Wind's Our Future, but Natural Gas Is Now

by: Marc Courtenay August 07, 2008 | about stocks: CHK / COG / DVN / NOV / PWR    

Marc Courtenay

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The attacks on T. Boone Pickens' plans -- everything from his integrity and self-interest to his quixotic nature -- as Jim Cramer says, "just makes no sense whatsoever. They hold no water at all.

They are just wrong and misguided. The people against him, the ones that call him a dreamer, are the ones who have done no homework and are deeply cynical. And if they don't keep their mouths shut, we will forever be addicted to foreign oil."

While much of what Pickens has been saying is that wind power can be substituted for a lot of other power sources, the fundamentals of his plan involves getting autos to start using natural gas.

Putting aside his personal interests and according to Cramer, Pickens cares about the impact on the environment, but only so far as he has been the most influential investor in alternative energy for years and thinks it can be profitable -- Pickens' true motivation is that the technology for what he believes should happen is unfolding and available right now.

Let's review the quintessential elements of Pickens' plan. First, wind power, which is clean and efficient and able to be integrated to the grid much more easily than the critics say -- ask Quanta (PWR), which does it -- and can be used in far more places than just Texas.

We are, according to Jim Cramer, "... blessed with windy areas that have no use otherwise, and you can build cheap towers, turbines and blades without much opposition."

When it comes to wind power, we have the technology, we have the raw ingredients, we have the abilities, we could take wind to 20% of our power by 2030, as the Department of Energy says, but we could cut 10 years from that with generous subsidies, which might happen under an Obama presidency.

It is natural gas, though, that is the great conundrum, the great game-changer that few politicians and most pundits just don't get at all. Every natural gas, oil engineer and executive in the world knows that we have had 100 years' worth of natural gas underground in this country domestically -- not off the coasts, but within our borders.

Dry Natural Gas Proved Reserves by Area - As of 2006

click to enlarge

Source: EIA - Office of Oil and Gas

Check out the Dry Natural Gas Proved Reserves in the USA by the billions of cubic feet. The dark blue area are the areas with the richest and most abundant proven reserves followed by the aqua blue areas which are now, two years later, showing signs of even more prolific amounts of gas.

It gets easier to get at every day, which is why you keep hearing about all of these "shales" that have gigantic finds -- just go look at Devon's (DVN) numbers which came out Wednesday if you don't believe me.

Look at the drilling! Look at the drilling that Chesapeake (CHK) is doing. I believe 100 years of nat gas -- which is two-thirds cleaner than oil including on the CO2 side, which is the most toxic pollutant -- is conservative.

So when you look at this fuel, you realize it should be used instead of gasoline as soon as possible. It is abundant, cheap, there are pipelines everywhere, it doesn't need to be refined, and it burns clean. What's lacking? Filling stations and cars. But not the technology for either, just the infrastructure.

As Cramer likes to rant, "Wind and natural gas are the ways of the future, with nat gas the important bridge fuel for the next 20 years. We are so much closer to energy independence with cleaner energy than we have any time ever, but nobody cares, except the visionaries of this business: Boone Pickens and Aubrey McClendon" (CEO of CHK).

The future is here. It is investable and here. We can buy the natural gas companies that are drilling big-time like Devon, Cabot Oil & Gas (COG) and Chesapeake -- and the company that makes the rigs that will make more drilling possible: National Oilwell Varco (NOV) whose price is now quite attractive.

Jim Cramer sums it up by saying, "This is the single best theme in the market I know. It is why I stick with natural gas even as they have plummeted severely. I stick with it because I believe that under a new, more intelligent administration, this will all become obvious and the stocks will reflect this long-term thesis."

I couldn't agree more and there are many more, much smarter people than me who enthusiastically agree. All it takes is some vision and some uncommon sense.

Disclosure: Long DVN and NOV.

