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Entrepreneur, philanthropist and founder of BP Capital, T. Boone Pickens, speaks during the "Ted Turner and T. Boone Pickens on America's Energy Future" panel at the 2010 Milken Institute Global Conference in Beverly Hills, California April 26, 2010. (PHIL McCARTEN)
Entrepreneur, philanthropist and founder of BP Capital, T. Boone Pickens, speaks during the "Ted Turner and T. Boone Pickens on America's Energy Future" panel at the 2010 Milken Institute Global Conference in Beverly Hills, California April 26, 2010. (PHIL McCARTEN)

Jeff Rubin

Boone Pickens' plan full of hot air Add to ...

T. Boone Pickens' plans to save the United States from its energy dependence on so-called hostile petro-powers is, simply put, full of hot air. The abundance of shale gas in the U.S. will no more free the country's motorists from dependence on foreign oil than have either the American production of over ten billion gallons of corn-based ethanol or the rollout of GM's electric-powered Volt.

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There's a reason for the fact that, for a given amount of energy, natural gas prices today trade at a fraction of the price of oil . If people could just switch from using one fuel to the other, that price gap would quickly be arbitraged away. But they can't-at least not where it counts the most.



Not that there hasn't been scope for substitution. Few households in North America still burn oil to heat their homes-most switched to much cheaper domestically produced natural gas after the OPEC oil shocks of the 1970s. Even fewer North Americans rely on burning oil to generate power for their homes. And most petrochemical producers can switch from oil to a natural gas feedstock.



But unfortunately, the majority of oil consumed in the United States-and indeed in the rest of the world-is used as a transport fuel. On average it's about 60 per cent of all the oil consumed, and as much as 90 per cent of each new barrel that comes out of the ground. And that's exactly where prices for oil and natural gas disconnect.



Planes fly on jet fuel made from oil, ships run on bunker fuel made from oil, and, most importantly, motor vehicles run on gasoline or diesel made from oil. And with good reason: oil packs about four times the energy density of natural gas. And it carries about 20 times the energy density of the lithium-ion battery found in an electric car.



That's a key reason why neither electric- nor natural gas-powered cars have made any sizeable inroads into the North American vehicle market. The 110,000 or so natural gas-powered vehicles in the U.S., most of them urban buses, remain an insignificant fragment of a 250 million-vehicle market. And the story isn't any different with electric powered cars: GM doesn't expect to sell more than 10,000 of its heralded Volt next year.



Another reason is the absence of a fuel distribution system. Outside of urban centers, there are few gas stations that supply natural gas, which means that, at best, the fuel can only be used for urban commutes. To build a national distribution system for the fuel would require subsidies that far exceed anything already squandered on encouraging home-grown ethanol production.



Switching to natural gas is no more attractive an alternative for most American motorists right now than switching to corn-based ethanol or electric power. And until it is, expect natural gas and oil prices to stay disconnected, leaving the American economy as dependent as ever on foreign oil suppliers.

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