure: I am long COP, XOM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.