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How to Convert the Country to Natural Gas, by T. Boone Pickens

Photograph by Matt Rainwaters for Bloomberg Businessweek

April 11, 2013
By T. Boone Pickens

It starts with getting into the transportation sector. When I started the Pickens Plan in 2008, there were about 200,000 vehicles on natural gas in the world; now there’s about 16 million. That growth’s coming from everywhere but the U.S. Places like Iran and Argentina. China’s already got 40,000 trucks on LNG [liquefied natural gas], and they import the stuff. And here we are in the U.S., with more natural gas than any other country in the world, and we aren’t doing a thing about it. It’s just amazing to me that these dumb f-‍-‍-s in D.C. don’t see this opportunity and try to capitalize on it.

The best thing to do is focus on heavy-duty trucks and give them a tax credit. It could work like a toll road, what you call a pay-for system. If you use it, you pay for it. So you give these guys a break upfront to convert to natural gas trucks, and then you tax the natural gas.

You don’t put natural gas in your corner gasoline station. You put natural gas in a truck stop. It’s a fuel that competes against diesel. There are about 8 million heavy-duty trucks in the U.S. If you convert them to natural gas, that boosts consumption by about 15 billion to 20 billion cubic feet a day. Right now we do about 70 billion cubic feet a day. So that extra demand would immediately boost the price and get drills moving again. Today natural gas is about $2.79 a gallon, compared with about $4.79 for diesel. That’s a huge advantage. But here’s the thing: If you take natural gas from about $4 (per thousand cubic feet) to $6, you only increase it by about 28¢ a gallon. So it’s cleaner by 30 percent and still cheaper by almost a half.

Pickens is founder, chairman, and CEO of the hedge fund BP Capital. As told to Matthew Philips

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Eventually, Someone Is Going To Profit Off Of This Massive Arbitrage Opportunity

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Joe Weisenthal

This shouldn’t surprise you: Oil prices have held steady, while natural gas prices have gone into total freefall.

Natural gas has been “cheap” for sometime, but the warm winter has really been killing it, and so the relative cost of oil has exploded higher.

Of course, the two aren’t perfect substitutes, and as everyone knows there are major infrastructure challenges associated with using more natural gas in the economy (you can ask T. Boone Pickens about that). But at some point, given the need for cheap energy that doesn’t help fund countries that help fund terrorism, you’d think this might mean revert. Maybe.

Read more: BI

USA: Clean Energy Gets USD 150 Million in Investments

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Focused on supporting natural gas fueling in North America, investors, including Boone Pickens, have invested a total of $150 million in Clean Energy Fuels Corp., North America’s leading provider of natural gas fuel for transportation.

The investments resulted from the exercise of Mr. Pickens’ warrants to purchase 15 million shares of the company’s common stock at $10 per share. Mr. Pickens purchased 1.5 million shares and transferred the balance to existing investors RRJ Capital, Seatown Holdings and Chesapeake Energy Corporation, as well as Chief Capital LP, an investment vehicle wholly owned by energy investor Trevor Rees-Jones.

These investments bring the total invested or committed to Clean Energy to $450 million during 2011,” said Andrew J. Littlefair, President and CEO of Clean Energy. “We see this as a tremendous affirmation of both Clean Energy as the leader in natural gas vehicle fueling in America and our America’s Natural Gas Highway initiative that is expanding natural gas fueling infrastructure in cities throughout the country.”

We have a significant program underway to develop CNG and LNG fueling stations serving fleets in the long-haul, regional and port trucking markets, as well as for solid waste, transit, airport and municipal transportation nationwide,” noted Littlefair.

Currently priced up to $1.50 or more per gallon lower than diesel or gasoline (depending upon local markets), the use of natural gas fuel reduces costs significantly for vehicle and fleet owners, and reduces greenhouse gas emissions up to 30% in light-duty vehicles and 23% in medium to heavy-duty vehicles. Additionally, natural gas is a secure North American energy source with 98% of the natural gas consumed produced in the U.S. and Canada.

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U.S. natural gas exports could surge if DOE approves applications

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By Lou Kilzer, PITTSBURGH TRIBUNE-REVIEW
Wednesday, December 28, 2011

About one-fifth of the United States’ annual natural gas production could be shipped to India, Japan, China and other countries if the Department of Energy approves an increasing number of applications from companies that want to establish export terminals, a senior department official told the Tribune-Review.

Applicants began requesting permission to export American natural gas late last year. The latest and biggest application arrived a week ago, said John Anderson, manager of natural gas regulatory activities at DOE’s Office of Fossil Fuels.

