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The Big Picture

|Includes: BP p.l.c. (BP), COP, PBR, STO, XOM
The Big Picture
            The more things change, the more they stay the same. After much rhetoric of “change”, the Obama administration is not only continuing, but in many cases expanding, wrong-headed policies initiated by the Bush administration. The Ivy League’s apparent lock on the White House seems destined to pave the road to a “New World Order” by weakening the U.S. in any and every possible way. What does this mean for U.S. investors? To adequately answer that question we need to step back and look at the big picture. Not surprisingly, the big picture is still dominated by oil supply/demand fundamentals, American dependence on foreign oil, and the ancillary geopolitical effects as a result.
            In August of 2009, the U.S. imported 355 million barrels of oil (60% of total consumption) at a cost of $25.2 billion, an annualized rate of over $300 billion assuming oil prices remain in August’s range. Most of my readers are very familiar with my belief that foreign oil addiction is at the root of American economic weakness as I often write about the economic, environmental, and national security issues at stake due to America’s inability to significantly reduce its dependence on foreign oil. So, now that Obama has settled into the Presidency, let’s revisit these important issues.
Economic Impact of U.S. Foreign Oil Addiction
            U.S. policymakers in Washington continue their wrong-headed attempts to deal with a commodity based problem (oil) with fiscal and monetary policies. As a result, Americans are suffering from skyrocketing budget deficits combined with further U.S. dollar weakness. In the 3rd quarter, the buck dropped 4.1% against the Euro and 6.8% against the Yen. Countries including Russia, China, Brazil, and even Germany and France are clamoring for a more stable world reserve currency. Americans would be arrogant to assume this cannot happen. In fact, there may be very little the U.S. can do to prevent this movement considering its indebtedness.
            There has been little to no progress on financial regulation initiatives. In spite of a near complete financial meltdown and talk by U.S. officials about the need to protect the system from “too big to fail”, their policies have caused consolidation in the banking sector creating huge firms while smaller banks will continue to be shuttered. The Obama administration has winked at, and continued, the funneling of tax-payer money to corrupt corporate executives started under President Bush. The government continues to promote poor and ineffective financial regulators like Tim Geitner and Mary Shapiro to ever higher positions of authority. As a result, despite trillions of dollars in wealth evaporation, there has been a noticeable lack of arrests and jail terms. Meantime, the fascist economic policies continue in the financial, health care, and energy sectors insuring U.S. wealth trickles to fewer and fewer people. No country can be strong if it does not have a strong middle class.
Factor in a U.S. government which seems intent on weakening U.S. financial strength in order to enable the “new world order”, and it appears a non-dollar world reserve currency is part of the “grand plan”. It will probably happen sooner than most people believe possible. Meanwhile, the U.S. does everything possible to enable debasing its currency by sending its wealth overseas to purchase energy instead of utilizing its domestic natural gas resources. Does anyone believe China, if it had the 2.3 million miles of natural gas pipeline distribution network the U.S. has, would waste that precious resource? Not on your life. That is because the Chinese government is dominated by engineers, and the US governent ids dominated by lawyers and elitists. As Jim Cramer said on Mad Money last night, China in many ways is now more capitalistic than is the US. 
Regardless, to make up for this wealth outflow to pay for foreign oil, the U.S. simply turns on the printing presses and increases the number of U.S. dollars.
Environmental Impact of U.S. Foreign Oil Addiction
            The Obama administration, along with environmental “purists” as I refer to them, have yet to figure out using electric cars prior to building out adequate wind and solar infrastructure to recharge them is effectively putting little coal-fired CO2 and toxic particulate generators on the highway. Further, Obama and Energy Secretary Chu do not seem to understand the only way “clean coal” is realizable is to leave it in the ground and that the best “carbon sequestration” policy is to generate less CO2 to being with (duh)! That is, replace all coal-fired electric generating plants with natural gas fired plants and immediately reduce C02 emissions by 50%, not to mention toxic particulate emissions by 100%. However, natural gas transportation in any sector other than large trucks appears to be going nowhere. This makes sense in the new double-speak world of 21st century America because natural gas is precisely the only domestic fuel that can be scaled up to significantly reduce foreign oil imports! Exxon does it part by running commercials about algae research, and it seems the Wall Street Journal has an article a week about wrong-headed biofuels research and mandates, which begs the question: why on Earth is all this money being spent on biofuels research when we have abundant, clean, and cheap natural gas and a proven and mature technology (NGVs) to replace gasoline powered cars and trucks? It’s truly amazing is it not? The answer, of course, is that biofuels (which also suck up precious water resources and feeds food inflation) are simply an excuse to stay addicted to liquid fuels (i.e. gasoline) and distract people from the real solution (natural gas transportation). Meanwhile, their strategy is working and it appears we’ll continue spewing gasoline and coal generated CO2 and particulate emissions into the atmosphere instead of utilizing natural gas in the power generation and transportation sectors.
National Security Impact of U.S. Foreign Oil Addiction
            Nothing is more indicative of decades of failed pentagon/petroleum based foreign policy than the oil wars in Iraq and Afghanistan and the current Iranian nuclear crisis. America’s indebtedness to China (in large part to finance its oil addiction and to fund its vast military requirements to secure oil access and transport) has left them in the catbird seat. Chinese companies seem to sign new oil and gas deals every day in places such as Nigeria, Venezuela, Brazil, Russia, Australia, Canada, and Kazakhstan. As countries around the world embrace natural gas transportation (many are oil exporters such as Brazil and Iran), the U.S. continues to bank its future transportation requirements on foreign oil imports. This is a strategic error. Nothing undermines American national security more than its addiction to foreign oil and the subsequent economic and geopolitical weakness as a result.
