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Tuesday, October 14, 2008

Reporting from the Townhall Meeting of the Pickens Plan

This morning I had a chance to attend a townhall forum sponsored by the Pickens Plan at Navy Pier in Chicago. Here is a quick summary of our energy problems and their solutions as formulated by Mr. Pickens.

Here are the most important numbers as he sees them. Our country uses roughly 21 million barrels of oil daily. We produce about 9 million barrels of oil daily. As such, there is about 12 million barrels of oil daily that need to be imported. Our biggest importer is Canada and then followed by Mexico. However, the Middle East and Africa provide about 57% of our imported oil. For alternatives we have: coal, natural gas, geothermal, wind, nuclear, solar, and bio diesel. Bio diesel, through ethanol, can provide about the equivalent of half a million barrels of oil daily in alternative energy. As such, anyone that pushes bio diesel as the end all is a charlatan. Drilling, whether in ANWR or in the outer continental shelf, would provide an extra two million barrels of oil daily. As such, what we need is a plan to produce domestic energy sources that would replace about eight and a half million barrels of oil daily.

Mr. Pickens, as many know, believes in wind power for fueling our homes, businesses, and recreation, and he believes in natural gas as the alternative that could provide most if not all of the eight and a half million barrels of oil we are missing. In Mr. Pickens' estimation, natural gas is abundant enough domestically that all we need to do is go find it.

Yet, I walked away from the meeting seeing the same problem that I continue to see in creating alternative energy sources for our vehicles. This was illustrated by something that Rahm Emanuel said while introducing Mr. Pickens. He mentioned that in 2005, he and Senator Obama secured $1.8 million for the city of Chicago, and that money went to build four, YES FOUR, natural gas fuel stations. Furthermore, Congressman Emanuel seems to think that he actually did something worthwhile. In fact, Congressman Emanuel illustrated the problem as I see it in attempting to move this country from oil to alternative sources as it relates to automobiles. Those four natural gas fuel stations would compete with about ten thousand regular fuel stations that provide gas derived from oil.

In order for automobiles running on alternative energy to have any sort of mass appeal, the consumer has to have the ability to fill up those cars with at least a relative amount of convenience compared to the convenience they now have filling up their current cars. In my opinion, big oil has no intention of expanding their fuel line to include anything but gas derived from oil. They make far too much money doing it the way they are now, and they aren't about to rock the boat. As such, alternative energy sources would have to find an alternative way of putting the energy in the car, and that source would need to be as readily available is the current form of gas is now.

There is technology available that allows a car owner to re fuel their cars right in their homes.

After a year-long delay, Honda and a partner have announced they will sell a $2,000 home fueling station for natural gas cars starting in the spring of 2005.

Initial sales, estimated at 500 a year, will be limited to California, but Honda could then expand to other states such as New York, where natural gas cars are used in the state fleet.

Honda said the unit offers a "personalized solution" to the fact that natural gas is not sold at gasoline stations. "The biggest obstacle to broader acceptance of natural gas vehicles is the limited availability of refueling stations," American Honda Vice President Tom Elliott, said in a statement.

This is a way to gain limited marketability, however this continues to have two problems. First, these converters cost thousands, and thus they increase the cost of such cars by thousands. Second of all, such a plug would be available if you live in a house, however it wouldn't be available to those that live in apartments. As such, the main problem that I continue to see with America being truly energy independent is that big oil has a monopoly on the fueling mechanism. That mechanism is available on a mass scale. They refuse to provide fueling mechanisms for any of these alternative energy sources. Yet, it is impossible for any competitor to provide such an alternative fuel station on the mass scale they provide it on.

As such, I continue to maintain my two part solution. First, break up big oil using the Sherman Anti Trust Act. Second, reduce capital gains, dividend, and income taxes to zero on any company to produces or procures domestic energy.


Anonymous said...

So who is gonna break up "Big Oil"? Are *you* from the government here to help?

If the alternative "fuel" can't carry it's own weight economically it doesn't make sense to force conversions.

Here in Oklahoma CNG stations popped up at regular stations several years ago. A few fleets were converted and I know a few individuals that own them but guess what, CNG cars *still* can't compete with gasoline powered cars.

Why? Well, they cost more. Whether the buyer pays it or THE GOVERNMENT makes me pay it through "incentives".

Second, CNG is less energy dense than gasoline. This means the trunk of your car is filled with tanks, valves and plumbing. Even with a full size car, a week's worth of groceries won't fit. You can move up to a full sized truck so you can lug the tanks *and* something else but, come on.

Finally, if you decide to take off across the country with your CNG car, be prepared to plan carefully. You don't have much range, even with all those tanks, and some parts of the country just don't use enough Natural Gas to have refueling points.

When gasoline came into use there was no infrastructure for delivery and I don't recall reading about the big government programs put in place to subsidize it until it became practical. I wonder what was different?

mike volpe said...

natural gas is, as Mr. Pickens likes to say, cleaner, cheaper, and available here at home. As such, if it can't compete it's because the market is rigged against it, not because the technology doesn't have potential. Of course, it can't compete. Nothing can compete with big oil. There is a gas station on every single corner block. How exactly does anyone compete with that? The technology would have to be created so that it is just as readily available only in a manner totally different than what big oil does. That isn't easy.