That application, from Gulf Coast LNG Export LLC, asks to export 2.8 billion cubic feet of liquefied natural gas daily to countries with which the United States has no free-trade agreements.

Gulf Coast LNG appears to be a mystery company. The DOE has not posted the application on its docket board, so Anderson told the Trib on Tuesday that he is reluctant to name those involved.

The Gulf Coast LNG application came shortly after one filed on Dec. 19 by Freeport LNG Expansion, L.P and FLNG Liquefaction LLC. The two companies now want to export 2.8 billion cubic feet per day from a Texas port — double the amount of gas the companies had earlier sought permission to export.

The two December applications confirm previous reports by the Trib about an exploding interest in sending American natural gas abroad.

In May, the DOE gave its first and only approval to export natural gas to Sabine Pass Liquefaction LLC. Sabine, with a right to ship 2.2 billion cubic feet a day from a Louisiana port, Sabine has already signed contracts with companies in India, Great Britain and Spain to export American natural gas. In all, nine export applications have been filed.

Anderson said the department will grant no further approvals until two studies it commissioned are completed in the first quarter of 2012 examining the “impact on consumption, the economy, GDP and balance of trade.” The U.S. Energy Information Administration and a private firm are conducting the studies.

Price impact is key, he said, as is “the energy security of the United States.”

Those hoping to export argue that America is awash in natural gas because of hydraulic fracturing and horizontal drilling techniques that revolutionized gas production from deep shale formations. They forecast a small impact on prices and an increase in American jobs.

Dan Donovan, a spokesman for Dominion Resources, which wants to export Marcellus shale gas from Cove Point, Md., said studies show the United States is producing enough gas for domestic use “and limited exports.”

Exports would “support price stability,” he said.

Others, including oil tycoon T. Boone Pickens, argue that America should use its natural gas to produce electricity and power vehicles, thereby reducing the nation’s reliance on foreign oil. Pickens has told the Tribune-Review that if America exports natural gas, “we’re truly going to go down as the dumbest generation.”

Paul Cicio, president of Industrial Consumers of America, an organization representing American manufacturers with more than $700 billion in combined annual sales, told the Trib yesterday that “we’re clearly in unchartered waters here.”

His organization opposes exporting natural gas, in part for the same reason that proponents cite in their support: jobs.

“The possibility of (gas) rate growth is alarming manufacturing consumers,” he said.

Cicio said he believes the need to convert power plants from coal to gas will grow because of the Environmental Protection Agency’s new emissions regulations for plants.

Money is the bottom line: Natural gas prices in some places in Asia are three to four times that of U.S. prices, according to the energy reporting service Platts. That means that even when figuring in the cost of gas liquefaction and shipping, companies potentially could make more profit by exporting, Barclays Capital said this year.

The government estimates daily production of natural gas for 2011 will be 65.6 billion cubic feet a day. The export applications seek to ship a combined 12.51 billion cubic feet a day, or about 19 percent at the 2011 level.

Natural gas is transported in liquefied form by cooling it to minus 260 degrees. At that temperature, it takes up about 1/600 the space of its gaseous state.

A few years ago, energy experts predicted America would become a large importer of liquefied natural gas and companies scrambled to build plants to receive it from overseas. Owners of those ports want to reverse course and turn them into export terminals.

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Natural Gas Vehicle Subsidies Hurt Consumers

Published on May 11, 2011 by Nicolas Loris

The bipartisan New Alternative Transportation to Give Americans Solutions (NATGAS) Act provides preferential tax treatment to subsidize the production, use, and purchase of natural gas vehicles (NGVs). Supporters argue that it promotes transportation fuel competition and reduces foreign oil dependence and greenhouse gas emissions.

In reality, the NATGAS Act simply transfers a portion of the actual costs of using and producing NGVs to taxpayers. Special tax credits create the perception that NGVs are more competitive than they actually are by artificially reducing their price for consumers. Rather than increase competition, this artificial market distortion gives NGVs an unfair price advantage over other technologies.

Unfortunately, this shortcut to market viability does not work. Indeed, Washington has an abysmal record of picking energy winners and losers. Instead of adding more market distortions to the energy sector, Congress should remove energy subsidies and increase access to America’s resources.

The Market Is Already Working

The legislation creates, expands, or extends tax credits that subsidize NGVs. Supporters argue that the legislation would help NGV vehicle and infrastructure producers overcome investment obstacles and begin introducing new technologies to the marketplace. The truth, however, is that NGVs are already available, and nothing is stopping the market from expanding. The notion that no alternative fuels compete with gasoline is just not true. Consumers can choose vehicles that are powered by electricity, natural gas, or biofuels, as well as hybrid vehicles.

