– T. Boone Pickens

Inflation can do tricky things to markets. It creates distortions. In those distortions, an intrepid investor can find some big moneymaking ideas. I think we’ve got one opening up in oil and gas, and it is not without precedent in financial markets. In fact, it’s starting to look a little like the tail end of the 1970s in some respects.

In the spring of 1969, the Dow Jones industrial average stood at 969. By 1982, the Dow hit 1,071. That’s thirteen years of going nowhere. (We’ve had 10 years or so of going nowhere, though the ride between the poles has been anything but boring).

The problem is inflation makes that performance look better than it really was, like when a crooked judge makes a fight look close with a split decision even when the one fighter can barely walk to his corner and everybody in the building knows it was a rout.

Adjusted for inflation, or the weak dollar, the Dow was really more like 400. That makes it one of the worst stretches for the market since the 1930s.

The consumer price index, that flawed measure of inflation, doubled from 1960 to 1982. This is why a generation of people grew to believe that the best way to buy a house was to borrow all you could afford. And for a time, that looked brilliant. As Robert Sobel relates in a history of the period, a modest suburban home going for $30,000 in 1969 sold for $300,000 13 years later. With a lot of debt, your returns were much greater.

Of course, that kind of thinking eventually got us into a heap of trouble, as we now know.

But that period of time also had an effect on Corporate America’s balance sheets. When a company buys an asset, say a factory, it records its cost on its books. It will then depreciate this asset over time. So the value of the factory on its books will decline over time.

In a period of high inflation, its book value will be understated. The cost of a similar factory will be a lot higher in dollar terms, though the company will still show the old figure.

In other words, during periods of inflation, book values understate the true value of corporate assets. This happened in the 1960-82 period. Combine that phenomenon with a stagnant stock market and, eventually, you get some very cheap stocks. This is exactly what happened during the inflationary 1970s. Thus, by the early 1980s, stocks were quite cheap indeed.

In fact, by July 1984, S&P reported that 30% of the stocks on the NYSE traded below net tangible book value. The old value mavens like Ben Graham would have had a field day.

What happened next, though, is what interests us especially. The low stock prices kicked off a takeover boom. The 1980s takeover mania was the busiest since the “age of Morgan at the turn of the century,” Sobel reports in his The Age of Giant Corporations. The 1980s was the age of the LBO, Barbarians at the Gate, Michael Milken and the corporate raider.

The oil industry also had its takeover boom. In fact, the outlines of the 1980s oil and gas industry look similar to today’s. In 1970s, there was a drilling boom as people thought that oil and gas prices would rise indefinitely. That collapsed and then you had oil and gas companies sitting on huge reserves they built up during the boom.

So in a time when it cost $15 a barrel to get oil out the ground, many oil companies traded for $5 a barrel in proven reserves. Getty Oil traded for $72 per share, with assets of $250 per share. Marathon’s stock went for $68, even though each share had $210 in assets backing it up. And on and on it went.

Enter T. Boone Pickens. An Oklahoma-born geologist, Pickens was well aware of the value of these companies. He started going after them and making millions of dollars as bidding wars ensued. He lost several of these, but still cleared millions in profits.

There was a roll call of takeovers in the industry during this time — Shell bought Belridge Oil for $3.6 billion, DuPont bought Conoco for $7.4 billion and U.S. Steel took out Marathon for $6.5 billion. (Yes, U.S. Steel thought it would be smart to diversify). These were some of the bigger deals.

I won’t go too much into the history of this period, and perhaps I’ve already gone into too much detail. But I think something similar may be unfolding in today’s market.

In oil and gas, we have many companies trading cheaply in the wake of a drilling boom gone bust. What we need now is a T. Boone Pickens to shake things up.

When I look at some of my favorite oil and gas stocks, like Contango Oil & Gas (MCF:amex), I see stocks trading for far less than what it would cost you to find those reserves. If I were a natural gas producer, I’d look to pick up stocks like these, rather than drill new wells. At some point, I think that will happen and we’ll see lots of buyouts in the oil and gas sector.

