This video with T. Boone Pickens, Chairman and CEO of BP Capital management, was originally broadcast from Bloomberg Radio (who would have thought that there would have been a market for video for Bloomberg radio!!) discusses the one year anniversary of the Pickens Plan.
The topic du jour was the relentless drop in natural gas prices in the last year and how it will affect implementation of the plan by congress and the public. The ever optimistic and media savvy T. Boone outlined the benefits of the lower natural gas prices–particularly as to how it relates to the rising price of oil. Essentially lower natural gas prices makes the plan even more attractive because it will be used as a transportation fuel and lower prices will drive consumption as an alternative—particularly as it relates to diesel fuel in the trucking fleet.
Two bills will be in debate shortly—HR 1835 in Congress and 1408 in the Senate– apparently have a good chance of passing as long as they are not attached to anything. A highlight of the plans is the 65,000 tax credit for the trucking fleet that will be included.
The latter helps the trucking fleet meet the 2010 EPA mandate that calls for a cleaner trucking fleet. There is major concern in the industry that current diesel technology will not be able to meet the standard—Caterpillar for instance exited the diesel engine manufacturing part of their business entirely due to the anticipated cost of meeting the mandate. it was 10% of their overall business.
The 65,000 credit will apply to new purchases. The natural gas engines apparently require less maintenance and burn cleaner than their diesel counterparts.
The trucks will be the first conversion that needs to go ahead. T. Boone claims that the infrastructure conversion will happen quickly and in some cases is already partially in place. California has had it for several years for instance in their bus fleet—for them it driven by air quality standards but it was implemented several years ago nonetheless. Fort Worth, Texas has had Natural Gas buses for over 20 years.
The host asked Pickens his opinion on why oil prices are still trending higher despite the increasing supply. He mentioned the existing contango that exists in the market partly due to OPEC restricting production. They would like to see oil hold firm at 70 to 90 dollars per barrel and are prepared to cut production to meet these numbers. He says you need to pay attention to the thinking of those who own the oil.
Also remember that besides the financial benefits that will accrue to T. Boone with this plan he does have a strong case when one considers that Natural Gas is primarily a domestic fuel. Dollars spent buying Natural Gas stay within the US and are not exported—which improves the current account deficit.