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This article has 42 comments:

  •  
    Aug 07 09:18 AM
    Completely agree.. check out 20smoney.com/2008/08/0.../
    Reply | Link to Comment
  •  
    Aug 07 09:28 AM
    It should not be the governments job to 'push' individual pet technologies. It actually turns out that wind power is great - for Goldman Sachs and other big cats like Florida Light and Power. The real money in wind is in the corporate tax breaks, not the actual power, which costs at least 20c/kwh (about 4 or 5 times coal and nuclear, 10x of hydro).
    Instead of taxing peoples incomes, we need to tax carbon, packaging and consumption. Tax what you don't want to happen. Then let real economics take over. The real way to lower imports is to keep the cost of gasoline high - through (carbon) taxes if necc. Fat chance of that happening, though! Politicians have little of the bravery that would be required to overhaul the tax system.

    With a hefty carbon tax in place, we would not have to argue the merits of wind/solar/nat gas/oil/coal sequestration etc... - Just let real innovation take over. The only innovation in the current system is in the halls of Wall Street. We all know where that eventually takes us.
    --Tom
    Reply | Link to Comment
  •  
    Aug 07 09:30 AM
    I am bullish on NG. However, I see the more logical path (assuming no heavy govt subsidies to steer it) toward electric vehicles fueled by NG power plants. As you said, the technology for NG vehicles and filling stations is there --- many cities have switched bus fleets to NG --- but the infrastructure is the thing that has the huge build-out cost. Imagine replacing every corner gas station (liquid) to an NG station (gas). Even with LNG, its a huge obstacle. But you've got electrical plugs and electrical lines everywhere. You just plug in in your garage. Imagine this: putting in plug-in electric meters in a parking lot where people can charge their car while at work. You have the electricity right there already (the lampposts).

    But regardless of the direction NG goes --- directly in the car or to the power plant to charge your car --- I am still bullish on gas. It is the logical choice to wean us off foreign oil. Wind and solar, that's all great. It will get there in a decade or two. But it will still account for only a modest proportion of our total energy needs for the foreseeable future.

    I think Obama should pick T. Boone as his VP!
    Reply | Link to Comment
  •  
    Aug 07 09:39 AM
    Wind power just keeps becoming a more practical choice to provide energy to North America. Oil is running out and changes need to be made. However I'd imagin persuading the car companies and gas stations to start using natural gas would be the hardest part of Mr. Boone's plan. The outlook for natural gas is looking quite positive.
    Reply | Link to Comment
  •  
    Aug 07 09:42 AM
    One nice thing about natural gas - when electricity prices rise waaay up, individuals will be able to buy nat gas furnaces that make electricity while they heat your house. 'Micro cogen' - like this Honda:
    world.honda.com/news/2...
    These could charge your car too. Good for the northern states.
    T. Boone just wants to make money - but with current incentives and tax breaks, all the money that he will make from wind will come directly from taxpayers - which he does not make clear on his site, and which is dishonest.
    Reply | Link to Comment
  •  
    Aug 07 09:51 AM
    knobsturner is a fool. He wants more taxes? What so they can give it away to their buddies?
    The "carbon tax is pure socialism and pure pork.
    Reply | Link to Comment
  •  
    Aug 07 10:01 AM
    Fuel speculation is always attractive because it offers immediate incentives to believe the problem is solved. The next question is what is using NG that offers the return. Is it going to power an 18 wheeler down the road, or a light weight golf cart? Natural gas has virtues that allow for extration and co-generation of electricity or that NG is used directly to create mechanical motion, yet, it is the appliance or the application of NG that will emerge as the market leader and not so much the fuel. The scale of efficiency ultimately mandates that we use less fuel and not more. Using the map as shown above the proven reserves are well recorded and vast amounts of NG is consumed nation wide already, only where is the application that solves the fuel crisis as we know it today?
    Reply | Link to Comment
  •  
    Aug 07 10:13 AM
    "knobsturner is a fool. He wants more taxes? What so they can give it away to their buddies?"

    I believe it is impossible to appreciate the reality of at best a dire situation without reading Naomi Klein’s, “The Shock Doctrine…Disaster Capitalism.” The tenet of “no crony” left behind is meritorious!

    No, I do not work for the publisher!!!!!!

