Falling Gas Prices Feel Good But Are Stifling Small Operators and Innovation.

T. Boone Pickens has certainly been doing the rounds of the talks shows this past week. Not only was he on Meet The Press on Sunday but he was also talking to Jon Stewart on The Daily Show only a couple of days earlier, no less. One point he made very succinctly was that although the current low prices at the pumps are making us all feel good about filling up our SUVs it is having a damaging effect when it comes to innovation in renewable energies, and also making many of the small independent operations in the U.S. economically inviable.

In a very interesting article by Andy Vuong for the DenverPost.com,  Andy highlighted the plight of the nations ’stripper’ wells. A ’stripper’ well, whether it be drilling for oil or gas, is defined by the federal government as producing not more than 15 barrels a day. What I hadn’t realised is that these small stripper operations account for as much as 18% of U.S. domestic oil production and 9% of natural-gas production, whilst supporting as many as fifty thousand jobs nationwide. Many of these small operations are supported by small, non-operating investors and while oil prices were high they were a worthwhile investment. The problem for many of them now is that with prices falling once again, while costs and environmental regulatory requirements are increasing, they very soon become economically inviable.

The other problem falling prices create, as T. Boone Pickens highlighted on Sunday, is that they stifle both the determination and the investment needed to stimulate the progress towards renewable energy. One example is Picken’s plan for the world’s largest wind farm. While natural gas prices were high ($12 per million BTU in July), replacing the money the U.S. spends on foreign oil with wind power was feasible. But with prices now down to $6 per million BTU the returns are not high enough to warrant the investment. Mr. Pickens thinks that crude oil prices will be back to $100 within a year. Ironically, higher oil prices will not only be be better for the small domestic oil and gas operations, it will be better for the country as a whole. As Picken’s keeps reminding us, dependence on foreign oil is a security issue. Whatever the short term economics, the U.S. has to move towards replacing its dependence on foreign oil with its own supplies of clean renewable energies. We will always need oil as well, even if it is not to run our cars or heat our homes. Hopefully prices will recover quickly enough to retain a good mix of small to medium-sized oil and gas operations across the U.S. One thing we don’t need is another 50,000 people out of a job at this time!

Silicon Valley’s Venture Capitalists Support Obama Energy Plan

Obama’s pledge of $150 Billion for new, what has been termed as ‘Cleantech’ industries (meaning carbon-free energy technologies such as solar), has found support amongst Silicon Valley’s Venture Capitalists, who see cleantech as the successor to the dot com boom of the 1990s. Venture Capitalists like Google.org who in May announced their participation in BrightSource Energy’s venture financing with a $10 equity investment as part of their RE< C (Renewable Energy that is cheaper than coal) initiative. http://googleblog.blogspot.com/2008/05/googleorg-announces-investment-in.html

Whilst Silicon Valley groups like Cleantech & Green Business Leaders for Obama have gone all out raising funds for the Obama campaign, it is noticeable by contrast how the vast majority of Big Oil’s support has gone to the McCain campaign by nearly 4 to 1. Although McCain also backs alternative energies and also wants to give tax breaks for consumers who purchase zero-emission cars, a large part of his plan relies on offshore oil drilling and the building of 45 nuclear power plants neither of which are actually going to produce any energy for many years to come. Also, with only 3% of the world’s oil reserves at hand, it must be becoming obvious by now that oil is becoming a resource far to precious to merely burn. A huge number of industries and components rely on oil as a primary ingredient. There are alternatives for using as fuel and energy, there aren’t alternatives for a lot of these petroleum based products.

Obama’s says that his green energy plan will create 5 million new jobs, including many for the soldiers returning from Iraq who will be retrained for these industries. The plan has been described as having the “potential to be a game-changing move akin to the Telecommunications Act of 1996″, where the removal of local network monopolies triggered a tech boom in the communications industry. The question now is, will the entrenched vested interests of big oil have the clout to get McCain into the Whitehouse? There is no doubt that renewable energies will see development either way, but the drive and enthusiasm of important venture capitalists like those in Silicon Valley would be severely undermined by a McCain/Palin government.
To read more – http://www.bloomberg.com/apps/news?pid=20601109&sid=a3L0EYeR3vjA&refer=home

Pickens Plan for Reducing Reliance on Oil

I don’t know if you have seen the series of advertisements on TV recently – you know, the one with the oil baron guy – T. Boone Pickens talking about how he has a plan to reduce America’s dependency on oil with a plan to invest in alternative energy. He doesn’t seem to be trying to do another Ross Perot, which is the first thought that struck me, but an oil man interested in reducing our dependency on oil? It is certainly novel, if nothing else.

Pickens’ Plan calls for a $1 trillion investment in a series of wind farms across middle America, with a further $200 billion investment needed for the infrustructure to transmit the resulting electricity to the national grid. This might seem like a huge amount of money but, as Pickens points out – that is a one time cost which has to be seen against the on-going $700 billion spent on an annual basis on foreign oil.
Either way, oil is not going to last forever, so if you are thinking about investing in the energy market, companies looking to alternative supplies could be a good long-term bet.

If you want to check out the “Pickens Plan” for yourself you can visit his website at www.pickensplan.com and make up your own mind!