Oil Industry Economist Gives Her Opinion On The Pickens Plan

Diane Chu is a Chartered Economist (MBA, CPM) with extensive experience working for major corporations in the energy sector. I started talking to her on twitter after reading a story she wrote (Land Driller Sector Outlook: It's All About the Natural Gas) on the financial website "Seeking Alpha".

We talked a bit about the evolution of the energy business in general and then got to discussion the Pickens Plan. I asked her if she would be interested in doing an analysis of T. Boone Pickens' idea of turning to our large domestic natural gas resources as part of a general plan to move toward energy independence as a nation and she agreed. To me it is always interesting to hear the opinion of industry professionals in addition to politicians or the "man on the street" as it gives a more rounded perspective on an issue.

At any rate, she points out that the US is currently the world's largest petroleum consumer and suggests that, "If trucks were converted to natural gas engines over the next few years, as proposed by the Pickens Plan, then domestic oil consumption would theoretically fall by about 12% (2.4 MMbd used in freight divided by the 20.7 MMbd consumption)". A 12% decline in US foreign oil consumption achieved in the next few years? That is kinda huge, isn't it? In addition there is the fact that, "Based on a June 2008 study by Navigant Consulting, the U.S. has enough natural gas reserves to last more than 100 years. New drilling technologies such as hydraulic fracturing are unlocking substantial amounts of natural gas from shale rocks. For example, the Haynesville shale play is expected to produce 7 to 8 billion cubic feet of gas a day by 2016. In fact, the amount of natural gas available for production in the U.S. has soared 58% in the past 4 years."

Of course, as she points out, " there will be issues to be dealt with in the form of infrastructure and legislation which has to be in place in order for this transition to occur" but Pickens is already addressing these issues by introducing the US Natural Gas Act of 2009 and starting to implement his plan in vehicle fleets which can refuel at their home terminals every night and therefore do not need a national infrastructure of fueling stations in place. From this base it will be much easier to evolve into widespread usage of this clean, abundant domestic energy source.

Ms. Chu concludes her analysis by saying;"Oil imports cost the U.S. about $21.6 billion in May. Increasing natural gas market share as a power source for vehicles and industrial applications means less dependence on imported oil and would strengthen America's energy independence. In the power sector, utilities have been switching to natural gas from coal, thereby taking advantage of low commodity prices and hedging against costly climate-change legislation. However, in order to achieve a large scale of natural gas transition, there has to be a concerted and coordinated effort from both the government and energy industry. It will take a non-partisan effort to work out details like CNG transportation, taxes, and the CNG stations, for natural gas to be competitive with conventional fuels. With both a thoughtful energy policy and a collaborative energy industry, natural gas definitely has a niche to fill as a substitution fuel as well as a transition from fossil fuels to renewable fuels, due to the long lead time and scalability issues of renewable fuels."

So there you have it, with a coordinated, bipartisan effort we can make CNG fuel into an important component of our transition to a green energy economy. Boone Pickens and his Energy Army have been leading this effort for a year now and these efforts are bearing fruit ans several major fleets and many smaller ones are making the switch to CNG fuel or seriously considering it. I talked to a representative from mega carrier J.B. Hunt the other day and he confirmed that (like many others) their intermodal division is looking into CNG fuel but is waiting to see how certain legislation like the 2009 natural Gas Act works out before they make a commitment. The faster that we get the necessary legislative infrastructure in place the faster we can begin a serious transition to a green economy and the Pickens plan is leading the way.

Diane Chu's blog: http://dianchu.blogspot.com/

Diane Chu on twitter: http://twitter.com/Asiablues

Diane Chu on Seeking Alpha: http://seekingalpha.com/author/dian-l-chu