Think the price of a gallon of gasoline is determined by free market forces? Think again. You’re way off.
Just ask President Reagan’s National Security Adviser Robert “Bud” McFarlane. Writing in the Washington Times this week, McFarlane made a point of singling out our ludicrous dependence on foreign oil:
Yet this year, we will send $400 billion overseas to buy oil whose price is set by the Organization of the Petroleum Exporting Countries (OPEC). In addition, we also will spend an additional $150 billion (about one-third of the Pentagon’s budget) to keep this nonsensical arrangement working.
As McFarlane notes, our addiction to oil from the Middle East costs a considerable portion of the Pentagon’s budget. It also costs lives:
Think how many soldiers’ lives could be saved and jobs created at home if we solved this problem. In sum, for the past 40 years, our country has endured this outrageous national security, economic and environmental problem, all the while whistling past the graveyard, hoping that we will muddle through somehow. And the outrage is on course to persist into the future as far as the eye can see.
The Chinese government continues to implement its effective energy policy by snapping up energy resources of every type around the world. Unlike America, China recognizes that relying on foreign sources of energy is a dangerous strategy. At present, the Asian giant uses approximately 10 million barrels of oil a day (or roughly half the consumption of the U.S.). However, while U.S. consumption has stayed steady or even declined, China’s booming economy is requiring more and more energy.
By 2020, demand for oil in China is expected to rise by 50 percent to 15 million barrels a day. With that in mind, the Chinese government has put an energy plan in place, one that puts a premium on secure supplies of key fuels.
To that end, CNN reports that China’s aggressive buying spree is unmatched:
They include CNOOC (CEO)’spurchase of a $2 billion stake in Chesapeake’s Texas oil fields in 2010 as well as CNOOC’s $2 billion purchase of Canadian oil sands operator OPTI Canada in 2011.
Earlier this month, reports said PetroChina (PTR) is close to buying an old refinery on Aruba owned by American refining giant Valero (VLO, Fortune 500).
China is also said to be interested in building a pipeline to carry 300,000 barrels a day of Colombian oil to the Pacific Coast, according to a recent Eurasia Group note.
Also in 2011, China National Petroleum Corp. paid over $5 billion for a joint venture in Canadian shale gas properties held by Encana (ECA), and Sinopec (SHI) put down $7 billion for a share in Brazil’s deepwater oil assets.
The Washington Post reports a new dynamic in energy geopolitics, one that can be credited to technologies and know-how developed by U.S. oil and gas companies. Over the last few years, the focus of energy exploration and production has shifted away from the Middle East to countries in the Western Hemisphere such as Argentina, Brazil, Canada, and the U.S.
“From Canada to Colombia to Brazil, oil and gas production in the Western Hemisphere is booming, with the United States emerging less dependent on supplies from an unstable Middle East. Central to the new energy equation is the United States itself, which has ramped up production and is now churning out 1.7 million more barrels of oil and liquid fuel per day than in 2005.”
In a statement that echoes T. Boone Pickens’ call for increased American energy security, The Post quotes Ruben Etcheverry, chief executive of Gas and Oil of Neuquen, a state-owned energy firm in Argentina that is positioning itself to develop oil and gas fields in Patagonia:
“There is a new geopolitical shift, and those countries that never provided oil and gas can now do so. For the United States, there is a glimmer of the possibility of self-sufficiency.”
The importance of oil produced in the Middle East is still considerable. But unlike decades past, it is no longer all-important.
Oil produced in Persian Gulf countries — notably Saudi Arabia, Iran, the United Arab Emirates, Kuwait and Iraq — will remain vital to the world’s energy picture. But what was once a seemingly unalterable truth — that American oil production would steadily fall while the United States remained heavily reliant on Middle Eastern supplies — is being turned on its head.
The combination of pricey diesel fuel and unreliable sources of foreign oil is leading more and more American companies to turn to domestic natural gas to power their truck fleets.
According to the Wall Street Journal, America’s abundant supplies of natural gas, which have already changed the market for electricity, are changing the transportation industry as well.
