Boone Pickens vs. Charles Koch: Subsidies for Natural-Gas Fueled Trucks

When it comes to subsidies to competing industries Charles Koch advocates limited government. “We do not believe government should be picking ‘winners and losers’ in the marketplace” wrote Phillip Ellender in a letter to Congress. Ellender is Charles Koch’s top PR person, the president and chief operating officer for government and public affairs at Koch Companies Public Sector LLC. Bloomberg also reports that in an emailed response to Boone Pickens, Ellender said the following:

BP CAPITAL

“We oppose all government mandates and subsidies because they artificially skew economic signals about price and demand, thereby creating inefficiencies that divert resources from productive activities to politically favored ones”

Boone Pickens, who is a life-long Republican, doesn’t think Koch is sincere. Koch’s company imports crude oil, gains from ethanol subsidies and is in the fertilizer business, which benefits when natural gas is inexpensive, Pickens said to Bloomberg TV’s Margaret Brennan.

So why are these two hardcore Republicans fighting for? Boone Pickens wants the government subsidize natural-gas fueled trucks. Why? Because Pickens is concerned about our dependence on imported oil. But there are other reasons as well. Pickens has been buying shale acreage. “I’m in two big shale plays and one of them is the Marcellus,” Pickens said in a recent interview. Here is an excerpt from a Reuters article:

Companies are also shifting drilling efforts into shale fields that hold oil or natural gas liquids, since those fuels are fetching far higher prices than natural gas.

That boom has seen property prices in some gas basins such as the Marcellus surge above $10,000 an acre, while prices in the liquids-rich areas of Texas’s Eagle Ford shale have topped $20,000 an acre.

“I got in under what I’ve seen some of them sell for, $5,000 or $10,000 an acre, and I didn’t pay anything like that. But I haven’t sold anything,” he said.

Pickens said there appear to be at least two companies interested in setting up joint ventures with shale acreage owners, but has not made any moves so far.

 

This isn’t the only reason though. Pickens is also the biggest shareholder in Clean Energy Fuels Corp (CLNE), which is in the business of making natural-gas fueling stations.

So there you have it. Pickens is lobbying for himself, Koch is lobbying for himself. Is there really a need to subsidize trucks? Will it solve our dependence on imported oil?

There are about 8 Million “real” trucks in the U.S. and they consume 2 Million barrels of oil a day. U.S. imports around 11 Million barrels of oil a day. Pickens is asking for $64 K subsidy for natural-gas fueled trucks that cost $100 K more than traditional trucks. Assuming that these trucks save 25% in fuel costs, the average saving per truck per year is about 90 barrels of oil, or about $9000 per year. This means natural-gas fueled trucks aren’t currently a very attractive investments. However, a subsidy which covers two thirds of the cost will make it extremely attractive to switch to natural-gas fueled trucks. The subsidy can cost taxpayers at most $500 Billion if all of the trucks are converted. In exchange, the U.S. won’t be spending $70 Billion per year on imported oil. Instead it will spend $50-55 Billion on domestic natural gas (assuming entire truck fleet is converted). So should we subsidize natural-gas fueled trucks?

Unfortunately natural gas prices won’t stay low if there is an increase in demand for natural gas. As gas prices increase we have to pay more for the natural gas that fuels these trucks. That’s one problem. The bigger problem is that we have to pay much more for heating and electricity and all the other goods that use natural gas as an input. So, Pickens wants the taxpayer to shoulder the cost of the subsidy as well as the enormous increase in heating and electricity costs. That’s why we agree with Charles Koch that the government shouldn’t subsidize natural-gas fueled trucks. We also agree with Pickens that Koch isn’t sincere and the subsidies for ethanol, corn and all other agricultural products should be eliminated and tax loopholes for oil companies should be closed.

Natural gas producers know that they will benefit significantly if the demand for natural gas increases. That’s why Aubrey K. McClendon’s Chesapeake Energy (CHK) is investing $150 Million in CLNE, the maker of natural-gas fueling stations, over three years. CLNE increased 30% in the past couple of days because of that decision.

We believe the right decision for U.S. is removing subsidies instead of granting new ones. We also expect that the Congress will do the wrong thing and provide subsidies for the natural-gas fueled trucks.

Disclosure: Long CHK.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

Top 6 Cities For The Ultra Rich to Live in Comfort

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!