Amory, Boone and Chuck

Of Natural Gas and Negawatts

My recent reading has included some statistical updates from the Energy Information Administration[i] (“EIA”), a Foreign Affairs[ii] article by Amory Lovins and some recent comments from bazillionaire oil man T. Boone Pickens. The common thread among these is the extraordinary state of flux in primary energy supplies. When fundamentals like energy supply change rapidly, customers (such as manufacturers) face competitive risks — and competitive opportunities.

Primary Energy Consumption by Source and Sector

Start with this remarkable graphic from the EIA:

Primary Energy by Source and Sector - EIA

As you see, the graphic maps primary energy sources (fuels) to demand sectors. The demand sector (right-hand) side of the graphic tells us that, in 2010, Industry drew 20.0 Quadrillion BTUs (“Quads”) of primary fuels, 40% of its which came from petroleum, 41% from natural gas, 8% from coal and 11% from renewable sources. But that’s not the whole of it. Industry also consumes energy in the form of electricity. The EIA also reports that Industry accounts for 26% of America’s electricity demand. From the graphic, that 26% can be calculated as primary fuels consumption. Then, the primary fuels consumption from electricity can be added to the direct primary fuels consumption:

American Industrial Energy Demand (2010), Expressed as Primary Fuel Consumption

Direct Fuel

From Electricity

Total Fuels


8.1 Quads

0.1 Quad

8.2 Quads  (27%)

Natural Gas

8.2 Quads

2.0 Quads

10.2 Quads (34%)


1.6 Quads

4.9 Quads

6.5 Quads  (21%)


2.2 Quads

2.2 Quads   (7%)


2.2 Quads

1.0 Quads

3.2 Quads  (11%)

If you are thinking “that’s nice, but so what?” — hang with me. The EIA also provides this information on averaged 2010 prices for industrial fuels (prices are per million BTUs, expressed in 2010 dollars):

Distillate Fuel Oil


Natural Gas


Boiler Coal




Surely you’ve noticed the price of natural gas. Because of the spread of hydraulic fracturing (“fracking”) drilling technique, especially in shale formations, the proven reserves of natural gas in the U.S. is mushrooming. The price of natural gas is no longer linked to that of petroleum!

From Boone Pickens’ Comments:

Boone Pickens is 83 years old now. He has spent about 60 of those years in the oil industry, where he has been quite successful. Boone doesn’t need to fool anybody, so what he has to say about energy deserves to be taken quite seriously.

Boone points out that natural gas is “abundant, cheaper and cleaner” than petroleum, that natural gas prices are at a 10 year low, and that he doesn’t expect that to change anytime soon.

Boone sees natural gas as a transition fuel that provides an immediate and practical way to end America’s reliance on imported crude oil, particularly from the OPEC bloc. His Pickens Plan[iii] advocates conversion of America’s over the road heavy truck fleet from diesel to natural gas, noting that the Transportation sector represents over 70% of America’s petroleum consumption, that about half of that petroleum is imported, and that the cost of petroleum imports accounts for about 2/3 of America’s trade deficit.

The EIA reports that heavy trucks consumed the equivalent of 2.35 million barrels of oil per day in 2010, which compares to the average of 1.71 million barrels per day Imported from the Persian Gulf. Natural gas as motor fuel is a well established, available now technology, so Boone’s plan does make sense.

From Amory Lovins’ recent article in Foreign Affairs, “A Farewell to Fossil Fuels”:

Lovins begins by emphasizing that “(e)ach day, the United States spends one sixth of its GDP on oil, not counting any damage to foreign policy, global stability, public health, and the environment.” He envisions “a U.S. economy that has grown by 158% by 2050 could need no oil, no coal, no nuclear energy, and one-third less natural gas — and cost $5 trillion less than business as usual, ignoring all hidden costs.” Further, he maintains that all of this can be accomplished without Acts of Congress, using technology that already exists, through ordinary investments at customary rates of return. The remainder of his article draws on research reported in Reinventing Fire[iv], his recent book, which details how this can be.

The key to Amory’s approach is continued drastic reductions in “energy intensity” — the amount of energy needed to produce $1 of GDP. Between 1976 and 2010, this figure dropped by half in the U.S., “driven by no central plans or visionary intent but only by the perennial quest for profit, security, and health.” Amory’s plan relies on “negawatts” — Amory’s wry term for energy consumption avoided through common sense and careful engineering.

Chuck’s Take – Aways for Smaller Manufacturers:

Natural Gas
– The huge increase in available supply of domestic natural gas affords global competitive advantages. Examples include: low and stabile energy price; low cost, secure energy transportation (pipelines); clean fuel (no toxic emissions or abatement costs). Where it is practical to change to natural gas, do so as quickly as possible.

Freight Costs
– The likelihood that over the road trucking will convert to natural gas is quite high. Pickens says within 5 years with Government leadership, 10 years without. Early movers will enjoy a substantial fuel costs advantage until laggards catch up.

“Negawatts” and Lean Manufacturing
– The relentless pursuit and elimination of waste in all of its forms is the essence of Lean Manufacturing. A systematic pursuit of energy utilization efficiency is an extension of Lean Manufacturing, to which existing Lean Manufacturing operational tools are applicable. Use them. Also, if you haven’t conducted an Energy Utilization Audit, an earlier post to this blog can help you get started:

Automobile Weight Reduction
– Last year, the EPA enacted new automobile and light truck fuel consumption requirements that reach to fleet average of 54.5 miles per gallon by 2025. Compliance will require automobile manufacturers to significantly reduce the weight of the vehicles they produce. The product and process technology to do this on an automotive industry scale will create enormous opportunities throughout the entire automotive supply chain. Amory Lovins’ Reinventing Fire expands on this (see footnote below). A previous post to this blog also elaborates on this:—innovation.aspx.

Thoughtful comments and experience reports are always appreciated. Click on the title of this post to open the comments section.Chuck - Pacific

…  Chuck Harrington (

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[i] The Energy Information Administration is part of the U.S. Department of Energy. Energy statistics reported in this post are from the EIA’s Annual Energy Outlook, 2012 early release (, unless otherwise noted.


[ii] Lovins, Amory B., “A Farewell to Fossil Fuels”, in Foreign Affairs, Volume 91, No. 2, March/April 2012, pp 134 – 146. Copies are available for download at:


[iii] More on Boone Pickens and the Pickens Plan is available at:


[iv] Lovins, Amory B. and the Rocky Mountain Institute, Reinventing Fire, Chelsea Green Publishing, White River Junction VT (2011). Note: Reinventing Fire is discussed in an earlier post to this blog: