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Boone Pickens Energy Plan

Two weeks ago, T. Boone Pickens appeared before congress to discuss his energy plan. In essence, he believes that by 2030, we can have a sufficient number of wind farms in the plains states to generate 20% of the electricity in this country. Additionally, he believes that we can convert our cars to burning natural gas, and between these two initiatives, we will reduce our dependence on foreign oil.

Finally, someone voices a plan. Is it perfect? No. It will take a concerted effort by this government to approve the wind farms (they have already put a cease and decist on any new wind farms in the plains until they can perform an environmental impact study – which they anticipate will take 2 years or so), a concerted effort by the oil companies to add natural gas filling stations / convert current ones to offer natural gas, an effort for the auto makers to convert production facilities to natural gas engines, etc.

But, the important thing is that it could happen – and it could happen BIG TIME – if the next administration uses some foresight and creativity to structure an energy policy that is in the best interests of this countries citizens.

Why do I think it is possible?

1. Wind Farms are already operating, albeit on a small scale. The companies that produce the poles, turbines, fans, etc., would need to bulk up and it would likely add new entrants to the limited market. This is capitalism at its finest, and it can be what America does best. The government will need to reduce its bureaucracy and fast tract its impact study, but solid leadership in Washington on this issue could make it happen.

2. Cars burning natural gas are common around the world. I’ve ridden in them in India and South America – General Motors made cars, for what its worth – so the technology to produce them is here. Plus, it could pump up demand for new vehicles and return some unemployed auto workers to their jobs.

3. Cars burning natural gas are common here in the United States. If you’ve been in a major city recently, many of their taxi and bus fleets already run on natural gas.

4. Kits exist to convert current cars that burn gasoline to ones that burn natural gas. I don’t know the cost, but the payback for doing it is certainly there.

5. The cost to fill your tank with natural gas is half the cost of filling it with gasoline. That is the reason many taxi and bus fleets have already converted to it. Economics.

6. In the last three years, natural gas has become significantly more abundant. As I’ve written many times in the past on this blog and in my newsletter, as the price goes up for a commodity, many areas of supply that were economically not feasible to explore, become feasible. At $3 natural gas, you go for only the easy to produce stuff. At $8 natural gas, you can tap the various shale formations and your supply increases tremendously.

7. A July 31st story in “The Oklahoman” newspaper detailed the appearance of T Boone Pickens as well as Aubrey McClendon (CEO of Chesapeake Energy) before the House or Representatives Committee on Energy Independence. The House members were astounded to learn that the supply of natural gas can grow by 5% per year for the next 100 years based upon the innovations intechnology that $8 natural gas have fostered. Their debate fell along party lines ( the litmus test of offshore drilling – yea or nay – being the key division ), but at least there was debate with credible information being relayed by two industry insiders.

8. Both candidates for President have now moved into the camp that offshore drilling is on the table for discussion. This should remove the litmus test and hopefully allow for some non-partisan cooperation in building an energy policy that would utilizes a combination of wind, natural gas, clean coal, and solar (did you hear the numbers that First Solar put up in its quarterly report? Their thin-film based solar panels are likely to be the winner in the Solar arena, and they have the ability, if adopted to supplement Wind in the clean energy movement, replacing maybe even an additional 10% of the country’s electrical power generation) – as well as producing more domestic oil from deep water drilling for the 70% or 80% of the electricity that isn’t clean-energy-produced.

9. The value of the dollar cannot go up as long as we are sending 3/4 of a trillion dollars outside the US each year to purchase foreign oil. A weak dollar will continue to push inflation higher, a situation that the American people will not tolerate long-term. Additionally, they will not tolerate the high interest rates that the Fed will feel compelled to use to keep inflation in check – producing weak economic growth and higher than acceptable unemployment.

The next President and the one after that will not want a perpetually weak economy – reducing imports of foreign oil through a well reasoned energy policy utilizing a combination of alternative energy solutions, reliance on natural gas to the greatest extent possible, and an increase in domestically produced oil should put our economy on a longer term stronger footing.

…Then they can begin to work on the real problem facing our financial health as a nation: Social Security and Medicare…but that’s another discussion that no politician seems ready to begin at this time.

From an investment standpoint, natural gas exploration companies like Cheasapeake, Devon, Ultra Pete, Cabot, Southwestern, and others will be certain winners under this plan. Wind power companies – of which there are few, with GE being a dominant player in the equipment production area and Quanta being a dominant player in getting the generated electricity to the electirc grid – will be winners. Solar power companies like First Solar should also be winners – it will just be a matter of determining which solar panel technology wins out, the old VHS or Betamax issue redux. Deep water drillers like Transocean ans Schlumberger, and drilling rig producers like National Oilwell should also be winner. And the good news if you are a buyer of these is that they are on sale right now, but not likely to stay that way for the long-term.

Interesting times, interesting opportunities.

Mark