T. Boone Pickens, the U.S. oil billionaire, speaking at TED Talks in February, commented on what he feels is the best energy source that we can use to transition the U.S. away from reliance on Middle Eastern oil. His conclusion: natural gas.
His presentation included a quick review of the problem:
- The U.S. consumes 25% of world’s oil with only 4% of the earth’s population. We use 20 million barrels of oil a day and 12 million of these are imported. Five million of these barrels come from OPEC countries. This has created the largest transfer of wealth in the history of mankind.
- 70% of our oil consumption is to meet our transportation needs. Using other energy sources like solar, wind, and nuclear don’t help with that. We have to reduce our transportation reliance on oil to reduce our overall reliance on oil.
- According to Pickens, Saudi Arabia needs to price its oil at $94 per barrel to meet its social commitments to its citizens. The Saudi’s can produce each barrel for around $5. It can be produced cheaply but it will not be sold cheaply.
- There is no free market to buy and sell oil. Each country, whether it is an OPEC nation or not, prices its oil off the margin or off the price that OPEC nations charge.
And his thoughts about the solution:
- Natural gas is the best bridge fuel available until we can find a better long-term solution to our energy needs. It is 25% cleaner than oil and needs no refining.
- The U.S. currently uses about 24 trillion cubic feet of natural gas each year. The natural gas industry thinks that with the new fracking technology, we have as much as 4,000 trillion cubic feet of natural gas reserves. This is a larger reserve of natural gas than Saudi Arabia has of oil.
- If each one of the 8 million 18-wheel trucks on the road in the U.S. was converted to natural gas it would reduce our oil imports from OPEC nations by 60% and allow us to take a step toward energy independence.
- Pickens is concerned, however, that the U.S. has never had an official energy plan and the government offers little progress toward a plan.
You can view Pickens’s presentation here: http://www.ted.com/talks/t_boone_pickens_let_s_transform_energy_with_natural_gas.html
Our take:
Many people wonder if there is an investment opportunity in natural gas. With supply continuing to expand and demand not picking up the slack, natural gas prices are at near 10-year lows. It may seem attractive to own a long-term position in natural gas futures but it’s at best a complicated investment that may turn out to be a reach.
Here’s a look at the performance of the United States Natural Gas exchange-traded fund (UNG) over the past five years:
It would take a huge combination of forces to be able to supply natural gas for our interstate highway system and to modify truck engines so they can burn natural gas. It would take a partnership between the government, trucking companies, natural gas distributers and truck manufacturers to agree that making this change is in the best interest of all. If that direction were confirmed it would still require all the parties to come up with the funds needed to make this transition occur in a reasonable timeframe. Right now, there seems to be no real appetite for this partnership and investment spending to take place because the problem isn’t important enough yet to all concerned. As a result, oil prices will continue to climb.
~ Brooks, Hughes & Jones, Partners in Wealth Management, Tacoma, WA
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