In fact, the trade group Natural Gas Vehicles for America claims that the United States has 110,000 NGVs and that more than 12 million NGVs are on the roads worldwide.[1] Billionaire investor T. Boone Pickens, a supporter of the bill, boasted in a recent speech that he owns a Honda Civic GX that he fuels with natural gas for less than $1 per gallon.[2] At a UPS facility, President Obama challenged transportation fleets to switch their vehicles to natural gas because it would be good for their bottom lines.[3] But if natural gas vehicles are economically competitive, vehicle manufacturers will make them and consumers will switch over without market manipulation from Washington.

A full-fledged competitive NGV fleet may eventually emerge. Rising gas prices make alternatives like NGVs more economically inviting, which should move investment to those technologies. That happens most efficiently when it is the result of a market-based response as opposed to government intervention. Indeed, government intervention to promote one technology over another only interferes in the process and creates another set of government-picked, taxpayer-funded winners and losers.

Reducing Foreign Dependence No Excuse for Bad Policy

The focus on decreasing energy dependence through government intervention and market distortion is folly. Policies that maximize access to a broad array of energy sources, domestic and foreign, will best serve Americans. A market-based approach would ensure that every American has access to affordable energy by putting a premium on sound economics through competition and choice.

This is not the approach of the NATGAS Act, which would make America economically weaker. When the government artificially lowers the cost of production, manufacturers must forgo the value of the goods they might have produced had they allocated their time, effort, and other resources in alternative ways. In this case, the NATGAS Act uses tax credits to create the perception of lower costs. This will fool consumers into purchasing more of these vehicles. Further, those hidden costs now have to be paid by someone else—the taxpayer. This leaves fewer resources for more productive activities.

A better approach to decreasing energy dependence is for the federal government to remove unnecessary rules and regulations that restrict access to all types of energy sources.

Reducing Greenhouse Gas Emissions No Excuse for Bad Policy

Reducing greenhouse gas (GHG) emissions is another dubious policy goal. Years of pressure from political leaders has forced significant changes in much of the business community. Energy producers became vested stakeholders and lobbied for handouts to produce what Congress determined to be cleaner energy. If these sources can compete without help from the government, the consumer will benefit through increased competition and lower costs. But creating an artificial market to reduce GHG emissions ignores both consumer preferences and economic fundamentals.

Moreover, Congress continues to ignore the vigorous disagreement within the scientific community concerning the effects of anthropogenic global warming.[4] Policy should never rest on a shaky set of assumptions, particularly when it can have far-reaching implications for American businesses and everyday Americans and could therefore fundamentally alter decisions in ways that harm America’s productive system of free enterprise.

Subsidies Do Not Work

Proponents of NGVs argue that because other alternative transportation technologies receive preferential treatment, so should natural gas. The problem is that government subsidies have a proven track record of not working. Congress should therefore remove subsidies from the transportation fuel market, not increase them.

Subsidies centralize power in Washington and allow lobbyists and politicians to decide which companies will produce. The more concentrated the subsidy or preferential treatment, the worse the policy is because the crowding-out effect is larger.

The NATGAS Act is a perfect example. Soon after its introduction, the National Propane Gas Association understandably voiced its opposition to the bill because the tax credits do not include propane gas. And that is just one problem with such bills: They distort the competitive process that so capably yields affordable and viable products, moving the decision-making process from the marketplace to Washington. Consumers, not Washington, should decide whether NGVs are better than propane.

Furthermore, subsidies funnel money toward projects that have little market support and offset the private-sector costs for investment that would have been made either way. This creates industry complacency and perpetuates economic inefficiency by disconnecting market success from production costs. By artificially lowering the cost of investment, subsidies take resources away from more competitive projects. The fact that other transportation fuels receive government support is not a good reason to continue or expand special treatment for natural gas. It is a good reason to remove those subsidies.

More Handouts, No Solutions

Pieces of legislation like the NATGAS Act will not be a quick fix for high gas prices and are not the way to reduce either America’s dependence on foreign oil or GHG emissions. They provide special benefits to one industry, distorting the market and misallocating resources away from potentially more economically viable alternatives.

If Congress truly wants to promote NGVs, it should eliminate subsidies in the transportation industry and consider other market-oriented policies—such as full expensing, lowering corporate tax rates, and removing barriers to drilling—that would incentivize the production of profitable endeavors and ultimately lower prices through competition.

Nicolas D. Loris is a Policy Analyst in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.

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