Never before has the price gap between natural gas and diesel been so large, suddenly making natural-gas-powered trucks an alluring option for company fleets, rather than an impractical idea pushed mainly by natural-gas boosters like T. Boone Pickens, the Texas oilman.
The Journal’s Rebecca Smith singled out Houston-based Waste Management Inc. as an example of this trend.
This year, the nation’s biggest trash hauler has a new defensive strategy: it is buying trucks that will run on cheaper natural gas. In fact, the company says 80% of the trucks it purchases during the next five years will be fueled by natural gas. Though the vehicles cost about $30,000 more than conventional diesel models, each will save $27,000-a-year or more in fuel, says Eric Woods, head of fleet logistics for Waste Management. By 2017, the company expects to burn more natural gas than diesel.
“The economics favoring natural gas are overwhelming,” says Scott Perry, a vice president at Ryder Systems, Inc., one of the nation’s largest truck-leasing companies and a transporter for the grocery, automotive, electronics and retail industries.
The International Energy Agency reports that greenhouse gas production in America has dropped substantially, and the agency credits domestic natural gas with the sharp drop in carbon emissions.
Shale gas has transformed the US energy landscape, with surging production pushing gas prices down to 10-year lows and heralding an industrial renaissance.
“This is a success story based on a combination of policy and technology – policy driving greater efficiency and technology making shale gas production viable,” said Fatih Birol, the IEA’s chief economist, in an interview with the Financial Times.
According to FT, “[g]as is fast becoming the new fuel of choice for the US power sector: in the past 12 months, coal generation has slumped by 19 per cent while gas generation has increased by 38 per cent, according to US Department of Energy figures. A gas-fired plant produces half the CO2 emissions of a coal-fired one.
Read the entire story HERE (subscription required).
A bipartisan group of former U.S. ambassadors known as the Diplomatic Council on Energy Security urged President Obama to decrease America’s dangerous dependence on foreign oil.
The council’s report notes that the trade deficit in oil reached $327 billion in 2011. That figure accounted for 58 percent of the total U.S. trade deficit.
“High and volatile oil prices have pushed the cost of petroleum to levels that would have seemed unimaginable just over a decade ago. This has contributed to a rapid expansion of the U.S. trade deficit, rendering the nation increasingly dependent on foreign capital inflows and building up an enormous financial liability to foreign entities.”
The Energy Information Agency of the U.S. Department of Energy has released the oil import numbers for April 2012 and our addiction to OPEC oil has not abated.
According to the EIA, we imported 316 million barrels of oil in the month at a total cost of $37.8 Billion. That represented 56 percent of our total oil use for the month and brought to total for the year to 1.28 billion barrels at a cost of $154 billion.
At this rate we will spend nearly a half trillion dollars to import oil in 2012 despite President Obama’s State of the Union Address call for a concerted effort to utilize domestic resources.
USA Today turned to Boone Pickens for insight on America’s energy future. And his response was to share the virtues of the Pickens Plan:
“Energy billionaire T. Boone Pickens, a major investor in oil and natural-gas companies, said the U.S. can at least end oil imports from Organization of Petroleum Exporting Countries, about half its total, through new drilling and by shifting diesel-swilling trucks to natural gas. Any other oil needs should be from politically stable allies such as Canada, Pickens said.”
The newspaper noted that every American president since Richard Nixon “has called for the U.S. to wean itself from needing oil from unstable or unsavory countries.” Only now America has the opportunity to do exactly that.
“The U.S. is already the world’s fastest-growing oil and natural gas producer. Counting the output from Canada and Mexico, North America is “the new Middle East,” Citigroup analysts declare in a recent report.”
In addition to the security implications, developing America’s abundant energy resources has another crucial benefit: revitalizing our economy.
“In practical terms, more energy independence could mean 3.6 million new jobs, enough to cut unemployment by two percentage points, says Citigroup energy strategist Seth Kleinman. It could help manufacturers and chemical businesses that use lots of energy or make products from natural gas. It might give the U.S. a structural advantage on trade partners in energy costs, helping to offset the edge that cheaper labor gives nations such as China, Kleinman says. Already, U.S. natural gas prices are a seventh of what they are in Beijing, Pickens says.