Natural gas is very cheap right now, but it won’t always be the case. In a new research report by Tudor Pickering Holt & Co., a very good firm specializing in energy, $7.50 natural gas prices is forecast for next year! That’s pretty bold considering natural gas is under $3.00.

The firm bases this prediction on a comprehensive, bottoms-up model that takes into account rig count, decline rates on existing wells and other variables. According to Tudor Pickering, “The die is cast for 2010” — there is no way to get around a dramatic decline in natural gas production next year. And even assuming tepid demand for natural gas, we’re going to have a very different picture in natural gas next year.

After that, Tudor Pickering predicts the market will get full again by 2011. If it is right, we have a great window to make money between now and probably the middle of 2010 in natural gas.

Source: The Coming Takeover Boom

But a year ago, the 81-year old chairman of BP Capital spent his own money to buy prime time on major networks and mobilized an “army” of believers in order to get the word out about the dangers of continued dependence on foreign oil.

Earlier this month, Pickens appeared on CNBC’s “Squawk Box” to discuss the progress of the “Pickens Plan,”which essentially seeks to reduce the nation’s dependence on foreign oil through a combination of wind-generated power and natural gas powered vehicles. The goal: Drastically reducing or eliminating the need for foreign oil in as little as 10 years.

His timing was perfect, as oil prices shot to all-time highs around $150 a year ago. The plan garnered a lot of attention. And to his credit, over the past 12 months, nobody else has articulated a plan as clearly and succinctly as Pickens’ has.

Today, however, oil prices are down some 54% and the U.S. is sliding deeper into recession. Is shutting off foreign oil still a concern? Have we made any progress in doing so? Are we any closer to a national energy plan?

The short answers are:

1. Definitely yes
2. Yes
3. Almost

Let me explain…

Get Rid Of The Rogues… And Pocket $400 Billion

While the price of oil has declined dramatically over the past year, our dependency on foreign oil is as great as ever. We still get over 70% of our oil from other countries, and it’s a huge security issue.

While the transfer of wealth – dollars out for oil in – is less, it’s still a huge net outflow of nearly $400 billion annually.

There’s no question that keeping that money here will not only have a positive effect on our trade balance, it’ll make a huge difference in the U.S. economy – a “free” $400 billion annual stimulus package, if you will.

Alternatively, according to Pickens, “If we go 10 more years with no plan, we’ll be importing 75% of our oil and it will cost us $300 a barrel.”

Even if he’s wrong by 50% – which is unlikely given increasing world demand – it’s still a big problem. So how do we get rid of the rogues?

The “Anti-Oil”: U.S. Natural Gas Reserves Soaring

In terms of our progress in displacing foreign oil, there’s only one quick way to do it: Replace it with natural gas.

The Potential Gas Committee – the nation’s authority on natural gas supplies – recently issued a report that showed a substantial increase in U.S. natural gas reserves.

The report indicated that the nation’s gas reserves have increased by 25% to 2,074 trillion cubic feet (tcf) from 1,532 tcf in 2006 – the last time the report was issued. It was the largest increase in the 44-year history of the committee and its language reflected that: “[The report] shows an exceptionally strong and optimistic gas supply picture for the nation.”

That’s an understatement. By 2030, it projects a supply of nearly one hundred years – the most in the world.

John B. Curtis, a geology professor at the Colorado School of Mines and the report’s principal author, said,“New and advanced exploration, well drilling and completion technologies are allowing us increasingly better access to domestic gas resources – especially unconventional gas – which, not that long ago, were considered impractical or uneconomical to pursue.”

The findings have shifted the focus onto natural gas as a possible transition fuel as we move from coal and oil to solar, wind, geothermal and other non-carbon sources of power. It couldn’t have come at a more opportune time.

A National Energy Plan: Slow And Steady, But Are We Winning The Race?

The best thing the government can do to move us away from fossil fuels is to provide funding and tax incentives to develop and use something else (and then get the hell out of the way). And it appears as though Congress is trying to do just that with natural gas.

H.R. 1835, known as the “New Alternative Transportation to Give Americans Solutions Act of 2009,” amends the Internal Revenue Code of 1986 to create jobs and encourage alternative energy investments.