The cars don't cost more, per se. They cost more because you are changing the technology in the car. If natural gas powered cars were produced on the mass scale that regular gas powered cars are they wouldn't cost more. They would be produced on a mass scale if there was a mass scale available to fuel them up. There isn't because the monopoly on fuel doesn't want any alternatives to oil.

Yes, I want the government to break up big oil. When markets lack competition, and this one does, then it needs to be broken up. That's the point of Sherman.

The entire problem that you say CNG is caused specifically because there aren't regular and convenient places to fill it up again. Right now you have to fill up your CNG car at home, and that is how they design the tanks.

Jason Gillman said...

I know at least two suppliers locally who provide oil and natural gas. They sell through whatever cooperative is necessary to get their product to market to a shell, marathon or whatever gas station..

One suggests that unless we are able to get our hands on areas which are off limits, natural gas HERE is not going to be an option for too much longer. This in light of the fact that it used to be burned off as a "nuisance" leftover by-product.

As far as Pickens goes, any business which positions itself in the manner of CLNE, is looking for a solo situation for some time. California's Prop 10 would pay off BIG, and ensure the survivability of that company. A $10,000,000,000.00 boost to the bottom line.. at taxpayer expense.

And while we weren't looking California asked to borrow $7,000,000,000.00 (sorry but the zeros are intended to prove a point) to be able to pay its help.

Government doesn't need to break up OR add to the problem. They need to strengthen accountability, but allow increased participation from investment groups and protect those groups from the endless court battles to get the first drill bit into the ground.

mike volpe said...

I have no idea what you are able to do in your town with the oil companies and natural gas, however just because big oil brings it to your town, doesn't mean they have any intention of bringing it out to the whole country. If they ever really wanted to have natural gas on a mass scale it would have long ago been done. Natural gas is not new. The oil companies just always provided the fuel in nothing but a derivative of oil.

Whatever they are doing in your town it is crumbs they are throwing. Of course, natural gas costs more. Your able to make gas made out of a derivative of oil much more cheaply than natural gas. It's made on a much more mass market scale.

Look if you think that big oil gives anymore than a token effort into creating alternative energy sources for nothing more than PR puroposes you are out of your mind. Don't patronize me and tell me that big oil has the slightest intention of ever creating energy out of anything but oil.

Frankly this isn't about comparing natural gas to oil. I am not an expert in that field and in my opinion it is irrelevant.

T. Boone Pickens highlighted multiple energy sources like wind, solar, geothermal, biodiesel and coal. T. Boone Pickens is an all of the above approach only he favors natural gas.

If you don't think that natural gas is the answer that is a debate better to have with him.

As for your last point, go back to your first economics class and learn the term barriers to entry. That's what every so called investor that you think should be allowed in the market faces. Only their barriers to entry are magnified over what most industries might have.

It isn't court battles that are the problem with challenging big oil. It's that they have a system of delivering gasoiline on nearly every street corner and the only way you are allowed to be anything more than a token player is at their discretion only.

They have corrupted the market that it is no longer a market. Instead it's a cabal. Period. The so called "accountability" is what the Sherman Anti Trust Act.

Jason Gillman said...

Couple of things.

Pickens is only NOW saying "all of the above." This after an IPO purchase of his stock by the controlling member in the house Pelosi was discovered and made an issue. Up till that point, it was "forget oil" and concentrate on wind to relieve the use of CNG in the power plants so CNG can be used for vehicular use.

As for barriers for entry into market, it will always be difficult for any large scale oil/gas operations, but the LARGER corporations are the ones who can best handle the lawsuits which try to stop before it happens. The larger barriers being faced by smaller outfits who while efficient and productive in actually extracting oil, face costs of litigation which are higher as a percentage of their yield.

What Pickens is trying to do is all business. That is all. Nothing evil, but don't be fooled into thinking he is all of a sudden an incredible patriot to provide us with a "plan." While he might be patriotic, that is not his primary motivation IMO.

mike volpe said...

Look, as Mr. Pickens, himself, said if you are going to criticize his plan, you had better have one of your own. If you don't like his plan, don't join the group, but frankly take your criticism up with him. What I did was analyze the plan. I didn't endorse it. The big oil monopoly is my thought not his.

As for barriers to entry, two things. 1) They are signficantly higher in their industry and 2) these much higher barriers to entry are used by the oil companies and exploited to corrupt the market and turn it into a cabal.

Unknown said...

I don't see why we should expect OIL companies to produce and sell anything but OIL. That is their job. Ford makes transportation devices called cars. Trek makes transportation devices called bikes. Should Ford be criticized for not making bikes and Trek for not making cars? Should we break up big auto for not doing more to promote bikes as a transportation device?

CNG is lagging behind gasoline as a fuel because gasoline is a much better fuel for cars. There is no conspiracy. It is easier to transport, takes up less space, needs simpler tanks to store it and best of all, has more BTU's of power. It is simply a better power source. Diesel fuel has even more BTU's, thus explaining why diesels get better mileage.

