My Plan for Eliminating America’s Dependence on Foreign Oil

by David Fessler, Energy and Infrastructure Expert
Friday, April 2, 2010: Issue #1230

Why isn’t the U.S. government doing more to get us off foreign oil?

Great question. It’s one I ask myself all the time.

It was clearly on the minds of many attendees at the Investment U Conference in San Diego a couple of weeks ago, too. I lost count of the number of times people asked me about it – and what the United States should be doing to address the problem.

So I decided to see what it would take to drastically cut our oil dependence.

How could we get to the point where we could get by on the oil we have here? To get to the point where it wouldn’t be necessary to import it from anyone. Not even Canada…

Getting America Off Foreign Oil… Now

Let’s start with a few “crude” facts:

• The world produces about 85 million barrels of oil per day (BPD).
• Of that amount, the United States uses 25%, or about 21 million BPD.
• Breaking that down even further, the transportation sector gobbles up about 70% of the United States’ daily use, or 14.7 million BPD.

Now, here’s the crux of it…

• We import about 75% of what we use, or about 16 million BPD. So it’s easy to see that if the transportation sector can switch from oil to other fuels, we can get rid of 93% of our oil imports. But how?

The Mandate That Could Solve America’s Oil Dependence Problem

When you think about the U.S. Congress, “energy” isn’t the first thing that springs to mind.

And when it comes to the energy sector, our elected officials in Washington are in a collective slumber.

But let’s assume for a crazy second that in a stroke of simplicity and common sense, Congress issues a mandate to all vehicle manufacturers.

The Mandate:

• Of the 10 million cars, SUVs, light trucks and heavy-duty trucks that will be produced in 2012, a minimum of 5% will operate on natural gas. (This is a much easier design issue than an all-electric vehicle, by the way.)
• It will also give auto manufacturers a tax credit of $1,000 per car over the first five years.
• Manufacturers must also increase their natural gas-powered vehicle production by 5% per year, with the goal that by 2015, natural gas will power 20% of all vehicles produced.
• The mandate increases by 20% per year, so that by 2019, all new vehicles produced will run on natural gas.

In 10 Years, America’s Oil Imports Could Be Dramatically Reduced

The total U.S. vehicle fleet is roughly 254 million. Of that, 135 million are cars, 99 million are SUVs and/or pickup trucks and roughly nine million are larger trucks.

And with that mandate in place, 10 years from now, vehicles that run on natural gas will have replaced 76% of all the gasoline and diesel vehicles.

The result?

• We’ll have shaved at least 13.8 million BPD – about 86% – off our daily oil imports.
• Our annual trade deficit will drop by about $94 billion, or 25%.

And what about the $10 billion in incentives that the government would shell out to auto companies?

We could phase in a progressive “legacy fuel” tax on gasoline and diesel to offset the tax incentives. It could either be phased out after five years, or left in place to continue to discourage gasoline and diesel use. That would hasten the switch to natural gas.

Of course, with all these natural gas vehicles, we’ll need places to refuel them. So the 167,000 gas stations across the United States will need natural gas pumps alongside the gasoline ones.

In that regard, the government would offer incentives to gas station operators, right along with the ones to auto companies.

That means companies like Clean Energy Fuels (Nasdaq: CLNE) can step up right now and begin installing their refueling stations around the country.

It’s Time for “Somebody” to Get Going…

As the old saying goes, “This ain’t rocket science.”

Perhaps now that the focus on healthcare reform is behind us, we can get back to the business of addressing the rest of America’s crucial issues. And undoubtedly, increasing our energy independence is one of them.

The crude oil import problem reminds me of the old joke about “Everybody, Somebody, Anybody and Nobody.”

• Everybody thinks ending our dependence on foreign oil needs to be done.
• Somebody will do it.
• Anybody could put a plan together to end our dependence.
• But Nobody has.

The U.S. government needs to step up and be that Somebody.

My scenario is a simple way to solve it… right now. But we’ll never get there if we don’t get started.

C’mon, Congress… wake up.

Good investing,

David Fessler

Investment U… Extra: Why Natural Gas?

Unlike crude oil, the United States is awash in natural gas. We have nearly 2,100 tcf (Trillion Cubic Feet), which equates to a 100-year supply. That’s 33% higher than just three years ago.

And you can bet that figure will rise further. In fact, with technological improvements, I fully expect that estimate to double over the next three to five years.

So how much gas do we need? One trillion cubic feet is enough to run 12 million cars per year. Replace 75% of the U.S. vehicle fleet (190 million vehicles) and we’re still only talking 15 tcf per year.

While electric cars might be the ultimate alternative to fossil fuels, switching to natural gas-powered vehicles gets us a long way down the road towards energy independence.

More importantly, it buys America valuable time to replace power generation with alternatives, further reducing our dependence on fossil fuels.

Buck