ffirs.qxd 1/8/07 3:53 PM Page iii FUTURE ENERGY HOW THE NEW OIL INDUSTRY WILL CHANGE PEOPLE, POLITICS, AND PORTFOLIOS BILL PAUL John Wiley & Sons, Inc. ffirs.qxd 1/8/07 3:53 PM Page ii ffirs.qxd 1/8/07 3:53 PM Page i FUTURE ENERGY ffirs.qxd 1/8/07 3:53 PM Page ii ffirs.qxd 1/8/07 3:53 PM Page iii FUTURE ENERGY HOW THE NEW OIL INDUSTRY WILL CHANGE PEOPLE, POLITICS, AND PORTFOLIOS BILL PAUL John Wiley & Sons, Inc. ffirs.qxd 1/8/07 3:53 PM Page iv Copyright © 2007 by Bill Paul. All rights reserved. Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada. Wiley Bicentennial Logo: Richard J. 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HD9565.P32 2007 333.8'2320973—dc22 2006034739 Printed in the United States of America. 10987654321 ftoc.qxd 1/8/07 3:53 PM Page v Contents Preface vii Acknowledgments ix Author’s Note xi CHAPTER 1 The New Oil Industry 1 CHAPTER 2 Terrorists, Nationalists, and Shock Absorbers 31 CHAPTER 3 Substitute Liquid Fuels, Part One: Biofuel 55 CHAPTER 4 Substitute Liquid Fuels, Part Two: Unconventional Fossil Fuels 81 CHAPTER 5 The Power of Efficiency 101 CHAPTER 6 Every Drop of Oil We Can Get Is Important 127 CHAPTER 7 The New Oil Economy? 145 v ftoc.qxd 1/8/07 3:53 PM Page vi vi CONTENTS CHAPTER 8 The Complete List of 100 Companies to Watch 163 Why the Chevrolet Corvette Should Be the Symbol of the New Oil Industry APPENDIX A 2012 U.S. Biofuel Market Forecast 179 APPENDIX B Primer on Why Gasoline’s True Cost in 2006 Was More than $11 a Gallon 181 APPENDIX C Valuable Energy News Web Sites 191 Glossary 195 Notes 205 Index 217 fpref.qxd 1/8/07 3:53 PM Page vii Preface Hundreds of millions more people in the world are expected to be driv- ing cars and trucks in 25 years’ time, but the world is already struggling with high prices, national insecurity, and environmental anxiety as it tries to meet current demand for oil. Not since demand for whale oil deci- mated the supply of whales has demand so threatened to exceed available supply. Oil companies are running just to try to stay in place. But the new discoveries are smaller than the old ones and the amount of new crude is insufficient to replace reserves at the rate we are using them up. The world is living on past discoveries as it watches its most important oil fields get dangerously long in the tooth. Besides these physical ailments, the world has big psychological prob- lems. Oil-consuming nations whistle as they walk past the graveyard, hoping there won’t be a sudden cutoff in the flow of oil from the region of the globe most likely to erupt in violence, the Middle East, or a rapid falloff in production by key oil fields because of years of inadequate maintenance. People hear shocking statistics on the toll that oil and other fossil fuels are taking on the environment and, consequently, on their health, but then go fill up their tanks with gasoline because they don’t have a choice. Soon, however, the world will be presented with a golden opportunity to solve its energy-related problems. An energy technology revolution is starting to brew in America and throughout the world. This revolution will create a “new” oil industry that holds the promise of energy inde- pendence for the United States and other nations, at the expense of na- tionalists and terrorists who use oil as a sword of Damocles against the West. This revolution also holds the promise of moderate prices and a vii fpref.qxd 1/8/07 3:53 PM Page viii viii PREFACE cleaner environment. It may even hold the promise of a new method of wealth creation, a way for the average joe to make money. To fully realize the tremendous potential of this revolution, skillful political leadership that emphasizes compromise over confrontation and the national interest over special interests will be required. Shaping and directing this energy technology revolution will be one of the challenges, if not the biggest challenge, faced by leaders in Washington, Beijing, New Delhi, Tokyo, London, and other energy capitals. Although an oil- man, President George Bush has shown in his speeches that he gets what the energy technology revolution is all about. What’s needed now is a Manhattan Project–style program for developing these new technologies in order to wean the world off its deadly dependence on imported oil as quickly as possible. This energy technology revolution will present a major opportunity for investors all over the world. But first they will need to know what disrup- tive new technologies are being developed, what companies are develop- ing them, and what other companies will be called upon to implement them by providing the infrastructure of the new oil industry. This book presents a list of 100 companies to watch. Though detailed, this list should be viewed by investors as a starting point for further investigation. flast.qxd 1/8/07 3:54 PM Page ix Acknowledgments I would like to thank my friend Stephen Blauweiss for creating the charts for this book. I would also like to thank everyone who contributed so freely of their time, information, and/or enthusiasm. ix flast.qxd 1/8/07 3:54 PM Page x flast.qxd 1/8/07 3:54 PM Page xi Author’s Note The material in this book is presented for information purposes only. Under no circumstances does the information in this book represent a recommendation to buy, sell, or hold individual stocks, groups of stocks, or any other investments. The author does not own stock in any of the companies on the “companies to watch” list. xi flast.qxd 1/8/07 3:54 PM Page xii ccc_paul_001-030_ch01.qxd 12/21/06 2:51 PM Page 1 CHAPTER 1 The New Oil Industry A newspaper article in the spring of 2006 said that economists believe that if gasoline were to reach $5 a gallon in the United States, “an entire industry would develop aimed at cutting costs and finding new sources of energy that could alter the economy in unforeseen ways.”1 While Americans may or may not see $5 gasoline, in point of fact this new industry is already taking shape. It is being fueled—though only in part—by crude and gasoline prices that have risen rapidly over the past few years, climbing above $70 a barrel and, in the United States, $3 a gal- lon, respectively, at the start of the 2006 summer driving season. In addition to high prices, this new industry—really a “new” oil indus- try because conventional oil production will continue to play a vital role for the foreseeable future—is gaining momentum because of two of the most widespread fears in the world today. The first is the fear of govern- ments everywhere over their lack of energy security, as reflected in Presi- dent Bush’s now-famous statement that the United States is addicted to imported oil. Call it energy insecurity. The second is the fear of people everywhere over the health of the planet, as reflected in 2006’s tidal wave of media interest in global warming.