Here’s what this act provides:

• An excise tax credit through 2027 for alternative fuels and motor vehicles involving compressed or liquefied natural gas (LNG).

• An income tax credit through 2027 for vehicles powered by compressed or LNG.

• A new tax credit for the production of vehicles fueled by natural gas or LNG.

• A tax credit for alternative fuel vehicle refueling property expenditures for refueling property relating to compressed or LNG and allow an increased credit for such property.

• Requires 50% of all new vehicles purchased or placed in service by the U.S. government by December 31, 2014, to be capable of operating on compressed or LNG.

• Authorizes the Secretary of Energy to make grants to manufacturers of light and heavy-duty natural gas vehicles for the development of engines that reduce emissions, improve performance and efficiency, and lower cost.

Now before I get a dozen e-mails pointing out that natural gas is just a different fossil fuel, let me head them off. There’s no argument there. But here’s where it’s very beneficial…

The Benefits Of Natural Gas – And How To Play It

Natural gas is a much cleaner burning fuel, produces less carbon emissions and, most importantly, it’s found here in abundance. It’s a walk in the park to produce new cars and trucks that run on it, and convert older ones as well.

And if it helps free of the grip of rogue nations around the world in 10 years or less, then I’m all for it. We’ll all be better off economically, and we’ll all have greater piece of mind.

How do you play it? Take a look at Clean Energy Fuels Corporation (Nasdaq: CLNE), a provider of natural gas as a vehicle fuel, primarily for fleet use in the United States and Canada. It designs, builds and operates natural gas fueling stations, and provides financing for natural gas vehicles. It and others in the sector will undoubtedly benefit from this legislation when it’s passed.

Source:  Energy Independence: The Progress, The Problems… And A Way To Profit

{Editor’s Note: One year ago, oil prices were atrecord highs… the U.S. political scene was gridlocked amid the presidential election… and a fellow named T. Boone Pickens was promoting a bold new plan to wean the U.S. off its oil dependency and towards wind power and natural gas instead (and Pickens is an oilman). Today, oil prices are trading around $68, so where does the “Pickens Plan” stand now? Investment U columnist and infrastructure specialist David Fessler reports on whether cheaper oil prices have dampened the drive towards greater energy independence, plus a way to play a natural gas-powered future.  Martin Denholm, Managing Editor, Smart Profits Report}

Source: Investment News Briefs Thursday, July 9, 2009

• Microsoft Corp.’s (Nasdaq: MSFT) Bing search engine has gained market share from rivals Google Inc. (Nasdaq: GOOG) andYahoo! Inc. (Nasdaq: YHOO) just weeks after its launch. The Redmond, Wash.-based software giant grabbed 12.1% of total U.S. Internet searches for the workweek of June 8-12, according to market research firm comScore, Inc. (Nasdaq: SCOR). That was up from the previous week’s share of 11.5% and May’s share of 8.2%. While the start is good for Bing, Microsoft Chief Executive Officer Steve Ballmer was cautiously optimistic. “We have had some very good initial response,” Ballmer said. “I don’t want to over-set expectations. We are going to have to be tenacious and keep up the pace of innovation over a long period of time.” comScore did not offer the share numbers for Google or Yahoo in the same periods, but said it would have a bigger picture for the entire month when the final tallies are in.

• Natural gas reserves in the United Stats are much bigger than once thought, according to a report released yesterday (Thursday) from the Potential Gas Committee. The country possesses a resource base of 1,836 trillion cubic feet (Tcf) and a total available future supply of 2,074 Tcf. Some, such as Texas oilman T. Boone Pickens, are pushing hard for natural gas as an alternative fuel for transportation. “I launched the Pickens Plan a year ago to help reduce our dangerous dependence on foreign oil, and using our abundant supply of natural gas as a transition fuel for fleet vehicles and heavy-duty trucks is a key element of that plan,” Pickens told The Associated Press. “On the same day this report is going out, diesel prices are again on the rise, squeezing the trucking industry. Now more than ever we need to take action to enact energy reform that will immediately reduce oil imports.”