Is there a Solution?
            In a word: yes, but time is running out. U.S. natural gas reserves are abundant and enough to fuel home heating, electrical power generation (including replacing all coal-fired plants), and half of American cars and trucks for at least the next 75 years. By converting half its cars and trucks to run on natural gas, the U.S. could reduce its foreign oil imports by 6-7 million barrels a DAY. This equates to 2.4 billion barrels of oil per year, or nearly $170 billion a year with oil at $70/barrel. This is money that would stay in the country and make it way to farmers and landowners in terms of royalty payments. It would create well-paying industrial jobs in the energy and automotive industries. It would reindustrialize the U.S. by building out a CNG refueling infrastructure that could be hydrogen ready if done intelligently. It would clean up our air and our water. It would put billions of dollars back into American consumers’ pockets as natural gas is a cheaper fuel. Embracing natural gas transportation as the focal point of a strategic long-term comprehensive energy policy could usher in an era of American prosperity few can envision in today’s fragile economy based on addiction to foreign oil. In a future where worldwide oil supply won’t keep pace with worldwide oil demand, what pragmatic and viable alternative is there to natural gas transportation?
Will the U.S. Embrace Natural Gas Transportation?
            Answer: not with Obama and Chu in charge. They have apparently bought into the combined myth of “clean coal” and electric vehicles as the solution. The administration has apparently supported carbon emission credits which will be very favorably dished out to coal utilities (!?). Obama has never, to my knowledge, even uttered the words “natural gas transportation”. Unfortunately, Energy Secretary Chu has…and he is “agnostic” on the idea. While Obama has traveled in Air Force One to back the Chicago Olympics initiative, he has yet to visit Kingston, TN to view how his “clean coal” has devastated the Tennessee River valley for generations to come.
            Meanwhile, the U.S. is simply awash in natural gas as storage is at record highs. Instead of experiencing an economic bonanza by embracing cheaper natural gas transportation, the natural gas well count was reduced by half, unemployment is rising, and Americans continue to send their energy dollars out of the country. How sad is that?
            My biggest hopes for change, the development of a natural gas lobby and pending HR 1835 legislation have both been disappointing. The natural gas lobby recently took out multiple full page ads (at great expense I am sure) in the Wall Street Journal only to have a picture of some guy saying “Eureka!” How poor is that? No table comparing and detailing the obvious superiority of natural gas emissions to that of coal or gasoline. No mention of Toyota’s natural gas/electric concept vehicle (let alone an agreement to work with Toyota on making such  a car a reality!); no mention of Fuel Systems Solutions “Phill” home garage natural gas refueling appliance. Just plenty of empty space. Man, do I wish someone would give ME two full pages in the WSJ!! At a minimum the average looking guy should be replaced with a bikini clad blonde bombshell. That may be female exploitation but there would definitely be more buzz around office coffee machine. The natural gas lobby reminds me of the Democrats – all the data is on their side, but they seem incapable of playing hardball and making the case to the American people in such a way to affect policy. And that is what the nat gas lobby must do: inform and educate Americans. We know Congress and the Obama administration is bought off by those wanting to keep America addicted to failed 20th century liquid and solid fuels. The only way to enable a transition to a cleaner more economically sustainable gaseous future is to take the case directly to the American people! We must shame Congress into action by threat of voting them out of office unless they support legislation like HR 1835, which is apparently still wallowing around in the various committees of an ineffective Democratically controlled Congress. Most Seeking Alpha readers are fairly well-read, but the average American has no idea of the possibilities of refueling a natural gas/electric hybrid in their garage. The natural gas lobby needs to understand that educating Americans about this fundamental capability is job #1.
Investment Advice as a Result of Continued American Foreign Oil Addiction
            As always, I continue to suggest American investors stick with long-term holdings in oil producers such as BP, Chevron (NYSE:CVX), ConocoPhilips (NYSE:COP), Exxon Mobil (NYSE:XOM) and foreign producers such as Petrobras (NYSE:PBR) and StatOil (NYSE:STO). Just collect your dividends and wait until the next oil price spike, because it is coming. I continue to believe the U.S. dollar will weaken further as the Yale and Harvard leadership toil endlessly (and effectively) to enable the “new world order” they desire and which will require a world reserve currency not based on any single country. As a result, I would increase exposure to gold bullion and precious metals. Gold was up 9% in the 3rd quarter, and traded over $1000 for six trading days in a row – the longest such streak ever.
            Unfortunately, the outlook for natural gas is weak. Industrial demand in the U.S. will continue to be sluggish as a result of the deindustrialization of America. Domestic nat gas supplies are abundant with many diversified independent producers. Storage is at record highs, and not even a cold winter will change the dynamics in the natural gas market. That said, I would be very bullish on this sector (and the country as a whole) if the U.S. embraced natural gas transportation as part of a long-term strategic and comprehensive energy policy to fix the economic foundation of the country and usher in a new era of a cleaner and prosperous future based on energy gases.
Disclosure: the author owns COP, PBR, and STO.