An Elephant in the Room Begins To Roar

Implications: The media is saturated by energy companies promising a painless path to continued cheap supplies, and cleaner to boot.  Meanwhile, T Boone Pickens has burst upon this complacency with a campaign that act as a wake up call to drastically shake up how we guzzle our fuel.  What ever one thinks of Mr. Pickens' motivations, or the impact of his nailing his theses on the door, it should shake up the public and decision makers who still intone "I can't hear you, I can't hear you...".

Analysis: Much of the public and decision makers still ignore the elephant of vanishing cheap energy in the hope that someone or thing will come to the rescue or that the pachyderm will just go away.  Now the elephant has roared in the form of T Boone Pickens, a man who should know a little something about the increased scarcity of petroleum and natural gas.  He has placed one foot in the future with massive investments in wind power development, helping Texas become the number one US state in power production.  He keeps his other foot in fossil with natural gas extraction, calling for a massive shift of this energy source to transportation usage in the US. 

One can quibble with Mr. Pickens with whether this is really a good idea.  Going from one fossil fuel to another for transport may be likened to the futility once described by Abraham Lincoln of shoveling fleas from one side of the barn to the other.  But the campaign being orchestrated by Mr. Pickens should give us a jolt.

Behind this campaign is looming evidence that natural gas will soon follow petroleum as a peaking energy source, first in the US, then in rest of the world.  Followed by experts like Matthew Simmons of Simmons & Company International, price signals, through the noise of subsidies, is the canary in the proverbial coal mine.  Natural gas prices remain well north of ten dollars a million BTU's (MMBTU), even if the price should collapse.  Liquified Natural Gas (LNG) costs $18-20/MMBTU, if you can even get the stuff, as more shipments bypass the US to Japan and China, who will pay just about anything.  And there has been no serious weather related disruptions since 2005, when Hurricane Katrina took out a third of Gulf of Mexico natural gas extraction.

The comfortable assumption of fossil and even nuclear fuels plentifully and cheaply lasting centuries is collapsing like an overworked bullpen in the heat of a pennant race.  Premises based on an affluent global economy of a few hundred million Americans. Europeans and Japanese wilt when two billion or more people want motor transport, air conditioning, hot showers and cold drinks.  Technological advances of enhanced recovery reveal that these miracles come at a huge financial price, as well as increased geopolitical tension as more consumers fight over fewer resources.

The auto industry is entering a period of competitive propulsion systems similar to the early twentieth century when steam, electric, gasoline and diesel vied for supremacy.  Gasoline won out, trailed by diesel, due to superior speed and range. 

Now the battle will commence anew with electric reappearing, hydrogen, bio-fuels and natural gas aligned with variety of hybrids.   Who will win out will depend on marketing and manufacturing will as well as technology.  We are likely to see natural gas, already a niche fuel primarily for fleets, be one of many "bridge" fuels in the next decade or two until an eventual winner comes along.