• Shares of Carnival Corp. (NYSE: CCL) closed up more than 7% yesterday (Thursday) following news that the cruise line operator beat Wall Street earnings estimates and discounting is starting to abate. Carnival’s net income fell 32% to $264 million, or 33 cents per share for the quarter ended May 31. That compares to a net income of $390 million, or 50 cents per share. Average analyst estimates compiled by Bloomberg News had Carnival earning 29 cents per share. Executives called the rise of fares on some itineraries since the end of March “encouraging.”

• Prices of Treasury bonds fell for a second day as the U.S. government said note sales will increase to a record $104 billion next week and other reports showed the deepest recession since the Great Depression may be coming to an end.  Yields on ten-year notes, which move in opposition to prices, touched the highest in almost a week amid concern President Barack Obama’s record borrowing will overwhelm demand, Bloombergreported.  The yield gap between two- and 10-year notes widened to 2.56%, the most in over a week. “There’s so much focus on the borrowing amounts Treasury will face over the next couple of years,” said Carl Riccadonna, a senior economist at Deutsche Bank Securities Inc. (NYSE: DB) in New York. Deutsche is one of 17 primary dealers that trade with the Federal Reserve. “There’s evidence that the economy may be turning the corner. That’s pushing yields up.“

• General Electric Co. (NYSE: GE) may have to consider the government’s new stance on regulatory reform when it restructures its giant GE Capital finance unit.  The possibility that the Federal Reserve might gain regulatory authority over the unit arose when President Barack Obama this week unveiled his proposal for the most sweeping overhaul of U.S. financial regulations since the 1930s.   He proposed the central bank oversee not just banks but “other large firms that pose a risk to the entire economy in the event of failure.”  GE investors said the label could apply to the U.S. conglomerate’s finance business, a major commercial lender. “I could definitely see that potentially becoming an issue if companies like GE and their finance arms came under more scrutiny,” said Perry Adams, vice president and senior portfolio manager at Huntington Private Financial Group in Traverse City, Michigan, told Reuters.

• Tourism in Mexico took a severe hit from the swine flu scare as Cancun, Cozumel, Los Cabos and other destinations reported fewer foreign tourists since the outbreak that began in April killed 108 people, the Mexican Health Ministry said. Cancun’s hotel occupancy plunged as low as 20% in May, when 13 inns with 5,200 rooms shut down, Bloombergreported.  It rebounded to 45% in the first week of June and is forecast to reach 60% next month, said Rodrigo de la Pena, president of the Cancun Hotel Association. That’s still down from 80% last July. “We’re recovering quicker than we thought,” de la Pena said. “The hotels have almost all their workforce back and tourists are arriving.” To fend off unemployment, the government rolled out a $91 million campaign urging Mexicans to vacation at home and encouraging hotels and restaurants to cut prices.

• Discover Financial Services (NYSE: DFS), the fourth-largest U.S. credit card network, reported a smaller-than-expected quarterly loss as it cut costs and bad loans weren’t as bad as forecast, sending its shares up more than 4%. The company’s expenses fell 10% after it cut 500 jobs and trimmed marketing costs.  Credit card default rates also remained well below levels of its bigger rivals. The Riverwoods, Ill.-based company posted a net income of $226 million, or 43 cents per share for the quarter ended May 31. That compares to a net income of $234 million, or 48 cents per share in the same period last year.

Source: Investment News Briefs Friday, June 19, 2009

Pickens wasn’t the only person who got 2008 wrong. There were plenty of others.

When it comes down to it, anybody can make predictions. It’s not very hard. But it is hard to make ones that do what they purport to do: predict.

My advice is to take them with a grain of salt. If predicting the markets were so easy to do, most of Wall Street’s brightest fund managers wouldn’t have lost 40 percent or more last year.

I’ve made my share of predictions in the last couple of issues, “A Preview of 2009?” and “Six Predictions for 2009″.  So I decided to go back a year and look up my predictions at the end of 2007 – to see just how foolish my prognostications were. Here is what I said on December 31st, 2007…

“No, it’s not the overall returns that are most worrisome. It’s the economy. The problems that came to the forefront this year – housing, a credit crunch, weak dollar, slowing economic growth and a tired consumer – aren’t going to disappear with the New Year. In fact, some of those problems – like the credit crunch – will get much worse before they get better.”

