Feeling gassy

This has been an interesting year in the energy business. A division of my company has just had a breakthrough discovery in the Gulf of Mexico that many in the industry are saying will revolutionize the oil industry. That discovery not withstanding, the most likely candidate for an Energy Discovery of the Year Award is fracking natural gas from shale.

If you are a capitalist, an isolationist, an environmentalist, or just plain like the idea of new technology, you can support what I am about to say:

It is time to switch our power plants, and our cars, to clean burning natural gas.

Don't believe me? Suspicious? Check these out:

1) America's oil supply is in trouble. We are a net importer of oil. Our three primary sources of oil are Canada (from the oil sands near the Arctic), Saudi Arabia, and Mexico. The oil sands in Canada are environmentally challenging. Mexico, long a net exporter, is poised to become a net importer for the first time in their history because nationalizing their industry has prevented them from advancing technologically. Our relationship with Saudi Arabia is diminishing (see below). That leaves us unfriendly (and arguably unstable) Venezuela and Russia, and politically unstable Nigeria, Iraq and Iran. If we transfer our power plants to CNG, we lower that risk. If we transfer our automobiles, we eliminate it. On the plus side for my friends here, it could mean an increased relationship with, and investment in, Indonesia and its deep oil reserves.

2) China's growing demand will destabilize the industry. It's already started. China is gaining favor with Saudi Arabia. On the surface, this doesn't sound like a big deal. Until you recognize that one of the drivers behind the US being a global reserve currency is because oil is always priced and sold in US dollars. Being a reserve currency helps keep the dollar strong, and the United States economically relevant. Saudi Arabia is the reason OPEC prices oil in US dollar. If Saudi Arabia decides that its relationship with China is more important than its relationship with the US, and we are still dependent on their oil, we're in big trouble.

3) Terrorists will lose their funding. It's no secret that the terrorists behind 9-11 were funded by oil. Osama bin Laden's wealth comes from his family's ties to oil. Opium and oil are Al-qaeda's source of income. If we stop buying their oil, we diminish their ability to attack us.

4) We can leave the middle east. Al qaeda has attacked us because of our policies. Not our policies of freedom - if it was just freedom, they could have attacked nations much closer to their home base. They don't like our policies in the middle east. Starving nations with economic sanctions because we disagree with their leadership. Supporting a government, in Saudi Arabia, they believe are not true Muslims. The history is long and the wounds are fresh. Why are we in the middle east? We need oil.

5) Natural gas is cheaper (now). Historically, natural gas has been more expensive than coal. With the new technology, greater supplies, and lower transportation costs, we can expect the current low costs of gas to continue, even with the increased demand. The supply curve has shifted. This means lower electric bills, and less money to fill your tank (even if you still drive a conventional combustion engine).

6) It's all domestic. The new fracking technology unlocks enough US reserves that we can support domestic consumption for 100 years. This means American labor, taxable corporate revenue, and independence from those who would attack us. As a side benefit, we can even reduce Russian influence in Europe (link may require free registration).


I recognize this isn't easy. There are challenges. Power plants are large capital expenses and take years to build. Current distribution networks don't have enough capacity to handle it all. We also have a catch-22. Consumers won't buy CNG vehicles without filler stations to provide them fuel. Gas stations won't add a CNG pump if there isn't enough demand to make it economical.

These are all surmountable. Because burning gas reduces emissions by 70% over coal, we can use the money we committed in Copenhagen to retrofit the power plants. Strategically placed tax incentives will jump start the supply until the demand picks up to make everything economical.

Luckily, companies, like Energen, are already making the profit connection and are focusing on natural gas. Exxon even got in the game by buying XTO. You can show your faith, and make a profit at the same time, by buying companies that find, drill, produce, and create power from Natural Gas. I know I am.