I would respect Picken's plan more if instead of spending his money promoting his plan and trying to get my tax dollars to pay for it, he would spend his money building CNG refueling stations. Use his money and clout to work with all the car companies to produce more CNG vehicles. Use his money to install the home refueling systems (a great idea in my book). In other words, stop talking and start doing. If his plan is so great, then he should have no problem raising the capital and gaining the cooperation of all those who would benefit.

If you want to see gas lines, higher fuel costs and shortages, then go ahead and break up the oil companies. There is a good reason why there aren't many mom and pop operations building offshore oil rigs and refineries. Its called money!

mike volpe said...

A few things, Pickens has spent billions of his own money in alternative energy. So, the charge is simply false. Second of all, comparing the automobiles to gas is ludicrous.

The automobile has gone from the model T to cars that have such things as the internet, maps, televisions, among all sorts of new features that were the figment of someone's imagination when they were first invented. Gasoline is exactly the same now as it was eighty years ago. To say you don't expect them to do anything different is to miss the point. They won't do anything different because each of the players in the so called market has corrupted it so that a small handful of players can share in a pie that leaves plenty for everyone in the pie. It isn't that they should innovate to something different, but rather that they have corrupted the market so much that they don't need and as such they don't.

Then, you say this

"CNG is lagging behind gasoline as a fuel because gasoline is a much better fuel for cars. There is no conspiracy. It is easier to transport, takes up less space, needs simpler tanks to store it and best of all, has more BTU's of power. It is simply a better power source. Diesel fuel has even more BTU's, thus explaining why diesels get better mileage."

Everytime I hear someone defend big oil with this nonsense I wonder. Do you have any idea what sorts of innovations technology has created. We put the internet on your cell phone, and yet, folks like you claim that big oil, with one hundred billion at their disposal, can't seem to figure out how to harness CNG so that it fits better in your car. Nonsense, that is an excuse they parrot to someone like you. The fact is they have no desire to change and they won't. Then, they will make any excuse possible not to change.

Unknown said...

The amount of power a gallon or pound of fuel has determines whether it will be a more efficient fuel. Cars running on CNG, Propane and E85 all get worse gas mileage due to the fact that the fuel has fewer BTU's of power. This is a fact and no amount of engineering or technology will change this fact.

1 gal. Diesel: 139,000 btu's
1 gal. Gasoline: 125,000 btu's
1 gal. Propane: 91,600 btu's
1 gal. Ethanol: 76,000 btu's

CNG is sold by the cubic foot and has 1030 btu's per cubic foot. Propane is also sold by the cubic foot and has 2500 btu's, over twice as much as CNG.

You can build a car that works just fine on CNG. My mother worked for a company during the late 70's that converted cars to run on propane. This is old technology that is proven. Yes they can create better packaging for the systems, but that will not change the fact that the tanks and storage for CNG will always be more complex and expensive due to it being pressurized than a simple, non-pressurized, blow-molded plastic gas tank. It is the nature of the beast and has nothing to do with the system being rigged in favor of gasoline.

I design boats for a living, boats that hold hundreds, sometimes thousands of gallons of fuel. I understand fuel systems and what it takes to make them work. Gasoline is a much simpler and more efficient fuel to deal with, and that has nothing to do with parroting the oil companies line.

Pickens has spent a great deal of money on CNG, but as far as I know he has not built any refueling stations. Without that infrastructure, you will never sell any CNG cars. If the oil companies are expected to build gas stations, why aren't the CNG companies such as Chesapeake Energy expected to build CNG refueling stations? No one is stopping them, including big oil.

mike volpe said...

I'm going to leave your explanation of the weaknesses of CNG to the side because frankly I don't care. Pickens loves CNG not me. I don't know enough to know what does what. What I do know is that there are dozens of alternative energy sources that could be used in automobiles, and I don't for one second believe that oil is simply better than all of them. If big oil wanted to, there would be a plethora of viable alternative energy vehicles on the road today, but they are insistent on making the fueling viable for only one fuel, that made of a derivative of oil

Now, to your last point, which is important,

"Pickens has spent a great deal of money on CNG, but as far as I know he has not built any refueling stations. Without that infrastructure, you will never sell any CNG cars. If the oil companies are expected to build gas stations, why aren't the CNG companies such as Chesapeake Energy expected to build CNG refueling stations? No one is stopping them, including big oil."

First of all, it takes an awful lot of hubris to tell a billionaire where they should invest their billions given that this billionaire has put his billions behind his ideas. Second of all, and much more importantly, this so called infrastructure is a loser's game. Of course, there needs to be re fueling stations. That's been my point since the beginning. It's what I laughed about when Emaneul extolled the four natural gas fueling stations he helped to create. Who cares? Even T. Boone Pickens doesn't have nearly enough wealth to build the kind of "infrastructure" necessary to make any alternative energy source viable on mass scale when you compare it to gas derived from oil. That's because big oil has put a gas station on every corner. The convenience of their gas trumps all other alternative energy sources. The only way to make alternative energy viable is if big oil plays ball with it and leads in providing alternative energy fuels at their own gas stations. They have no intention of doing any such thing.