Is there nothing can be done to lower gasoline prices? Are we totally hostage to the geopolitical tussle in the Middle East? It is just a foregone conclusion that until we get a resolution of some sort with Iran's nuclear program, oil will just march inexorably higher?
Yes and NO.
Yes, we can't do anything right now. During the last oil spike, the president tapped into the Strategic Petroleum Reserve, but he can't risk doing that now, because it is meant precisely to avoid a Middle East shutdown. We also can't force a decline in price at the pump. It's hugely expensive to get oil from the wellhead to the gas station, and it's not like anyone is gouging, as much as it might seem like that when you pay $90 to fill your SUV.
But getting the price down in the future is totally within our reach. That's because the price of natural gas is crashing. There's simply nowhere near the demand for natural gas in this country to meet the supply. This morning, we heard from one of the largest natural gas producers, Chesapeake Energy (CHK), and it is struggling with the surfeit of the product. Aubrey McClendon, the swashbuckling Chesapeake CEO, is frantically cutting back on natural gas drilling, as is almost every other producer in the country, but it's for naught.
Last night Mark Papa, the terrific CEO of EOG Resources (EOG), said he believes that natural gas isn't done falling, that it can still come down hard and that it is going to stay that way for a long time to come.
Enter Westport Innovations (WPRT). Westport, which priced 5.5 million shares at $43.25 just this morning, is pumping out natural-gas-burning truck engines for everything from pickups to heavy-duty trucks. Given that trucks are responsible for 25% of the oil we import, if we were simply to have a program helped by the government to get the old diesel trucks off the road and have the trucking companies switch to Westport engines, in three years we could turn the tables on OPEC and lower the price of gasoline using our own cleaner, abundant fuel.
What drives me crazy is that the Republican candidates for president aren't even talking about this opportunity, and other than one photo-op where the president called our nation the Saudi Arabia of natural gas, there's nothing really happening to make the switch. Even more absurdly, other than Westport and Clean Energy Fuels (CLNE), which is building a network natural-gas filling stations, nobody is doing anything much at all to try to knock down the future price of oil and become less dependent on unstable Middle Eastern sources.
Why is that? Frankly, it's an oddity that every oil person I deal with is in shock about. The auto companies aren't really embracing natural gas, because the subsidies for electric cars are so bountiful. The truckers know that these Westport engines, while giving the users a quick payback, still require a stiff initial outlay.
Still, if we have the will, if we have the political wherewithal, we could lower the price of gasoline for good by embracing natural gas. Right now, we are just embracing the stocks of Westport and Clean Energy. Frankly, it makes you realize that we seem almost suicidal when it comes to saving ourselves from OPEC and the Middle East. Until that attitude changes, gasoline is going higher for years and years to come.
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