    Reply | Link to Comment
  •  
    Aug 07 10:21 AM
    pachanguero,

    I said get rid of or lower income taxes! That is an increase how? Income taxes are an accident of WW I. They really don't make sense. I should be able to keep all the money I make, and invest it all if I desire. Tax consumption.
    Reply | Link to Comment
  •  
    Aug 07 10:31 AM
    Natural gas is a winner but wind is just that--wind. It seldom blows and when its does little power is made. Nuclear power is the way to go. Boone is an idiot.
    Reply | Link to Comment
  •  
    Aug 07 10:40 AM
    I think T. Boone Pickens plan is the best plan on the table at the present time. We are going to need 'all of the above', to replace the decline in oil supply that is coming soon, and the sooner we get busy with a comprehensive overall energy plan, the easier will be the transition when the real crunch comes in a year or two. Further, the map above is from 2006, so doesn't include all the natural gas that has been found in the last two years in the Haynesville, Bartlett, and other shales. Natural gas and wind are a great combination, but we need to get started.
    Reply | Link to Comment
  •  
    Aug 07 10:53 AM
    I agree with CLH. The elephant in the room for wind is that it's intermittent and operates at low capacity factors. The "contental grid" won't mitigate this much - power companies will be forced to have stand-by capacity, and will have to somehow smooth out the intermittent flow. Solutions to that problem are expensive and still in development - who knows how long it will be before they're commercialized? (I'm still waiting for nuclear fusion - it was 30 years away 40 years ago, and it still is!)

    I think in the end it will be mainly solar and nuclear. Solar is much more predictable than wind, and there are simpler methods for banking the power thermally in utility-scale projects. Solar-NG hybrid plants could have a common power-generating infrastructure fueled by the sun during the day, and by NG at night or on cloudy days. Nuclear can replace coal for baseload. As Paris says, "Energy problem solved!".
    Reply | Link to Comment
  •  
    Aug 07 12:09 PM
    First, I believe we need to look at all energy alternatives. Second, I don't want to send anymore money to the Middle East. Third, I would like to see an energy independent North America.

    However, I have a problem with the basis of the energy 'crisis' and I have a concern with one of our energy solutions.

    First, I firmly believe the energy 'crisis' is a 'wag the dog'. In my opinion, the wild fluctuations in the oil futures market are not based on standard trading principles. In actuality, the oil market looks much more like a bunch of old women buying and trading Bingo cards on a Saturday night than a valid market. And, most of that fluctuation can be traced to speculation and hedging.

    Now, why would the market speculators and hedge funds jump so hard on oil? Maybe, just maybe it's because T Boone Pickens and Goldman Sachs started their chicken little 'The sky is falling' dance about six months ago. Peak oil --$150 to $300 a barrel oil -- any of that sound familiar? OPEC has got to love T Boone Pickens! He's put a huge amount of money in their pocket. Then he shows up on in a self paid and self promoting national advertising campaign saying we have to quit sending money to them. What?

    Again, I believe we need alternatives and energy independence. I just don't like the underhanded, selfserving manner it's been pushed on us or the tremendous, instantanious burden it has placed on individuals, families and corporations. If we don't want industry in this country and we want huge unemployment, than we are moving in the right direction. In addition to the market manipulators, due to unwavering greed, Wall Street is slowly killing industry in this country, which is the basis for the markets entire existance. Good move morons. Between the market manipulators who have crammed it up us and broken it off and Wall Street killing the vehicle of it's existance, we won't have much in this country for the next generation.

    Now for wind power. I have yet to see a study on the environmental impact of large wind farms. I'm not talking about birds kills and other relatively minor events. I'm talking about potentially major weather changes. No form of energy is free and as we have seen in the past, projects with the best intention can cause major problems down the road. Living in the mid west, east of the proposed wind farm corridor, I'd like to know what weather effects it will have here around the Great lakes. Will it effect rain and snow, reducing it or moving it elsewhere?