And here is what I said the week before, on December 24th…

“If the financials won’t lend, all bets are off. The economy is doomed. The market will fall…
But the credit crud is just starting to gum up the works of the finance sector. It’s far too early to call off the crisis… or to say (or hope) the worst is over.

The fact is, the banks still don’t have any idea how to price their mortgage-backed securities. They’re not nearly through writing off billions and billions of dollars.  They’re still going to need more cash infusions as they transfer their off-book losses to their balance sheets.

And to further complicate things, the insurance companies who have been guaranteeing bonds are being downgraded. Next to get a rating downgrade will be the bonds themselves…

Plus, the global economy hasn’t been immune to credit problems of its own. The subprime slime is reaching far and wide.

The fact is, we’re not at the beginning of the end of the credit crisis. There’s no light at the end of the tunnel here. We’re simply at the beginning. And it’s a deep and convoluted banking mess that will take all of next year to unwind.

It won’t be a pretty process.”

As it turned out, I got lucky and pretty much hit the mark. I was a little easy on the economy though. While I was probably more pessimistic than about 99 percent of the other prognosticators, the economy (and banks) did even worse than I expected.

The crowd is saying that the economy will make a comeback in the second half of this year. And once again, I find myself far more pessimistic than the crowd.

I believe we’ll have to wait until 2010 for any comebacks.

Source: Not All Predictions Are Created Equal

T. Boone Pickens, oil man, hedge-fund manager and natural gas entrepreneur, made headlines earlier this year when he announced an initial investment of $2-billion in a new Texas wind farm. Wrapped in the brilliance of Old Glory, he stepped up to the soap box and declared how he would wean America off evil foreign oil. Overnight, the 80-year-old Texas legend became the most unlikely poster boy for the green energy movement.

Given Pickens’ Texas Holdem swagger, wind energy – and by association all alternative energy – took on a measure of safety that deluded many investors into thinking they could simultaneously buy their way into the Wall Street Hall of Fame and the Pearly Gates of St. Peter.

Now, it turns out, Pickens’ massive project is sucking cash instead of blowing in the wind. And in one of the most under-reported stories of the year, Pickens finally admitted that the wind farm has been put on hold indefinitely.

Just as investors followed Pickens to the alter of green, they should now also pull green from their portfolio.

The same market dynamics that forced Pickens away from wind continue to crush the green industry as a whole: difficult financing and low oil prices. Some rosy optimists still cling to the belief that President-elect Obama will wave his magic green wand and make all those problems go away. But with record unemployment, the struggle to save Detroit and expensive wars in the Middle East, we contend that Mr. Obama’s green initiatives will prove to be nothing more than campaign rhetoric for at least the first 12 months of his administration.

Certainly big money men such as Pickens, electric-car magnate Elon Musk and Silicon Valley’s new breed of green venture capitalists have influence in Washington. But we’re still not convinced that Obama, for all his good intentions, can make a convincing argument to throw billions behind green in these tough, recessionary times.

As it now stands, Pickens’ Mesa Power has already placed orders for the first phase of the Pampa Wind Project, 667 wind turbines from General Electric capable of generating 1,000 megawatts of electricity, enough to power more than 300,000 average U.S. households.

The first phase of the project, estimated at $2 billion, was originally scheduled to come online in early 2011.

He still expects to take delivery of the project’s 2,700 turbines in 2010, but their installation might be delayed until wind is more competitive economically, he was quoted as saying. Still, 2010 isn’t that far away, and the likelihood of oil rebounding to this summer’s high of near $150 by then is quite slim.

Futures of light sweet crude were trading on the New York Mercantile Exchange at about $57 a barrel, a 21-month low. Unless, Obama can create thousands of new jobs in 2009 so consumers can drive to the mall, oil prices will continue to remain depressed.

While green investments will certainly make a rebound in our lifetime, it won’t take place in the next 12 months.

I am not sure this country should follow the advice of a man that has lost over $2 billion so far this year. But then again, some of the nation’s most powerful men have lost far more than that in just the past few weeks.