T. Boone Pickens is the subject of a major article written by the Executive Director of the Arkansas Trucking Association.
In the piece the author, Lane C. Kidd, writes about Boone’s dedication to the Pickens Plan which would allow the United States to “regain control of the world’s wealth and economic power, something that would ‘change the dynamics of the world.’”
The article recounts Boone’s spending some $100 million of his own money to promote the concept of getting away from our dependence on OPEC oil which “is sapping the nation’s wealth and productivity.”
Kidd quotes Pickens as saying “Trucking consumes half of the five million barrels we buy from OPEC each day” and so he is aiming his considerable ammunition at the trucking industry and the Congress.
Because of the price differential between natural gas and diesel – about $1.50 per gallon – Pickens says
“I’ve talked to trucking guys whose companies consume 100 million gallons of fuel a year and they see very quickly how they can save a dollar and a half a gallon. It doesn’t take but about a second for them to see that’s a hundred and fifty million dollars.”
This is the first of two parts, the second part will be published soon.
“Texas oil and gas investor T. Boone Pickens has a warning for Pennsylvania now that it is subsidizing Delta Air Lines’s purchase of a gas refinery: Keep your wallet handy.
Delta Air Lines is getting a $30 million subsidy from the Keystone State as part of a $180 million deal to buy a Phillips 66 refinery south of Philadelphia.
‘The state better get ready because other refineries are going to want subsidies for them, too,’ he told CNBC’s Closing Bell. ‘How they gonna handle that one?’”
That’s the question the Christian Science Monitor asks its readers to ponder as they consider the implications of America’s abundance of clean-burning natural gas.
“Natural gas has suddenly become almost everyone’s favorite chassis for building an energy independent future.”
According to this international news organization, both of the nominees for the presidency this year are following the path that Boone Pickens began championing in 2008 when he launched the Pickens Plan to end our addiction to imported oil and get this country the energy plan it deserves.
President Obama has pledged to “take every possible action to safely develop this energy.” Mitt Romney calls the domestic gas “a godsend.”
Pickens himself sees the use of domestic natural gas as a no-brainer:
Energy tycoon T. Boone Pickens, an early natural gas booster, contends it’s “obvious” that Washington should enact policies to encourage natural gas production and use throughout the economy.
But no matter how obvious or plentiful this energy source is, what is needed most is a willingness to put a plan in place and act on it:
“Do we have to take advantage of this?” asks Mr. Pickens, with his characteristic Texas Panhandle pragmatism. “Well, if you don’t, you’re going to go down in history as the biggest fools that ever came to town.”
This morning on “Starting Point,” BP Capital Management founder and chairman T. Boone Pickens explains why no one person is responsible for the gas prices. He also explains why the tax code needs fixing and why the Keystone XL pipeline makes sense.
Fortune Magazine put American energy security smack dab on the front cover of its April 30th issue. Titled “America’s New Job Machine is Heating Up,” its theme was a message that should be music to the ears of every support of the Pickens Plan:
“The coming energy renaissance could be just the elixir the U.S. economy needs.”
In looking at the bigger picture, Fortune noted the irony of the shale gas revolution and noted that “… only a few years ago the conventional wisdom was that America was running out of natural gas. Now becoming ‘the Saudi Arabia of natural gas,’ as some industry promoters like to say, means that America will start exporting lots of the stuff.
“We’re going from being a very large sinkhole for all hydrocarbon products to becoming the low-cost energy producer in the world.” - Charif Souki
T. Boone Pickens has enthusiastically endorsed what the Raleigh News-Observer called a “sweeping legislative package that would reshape the state’s political landscape with new boards, task forces and a smorgasbord of requirements.
The package includes requirements for the state to purchase vehicles that run on natural gas and, according to Pickens, is an “aggressive move to move the state’s school buses off OPEC oil/diesel/gasoline and onto domestic natural gas.”
One of the bills would permit hydraulic fracturing or fracking as a method of recovering natural gas safely and efficiently. That bill, “known as the Clean Energy and Economic Security Act, would legalize the practice within about two years” and passed on Wednesday.
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