    Yeah, yeah, what a crack pot, right. Ok wiseguy, ask the forestry department about the effect of controlling forest fires for 50 years and the effect it had on the Yellowstone wild fire.
    Reply | Link to Comment
  •  
    Aug 07 12:22 PM
    I think we have to be careful about throwing around the "100 Year" blogbite. According to the EIA (eia.doe.gov), the US uses 21,653 bcf (2006) and has proven reserves of 211,085 bcf (2006). This is only 10 Years.

    Of course, the new report by the American Clean Skies Foundation says that the EIA's estimates are too low and puts the ultimate reserves at 2,247,000 bcf. Great, we are back to our "100 Years".

    But even if you believe in the higher reserves number, the "100-Year" value is based on current consumption levels of natural gas. If you intend to displace petroleum with natural gas, the "100-Years" drops to "39 Years". If you intend to displace petroleum and coal with natural gas, this drops to "28 Years". Refer to eia.doe.gov/aer/pecss_....

    28 Years is still a long time, but I would curb the enthusiasm a little.
    Reply | Link to Comment
  •  
    Aug 07 12:26 PM
    I completely agree that natural gas is the most common sense intermediate term power solution. Wind, nuclear, etc will all be significant too, as no single source can power everything.

    From an investing perspective, I prefer natural gas companies in Europe. The fundamental supply/demand equation is the same PLUS their primary supplier likes to arbitrarily triple prices every time there's a political disagreement.
    Reply | Link to Comment
  •  
    Aug 07 01:07 PM
    I agree with New World Patriot and others - mostly on the need for energy independence. Just one of the issues: Sending $800 billion more or less, abroad to mostly hostile countries in exchange of oil, seems to be the worst possible "tax" I can imagine! More like bloodletting.
    None of the alternatives to oil come without changing the paradigm.
    It will cost tons of money, create US jobs, shift the economy, improve the environment and make the country stronger - priceless.
    Thing is, we need a comprehensive plan (for better or worse a democratic plan - remember it is the best system we have, so far, no?). Otherwise it will be up to Big Boy individuals (Pickens, Gore et al) who will make the plans for us. Just like Morgan, Frick, Edison, Ford and others did ....
    Let's Go 21st Century!
    Reply | Link to Comment
  •  
    Aug 07 05:25 PM
    A few points needed here... let's start with wind...

    'Intermittent' Wind is really only a local or temporary phenomenon, not so much a national or annual one, especially in a country as large as the USA. For those who don't understand, think of it like this, ONE wind turbine might be idle on any ONE day... but 1000, spread over thousands of square miles, from year to year, will produce roughly the same power annually over time.

    For those inclined to simply bark without thinking, try doing the math first... You have to think of it as what it is... a valuable contributor to overall production of kwh's, part of the load balancing act while also producing large amounts of total grid-power over time.

    It's why we have base-load coal and Nuclear feeding the same grid as peaker gas Turbines...

    Wind is a hands down winner in the quest for sustainable energy.

    As to hydrocarbon-to-spark replacement, which is the real issue, Wind adds large amounts of basically carbon-free and hydrocarbon-miniscule Total Energy, at extremely favorable (15:1 typical) EROEI, and in a sustainable fashion... Wind never depletes, you don't need to transport it, refine it, or burn it.

    As to the economics, wind power is strongly accretive to the host nation's capital accounts, especially if the actual turbine engineering, production, and maintanence is domestic sourced. Germany and Denmark are world leaders in Wind, and it helps their economies huge.

    Reply | Link to Comment
  •  
    Aug 07 06:19 PM
    Wind generation used for co-generation of hydrogen is a potential that must also be factored into the viability of wind farms as is the process from which to transport hydrogen when considering it as a universal fuel.


    Hydrogen potential from NG or wind farm distribution models must also be incorporated as an investment strategy in order to reach the full potential of a sustainable and renewable fuel vehicle. As much as NG is expendable, then so to is the wind.