If you spend any time watching your living room television set, you have seen T. Boone Pickens discussing his proposed energy plan. The 80-year old has spent over $58 million of his own money to tell the nation it must lose its dependence on foreign oil.

What the white-haired oil barren does not tell you is that his money is not where his mouth his. While Pickens was telling you and I to fund his $100-billion idea, the fund he manages, BP Capital, was invested heavily in crude. And thanks to Pickens’ investing decisions, the fund has dropped in value by over 60% so far this year.

It is no wonder the investing firm’s phones are ringing off their hooks with folks looking to pull their money out of the fund. About half of BP Capital’s investors want out of their positions. Their capital withdraw has taken the fund’s size down to just $400 million.

It is a strong blow to the oil maverick’s ego.

Pickens promises to make the $2 billion back, but it is going to be much, much harder now that he has less funding to work with.

Should have known better

Investing in the energy business is a hard racket. After all, it is one of the most cyclical industries out there. But with decades of experience and several boom-to-bust cycles under his belt, one would expect Pickens to be able to avoid his current situation.

With so much negativity surrounding the investor and his picks, it will be hard for folks to get onboard with his newly proposed plans. As oil prices drop with the slowing economy, expensive prospects like wind, geothermal, and solar power are going to look far less attractive than they did when Pickens started his campaign.

While Pickens is pushing his alternative-energy agenda on the mainstream networks, his philanthropy is much more indicative of the investor’s true thoughts.

Instead of adding more money to his energy investments, Pickens is donating it to his beloved Oklahoma State and its football team. He just wrote a $65 million check earmarked to help finish the school’s football stadium.

Plus, Pickens said he would be returning the $125 million he managed in a hedge fund for the school. When he started the investment, it was worth $165 million.

Oh well, it is the thought that counts.

Source: T. Boone Pickens shows his cards

Energy investor T. Boone Pickens says “natural gas is the fuel of the future.” He also says water will become an increasingly scarce commodity with major implications for the agricultural sector.

Chris Mayer agrees with Pickens. He says once the financial crisis ends natural gas and water stocks will attract big bucks.

This from the Rude Awakening:

T. Boone Pickens’ new memoir, The First Billion is the Hardest, is better than I thought it would be. Based on reviews I’ve read, I thought it would spend a lot of time on Pickens’ plan to reduce U.S. oil dependency. I always find such discussions a bore. But that part of the book was only 10 of 250 pages.

Mostly, it’s memoir material, with some peeks into the future as T. Boone sees it evolving. The most interesting parts, to me, were some nuggets from his career, his views on natural gas and his large investment in water.

Pickens is 80 years old now, and he’s accomplished an awful lot in his career. He started Mesa Petroleum with $2,500. Five years later, he took it public, and Mesa earned $435,000 in profits on revenues of $1.5 million. Not a bad start at all. After only eight years as a public company, Mesa generated $92 million in sales and $15 million in profits. It helped make him a rich man.

Along the way in the book, Pickens offers various “Booneisms” such as: “Chief executives who themselves own few shares of their companies have no more feeling for the average stockholder than they do for baboons in Africa.” (That’s one reason why the “O” — owner-operators — in CODE is important.) Or this: “As my father used to say, ‘There are three reasons we can’t do it. First, we don’t have the money, and the other two reasons don’t make a damn.’”

He complains about the bureaucratic nature of Big Oil and its track record for dumb deals. “I’ve said that giving the good old boys of Big Oil excess cash flow,” Pickens writes, “is like handing a rabbit a head of lettuce for safekeeping.”

Pickens points to Mobil buying Montgomery Ward as part of its plans to diversify. What a bust! In 1984, Fortune focused on the seven worst mergers of the decade. Four of them involved oil companies. I think big oil companies have gotten smarter since – or maybe just less dumb.

Gains of 9,095%!

He also talks about his career in deal making, finding deep values in the oil patch and making millions taking them over. He eventually gets out of the oil business and starts BP Capital in June 1997. What follows is an incredible ride. By May 1998, the fund lost $24 million and had only $13 million left. By January 1999, it was down to $2.7 million — down 90%.

