Magazine | June 20, 2011, Issue

Energy 2011: Get with the Plan

Natural gas is the key to energy security

In Article I, Section 8, the United States Constitution grants Congress the “Power To,” among other things, “provide for the common Defense and general Welfare of the United States”; “regulate Commerce with foreign Nations”; and “lay and collect Taxes.”

While the Constitution does not speak directly about “establishing an energy policy,” the need for an energy policy is certainly implied by the powers over defense, general welfare, commerce with foreign nationals, and the laying and collecting of taxes.

Four years ago, in May 2007, the major issues in the presidential campaign were the war in Iraq and a decelerating economy. A year later, by May 2008, the war was still an issue and the economy was going in reverse. No one was talking about energy.

In July 2008, with oil at nearly $150 per barrel and gasoline well over $4 per gallon, I introduced an energy-policy proposal called the Pickens Plan. From that time to this, every major candidate for federal office has talked about the need to reduce our dependence on foreign oil generally and OPEC oil in particular. But we have not made much progress. In April 2011, we spent about $42 billion on imported oil. Annualized, that amounts to half a trillion dollars shipped to such countries as Saudi Arabia, Venezuela, Nigeria, Angola, and Iraq. I can’t find anyone who thinks putting our economy (“general Welfare”) and energy security (“common Defense”) into the hands of unstable and unfriendly countries such as those (“Commerce with foreign Nations”) is a good idea.

Even with the death of Osama bin Laden, the War on Terror goes on, and it is not difficult to see the link between sending hundreds of billions of U.S. dollars to unfriendly nations and the continued ability of terrorist organizations to recruit, organize, train, and deploy fanatics who are bent on doing America harm. Someone is paying for all that, and I believe that someone is us.

About 70 percent of the oil we import is used as our primary transportation fuel: as gasoline for our national fleet of 250 million cars and light trucks, or as diesel fuel for our 8 million heavy-duty and fleet trucks.

All that oil accounts for two-thirds of our trade deficit, which, along with several other elements, puts a drag on our ability to recover from the recession. As the debate in Congress over fiscal policy continues to escalate, the amount of money we are — by our own choice — removing from our economy by sending it offshore has a huge impact on our ability to reduce our $14 trillion national debt.

From its earliest days, the Pickens Plan was designed to replace a significant amount of imported oil with domestic natural gas as a transitional transportation fuel. Over time, as new data have become available, the Plan has evolved.

About one year into the Pickens Plan, an organization called the Potential Gas Committee — which is associated with the Colorado School of Mines — released a report that, for the first time, recognized that a significant amount of the enormous natural-gas reserves known to be contained in the vast shale deposits under the continental U.S. are now available for economically viable recovery, because of the development of a horizontal hydro-fracturing drilling technique.

This report shocked the natural-resource world by taking natural gas out of the realm of “scarce and diminishing.” Additional studies were released indicating that our natural-gas reserves could last more than 100 years and contain more energy than all the oil in Saudi Arabia.

#page#The ample supply, and the recession, combined to cause the price of natural gas to drop. This had the effect of making funding for alternative power sources tougher to come by, because wind and solar are priced “on the margin” — which is to say, priced at what it would cost a power company to produce a kilowatt of electricity using natural gas — and the seizing up of the financial industry made it much tougher to finance large-scale projects.

Nevertheless, the Pickens Plan has remained a stalwart supporter of wind power, especially in the wind corridor stretching from Texas to the Canadian border. As production costs of turbines have come down, and as financing has become more accessible, wind power has again gained favor as a source of alternative energy.

Over the past three years, the language we have used to promote the Pickens Plan has become part of virtually every speech, essay, op-ed, editorial, and news story about transportation-fuel prices. For example, I have made the point that we should substitute domestic natural gas for imported diesel for heavy trucks, because (a) 18-wheelers use a significant amount of that 70 percent of imported oil we use for transportation, and (b) drivers of over-the-road trucks (long-haul trucks with regular routes) tend to stop for rest, food, and fuel at the same places on each trip, so finding regular natural-gas refueling stops for 18-wheelers would be not nearly as difficult as it would be for drivers of passenger vehicles (which need to refuel wherever they happen to be when the fuel gauge reads close to “E”).

The Wall Street Journal ran a piece in mid-May that had this paragraph:

The typical semi-trailer truck guzzles 20,000 gallons of diesel annually and uses the same roads day after day. So switching trucks to natural gas from diesel, which comes from oil, could make a big dent in U.S. petroleum use. And it wouldn’t require building nearly as many new fueling stations as switching America’s roughly 240 million cars and light trucks to something other than oil.

Sounded pretty familiar to the 1.6 million members of the Pickens Plan Army — people from every congressional district who have signed up on the Pickens Plan website to support our efforts.

Congress is considering a bill named the NAT GAS Act (H.R. 1380). It provides targeted tax credits (“lay and collect Taxes”) for companies to replace their current fleets burning imported diesel with vehicles running on domestic natural gas. Keep in mind, a tax credit means someone gets to keep more of the money he’s earned, rather than give it to the government to spend on who knows what. It is not a government grant. And this tax credit, unlike many others, has a sunset provision of five years.

Why do we need a tax credit at all? Because there is almost no manufacturing capability for natural-gas vehicles in the United States. Rather than support manufacturers in China and India, this credit would help jump-start that industry here, adding jobs up and down the supply chain.

There are people and companies — and think tanks they fund — that oppose the NAT GAS Act for a variety of reasons, most of them self-serving. There is no greater believer in free markets than I, but if you think OPEC is a free market, I have a bridge in Brooklyn to sell you. Absent a plan of their own, critics of my plan are for the status quo, which is to continue sending billions of dollars to OPEC nations, many of which, in return, are helping to fund terrorism.

I do not believe that is what “We the People” are looking for in our leaders.

– Mr. Pickens is founder and chairman of BP Capital and architect of the Pickens Plan.

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