    Wind Power conversion in the form of a hydrogen fuel cell storage and power module is shown in this illustration from the following link.

    hydrogenics.com/onsite...
    Reply | Link to Comment
  •  
    Aug 07 06:19 PM
    www.hydrogenics.com/on...
    Reply | Link to Comment
  •  
    Aug 07 08:56 PM
    I don't think hydrogen will really ever get off its feet. its too inefficient to break down molecules.

    I mean think about all the energy lost to gather the energy....transmist the energy...and then use energy to break the molecules apart. How much power actually gets stored? like 10-25% of the initial amount of the source? This doesn't seem very efficient at all....battery technology today is MUCH more efficient than that. basically limited to the 35-40% loss of the transmission, and a little to charge the batteries.

    NG may have large reserves.....and the E&P companies are proving up large reserves of shale gas. But what is the EROEI on shale gas? Are the flow rates comparable to conventional gas? Do we have enough rigs to drill to maintain growth?

    We know from oil that there is a lot of shale out there....but the EROEI is low.....and the cost of infastructure is high......and to do any meaningful addition of FLOW rates to the existing production is difficult.

    I feel this is the same for shale gas...although I do own the shale E&P companies for investment.

    efficiency and flow rates.......

    Reply | Link to Comment
  •  
    Aug 07 08:59 PM
    My vote goes to all electric vehicles.

    infastructure is there.

    Control pollution at the power plants......add whatever you want to generate the power. its much more resiliant than NG cars.

    You can add coal power plants, NG, Nuclear, wind solar, etc.
    Reply | Link to Comment
  •  
    Aug 08 12:37 AM
    We just need an administration or organization(s) to combine forces and have the same collective vision to really make Pickens ideas a reality. There needs to be a real consensus here instead of all this silly arguing. This is a real chicken and egg scenario of infrastructure vs. the vehicles that use the infrastructure.

    Like any systems approach, it won't go anywhere unless some influential architects can sell it to the public possibly by doing a pilot first or by filling in needed market niches such that eventually the entire puzzle is done.

    Americans have a hard time cooperating in a team fashion as we are very individualistic. I would not be surprised if some Asian entrepreneurs take the lead here and pick the low lying fruit.

    In Minnesota for example, we have an Indian company that set up a plant near Pipestone where they are building wind turbines.
    Reply | Link to Comment
  •  
    Aug 08 08:44 AM
    windmills in tornado-prone areas require insurance (casualty & liability - for flying blade damage). i wonder if any insurance company would be willing to write coverage. i wonder what the premium $ would be, i wonder if this cost was factored into the economics of the proposed system
    > jack
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  •  
    Aug 08 09:10 AM
    CRAMER!? WHO GIVES A S^&%!! If I want to know what that toilet bug says or what he is trying to do to manipulate stocks for him and his buddies I will WATCH the guy. Anybody that follows or repeats (for chrys sakes!) what Cramer spouts is on my ignore list. Have a nice day.
    Reply | Link to Comment
  •  
    Aug 08 11:39 AM
    Wind is at grid parity or below. Natural Gas in not commonly available at gas stations and the cars are not fitted for it, like electric for cars.
    Electricity however has several input choices some renewable, NG is limited. Wind is now, NG in the future and only temporary for 100 years. Of course Picken's doesn't care what happens in 30 years or thereafter. He is dead then. As goes the President.
    Reply | Link to Comment
  •  
    Aug 08 12:54 PM
    Increase in non-convential natural gas may offset declining production of conventional natural gas, some believe.

    "Heating Bills Won't Spike As Predicted
    Natural Gas Price Drop Means No 50% Increase

    Copyright © 2008 Albuquerque Journal

    By John Fleck
    Journal Staff Writer

    At last, some good news when it comes to energy costs. Or at least better news than just a month ago.

    Plunging natural gas prices have made the prospect of winter heating bills less alarming, according to officials with New Mexico's largest utility company.

    Current estimates of natural gas costs are still 10 percent above last year, but the dramatic' increases forecast in July are gone.

    Officials with Public Service Company of New Mexico issued a stark warning in July that customers could see their natural gas bills rise more than 50 percent this winter compared with last winter. But now they are more optimistic after a three-week slide in natural gas prices.

