The Headless Horseman of the US Energy Boom

Here’s a stirring revelation…

How the heck does a guy with no head, no eyes and no brain gallivant around a town — on a horse, no less — and stir up trouble?

The dude can’t see!

But that’s the tale of the headless horseman in Washington Irving’s “The Legend of Sleepy Hollow.”

Regardless of where the idea of a headless horseman came from – Irving’s legend or dating back further to German folklore – it’s supernatural at best.

Here in the real, natural world the idea of a headless, brainless creature wreaking havoc just doesn’t pass muster.

That is, unless we’re talking about the government…

“We’re the only country in the world without an energy policy,” says Texas oilman, T. Boone Pickens, on the topic of domestic energy independence.

At some point in time America’s cheap, abundant source of natural gas is going to be exploited – U.S. energy policy or not!

U.S. energy policy is a true headless horseman. Our policy has no direction, which poses a potential hazard to everyone around it.

“It would be a good idea to know the resources we have, how we’re going to deploy them and where we go from here” says Pickens (and I agree!)

Today we’ll discuss what that means to our energy future, our dependence on foreign oil and how one niche investment could be in the right place at the right time.

Over the past couple days we’ve discussed America’s abundance of natural gas. The natural gas discussion is all part of a larger picture with U.S. energy.

In short, America is enjoying a massive renaissance in American energy. Oil production is as high as it’s been in over 20 years and dependence on foreign oil — especially that of the Middle East and OPEC — is falling.

The oil part of the equation, domestically, is pretty simple. According to Pickens “We’re using 18 million barrels [of oil] per day…producing half of it in the U.S. and importing the rest. About half of the half comes from Canada and Mexico. The other half comes from OPEC.”

“I want to stop the OPEC part,” Pickens says.

But while America’s oil industry is rebounding substantially, and each month the domestic production numbers continue higher, our resurgence in oil won’t be enough to get us off of OPEC oil.

That’s where the natural gas side of the equation comes in.

While oil production is up, it’s far from our nation’s peak production in 1970 (near 10 million barrels per day.) Natural gas production, however, is at all-time highs. The shale boom is having a profound effect on natural gas production – and the path of America’s energy future.

Touching on what we covered recently, Pickens reminds us that “Natural Gas is 30% cleaner and half the price of diesel.” (As I mentioned in my essay “When Gas Goes Back to 60 Cents a Gallon,” I’d argue natural gas is even less than half the price of diesel!)

This brings us to yet another opportunity to profit from cheap natural gas.

While we should keep an eye on companies that can use cheap natural gas as a feedstock, other than plan to export LNG or those that could turn natural gas into diesel (through “gas to liquids” technology), another opportunity lies in using natural gas as a domestic transportation fuel.

Using natural gas to fuel vehicles isn’t a new concept. Heck, I drove a nat-gas powered truck nearly 15 years ago. I didn’t know much about “compressed natural gas” (CNG) but I did know that box truck could whip in and out of lanes on the highway!

Today the natural gas powered vehicle debate is gaining even more steam. Gas is more abundant than ever. Prices are still relatively cheap. And the technology is moving ahead at warp speed.

For years the darling of the industry was Westport Innovations (WPRT.) Westport is a natural gas engine maker. The idea was simple: if natural gas vehicles become mainstream Westport will make a mint! Share price action from 2009 to 2012 told the same tale – a move from near $3 to over $40. Since the 2012 highs, however, shares are down some 48%.

Indeed, finding a winner in the natural gas engine game isn’t as easy as once suspected.

That is, until more recently…

We’re finally starting to see some momentum build, which could lead to mainstream use of natural gas as a transport fuel.

“The tipping point has come” Pickens says, “Cummins has supplied the new 12 liter engine…. a new 400hp engine.”

A quick look at the share price action for Cummins (CMI) and you’ll see a much stronger uptrend emerging. Not only is Cummins a much larger, better organized company, it also pays a nice 2% dividend, to boot! Shares are up 33% year over year and on a recent pullback in price you could “buy the dip” so to speak.

Again, at some point in time America’s cheap, abundant source of natural gas is going to be exploited – U.S. energy policy or not!

And the natural gas transport fuel opportunity won’t likely stop at fleet vehicles and consumer vehicles. Large-scale use of natural gas in barges and railroad locomotives is also in the works.

Add it all up and right now there are a lot of ways to play this natural gas trend. I like manufacturers that use nat gas as a feedstock (chemical players, fertilizer players, etc), I also think we’re going to see a lot of action in the liquefied natural gas (LNG) export market and the gas to liquids (GTL) arena.

Today we can add the idea of natural gas powered vehicles to the list of natural gas opportunities. We’re finally starting to see some momentum build, which could lead to mainstream use of natural gas as a transport fuel. When that happens a well-run dividend payer like Cummins could be an important part of your natural gas portfolio.

Indeed, if we want to reduce our imports from OPEC, using natural gas as a transportation fuel is one of the only real ways to do it.

In the interview noted above, Pickens even goes on to describe a situation where he says we could stop importing from OPEC, draw down our Strategic Petroleum Reserve (SPR) and within 10 years be running vehicles on natural gas.

That’s virtual energy independence – with or without an energy policy! …And it’s all profitable.

Keep your head on and your boots muddy,

Matt Insley
for The Daily Reckoning

Ed. Note: As the momentum builds, so do the investment opportunities. And as they become available, Matt will be one of the first people on the scene to book some incredible profits. His Daily Resource Hunter readers have a leg up. Each issue gets delivered straight to your inbox every single morning, so you can start using what you learn as soon as the markets open. And best of all it’s completely free. So don’t wait… Sign up for free, right here, and start getting your exclusive chances at life-changing wealth.

Original article posted on Daily Resource Hunter

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