It was practically out of business. No one would’ve blamed Pickens for changing things or giving up. Some investors left him, but most stuck with him. It paid off big for those who stuck to their guns.

In 2000, he rung up one of the best years anybody has ever had anywhere – up $252 million, a 9,095% gain! I love Pickens’ grit and determination in all this, sticking it out and coming back.

Plus, Pickens offers peeks into the future. A couple of topics piqued my interest: natural gas and water.

The Fuel of the Future

“Natural gas is the fuel of the future,” Pickens writes. I agree with him. Natural gas is our second largest resource, behind only coal, and it burns a lot cleaner than coal does. Pickens’ big vision for natural gas is as a transportation fuel. The logic is pretty simple. “[Natural gas] is the highest-priced fuel in the United States when used for power generation, but it’s cheaper than gasoline or diesel when used for transportation.”

Pickens is talking his book, as they say. He owns Clean Energy, which runs fueling stations for natural gas and builds more every year. Even so, he makes a good case. I was not aware, for example, that there are already 8 million natural gas vehicles on the road worldwide already. He also points out that 25% of all transit buses burn natural gas – a use that’s growing 25% annually.

I had a hard time imaging who would want to own a natural gas vehicle when fueling stations are so sparse. It’s kind of like being one of the first people to buy a telephone. But I recently read a review of the only natural gas-powered car in America at the moment: the Honda Civic GX.

It was a positive review.

Though the range is limited to only 200-220 miles, the car comes with a GPS locator to find the nearest fueling station for you. Refilling also costs about half of what it would cost you for gasoline, though the car itself sells for a third more than a gasoline-powered Civic.

Tax credits help offset that somewhat, and the EPA estimates the payback is about 21/2 years. Meaning after that, you’re even with the conventional gasoline vehicle. There are also home fueling systems that go for about $5,000 and let you tap into your gas lines at home (assuming you have gas). You get tax credits for that too.

Anyway, this is the way these things get started. Pricey in the beginning, but as technology improves and more people adopt, the price will go down. I think there is a good future in natural gas-powered vehicles.

There Is Profit in Scarcity

In addition to his stance on natural gas, Pickens writes that he is a large owner of permitted groundwater in the U.S. His investment here follows the same key principle he’s used throughout his career: There is profit in scarcity.

Pickens owns land in Roberts County, Texas, a place so rich in water, he jokes it’s the only place he couldn’t drill a dry hole. It’s not difficult to pump 1,000 gallons per minute. This land lies above the Ogallala Aquifer, one of the largest in the U.S., covering over 174,000 square miles across eight states.

Pickens plans to sell water to parched regions in Texas, like Dallas or San Antonio, where water supply is becoming an issue. “We can deliver water faster and more cheaply than any other option on the table,” he writes. “It’s not a matter of if, but when, and I’m betting it’s soon.”

I’m thinking along the same lines as Pickens on water, too. This all ties back to the agriculture theme, as well. In fact, The Economist recently ran a story called “Running Dry: The World Has a Water Shortage, Not a Food Shortage.”

It’s a simple idea.

As world populations and incomes rise, expect to see meat consumption also rise. Meat takes more grain and water to produce – exponentially more.

In a post-finance world, where the mortgage gravy train is dead in its tracks, these are the kinds of ideas — essentials like grain and water — that will attract new money.

Source: The First Billion Is the Hardest

More than a year ago, the folks at Energy Bulletin ran a revealing test on Google Trends to see how many people were searching for “global warming” as opposed to “peak oil.” The results were disappointing. (Four days later came my way-too-premature prediction that Peak Oil was about to become a household word, but we won’t go there now…)

I ran the same test this morning and came up with similarly depressing results. And it’s not just people searching on the web. Confirmation comes from that ultimate arbiter of what America’s clueless nomenklatura are thinking — New York Times columnist Tom Friedman:

We’ve added so many greenhouse gases to the atmosphere, for our generation’s growth, that our kids are likely going to spend a good part of their adulthood, maybe all of it, just dealing with the climate implications of our profligacy. And now our leaders are telling them the way out is “offshore drilling” for more climate-changing fossil fuels.