    Natural gas futures on the New York Mercantile Exchange were trading Thursday down 37 percent from their July peak.

    Garry Murray, PNM's manager of gas supply and system planning, called the price drop "a significant reversal" after natural gas prices set records in spring and summer.

    For now, natural gas prices remain high. The latest estimates posted by PNM for August and September gas costs - $31 to $32 per month for an average customer - are 60 to 75 percent higher than last year at this time.

    Murray said it is too early to make firm estimates on natural gas costs for this winter. But preliminary estimates put prices during the December-to-February heating season about 10 percent above last year's prices, Murray said Thursday. The average PNM household customer paid about $130 for natural gas heating last January, the coldest month last winter. About $100 of that is related to fuel costs, and a preliminary calculation suggests this year's bills could average about $10 more.

    That is far less than the cost picture just a month ago, whan prices on the futures market suggested an average customer might pay as much as $70 more per month.

    Under state regulationst PNM is not allowed to make a profit on the price of natural gas, passing that cost directly to its 500,000 customers.

    Natural gas prices have been on the same sort of roller coaster this year as petroleum, rising dramatically until early July and plummeting in the past month. The situation was particularly unusual in the natural gas market, where prices usually peak during the winter heating season, then drop in the spring and summer. This year, they continued rising all spring.

    According to the federal Energy Information Administration, one reason for the price drop is increasing supplies, especially from natural gas fields in Texas.

    Production for the first five months of this year was up 8.7 percent compared with the same period in 2007, according to EIA. Natural gas producers are adopting new technologies to get more natural gas out of the ground to meet rising demand, according to the EIA. Despite that increase, however, the EIA still forecasts natural gas costs this winter nationwide to be higher than last winter.

    Albuquerque Journal Friday August 8, 2008"


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  •  
    Aug 08 02:22 PM
    marc - why would you want to burn NG and throw away 70% of it's energy vis-a-vis generate and use as much free and available wind and solar energy and throw nothing away??? PURE GAIN!

    And why wouldn't you want to employ this logic ASAP/AMAP/IEWP???

    Boone's got it half right: replace NG power generation with wind (and solar).

    What's wrong is then burning NG in vehicles and throwing away 70% of that energy as waste heat. Now if he could recover that waste heat and make it useful electricy for a hybrid, great.

    At that point I'd suggest burning biofuels and still leave all the NG in the ground - as stored-already.

    So it goes.........
    Reply | Link to Comment
  •  
    Aug 08 02:29 PM
    DougM - come on, Fusion exists right now. Look at the sun. We can use as much of it right now with every solar PV unit we install. And it doesn't pollute our air, nor use our hydrocarbons. And it's free. Not always available, but we can work on that. Oh, yes it might cool the earth a little.
    Reply | Link to Comment
  •  
    Aug 08 02:33 PM
    And DougM, if you're satisfied with solar/NG, you ought to really be satisfied with solar/biofuel AND BE ALL HOMEGROWN, AND of course, leave the hydrocarbons stored in the ground (all the hydrocarbons: coal, ng, oil, tar sands, oil shale - who, in their right mind would want to dig any of these AND FURTHER PROCESS THEM, to JUST BURN THEM??? DUH!!
    Reply | Link to Comment
  •  
    Aug 08 03:34 PM
    While in France, I drank a nice Pouilley Fuisse in quiet smoothness at over 200mph, and watched Nuclear plants go by in the pleasant countryside. As I arrived refreshed in Lyon, I wondered who in his right mind would want to put $6 a gal gas in a car to compete with these Grand Prix mentalities on the highway.

    I just want to live to see the day I can sit back and watch the windmills on the right of way go by at 200mph, while I take a trip to N.Y.. I'll even allow a few cars for Oranges and seafood to tag along so they and I, arrive fresh and cheap at our destination. I'll even take my shoes off to honor a bygone but not missed era of air travel, thinking I'd like to see Haji Baba run this sucker into a building.

    Windmills along the "rite of way" is the right way--it's called "point of use"