Madness. Sheer madness.

Friedman has achieved such mythic status that the Times evidently feels he’s beyond any need for an editor. But if he had one, that editor would no doubt ask Friedman what he means by “the way out.” The way out of what? Presumably a shortage of fossil fuels. But Friedman makes no mention of a fossil fuel shortage in the sentence preceding. He’s talking about “the climate implications of our profligacy.”

Sloppy syntax, fuzzy thinking.

Friedman must believe, like Congressional Democrats, that a magical government program can bring about solar-powered cars and jets faster than it’ll take to bring new offshore oil fields online. Of course, if the Democrats are clueless, the Republicans are liars, with the repeated assertions that opening up offshore drilling will bring back cheap gasoline within weeks. It won’t. But it’ll buy us a little more time until something other than oil emerges in another 10-15 years as the transportation fuel of the future. And we’re gonna need all the time we can get to forestall catastrophic changes in the way we live.

Source: Peak Oil vs. Global Warming

When the Pickens Plan was first announced, Dave expressed concerns in The Daily Reckoning’s Desidooru Saloon blog about its finer details.

The problem is the Pickens Plan isn’t quite as free market as it claims. Take the proposed $5-billion sale of general bond funds to help finance alternative energy schemes in California. This is more like a back-door subsidy for Pickens’ natural gas agenda. More from Dave below…

I’m rapidly losing faith in T. Boone Pickens and his mission to change the tenor of the idiotic debate over energy in this country.

I already expressed mild misgivings the week he unveiled the Pickens Plan.  But I gave him points for trying to get us out of the quagmire of a false choice between drilling on the one hand and conservation/alternative energy on the other.  Commenters responding to my post seemed jazzed by the idea that zero taxpayer dollars would be required.

Ah, but it’s not that simple.

From the Los Angeles Times, an opinion piece by Anthony Rubinstein appears to blow the no-public-dollars argument out of the water.  Now, Rubinstein appears to be a typical government-has-the-only-solutions kind of environmentalist, but his concerns can’t be dismissed out of hand.

It would seem Pickens is bankrolling the campaign for a referendum in California this year…

This measure would authorize the sale of $5 billion in general fund bonds to provide alternative energy rebates and incentives — but by the time the principal and the interest is paid off, it would squander at least $9.8 billion in taxpayer money on Pickens’ self-serving natural gas agenda.

The initiative deceptively reads like it’s supporting all alternative-fuel vehicles and renewable energy sources. But a closer read finds a laundry list of cash grabs — from $200 million for a liquefied natural gas terminal to $2.5 billion for rebates of up to $50,000 for each natural gas vehicle.

Much of the measure’s billions could benefit Pickens’ company to the exclusion of almost all other clean-vehicle fuels and technology.

I have no idea whether Rubinstein’s numbers add up.  But whatever the math, this sure looks like a huge back-door subsidy for the alt-energy industry in general, and Pickens in particular.

Bond issues are how cowardly state, county, and municipal politicians fund their favored schemes.  “This won’t be funded with a dime of taxpayer money,” they claim.  Except when it comes time to retire the debt, of course.  (Then they threaten to slash services if they don’t get a big tax increase.)  But the strategy can work equally as well for a private party seeking a place at the public trough when he or she can’t convince lawmakers put the line-items in the state budget.

So the free-market cachet of the Pickens Plan is already starting to look a little dicey.  And if the argument is that these alt-energy schemes can’t succeed otherwise, might I suggest slashing tax rates in general to put more money in the pockets of the entrepreneurs who can make things happen, rather than using government as a blunt instrument of social engineering to steer investment into certain sectors?

But I digress.  The real problem is there will likely be more of these devil-in-the-details revelations about the Pickens Plan in the weeks and months ahead — making Pickens an increasingly flawed spokesman for the cause of Peak Oil awareness. That’s the last thing we need.  It’ll give the politicians every excuse to carry on their insipid false-choice debate, evading the harsh reality facing us, well into next year and perhaps beyond, even as gas climbs toward $7 a gallon.

Source: Second Thoughts About the Pickens Plan