Monday, July 13, 2009

Senate Introduces Natural Gas Act, Boone Pickens Cheers

In case anyone is unclear as to how Washington works, read this press release from July 8th concerning the newly introduced Natural Gas Act. The proposed Act would offer a generous tax credit of (up to) $12,500 for the purchaser of a light-duty, natural gas powered vehicle. For comparison's sake, the proposed credit is over 50% more valuable than the current tax credit offered to first time home buyers, and over 6X more valuable than The Lifetime Learning Credit (unless you are a student in a Midwest disaster area, in which case the credit is only a third less valuable). Additional components of the legislation - introduced by Senator Robert Menendez (D-NJ) and co-sponsored by Senators Orrin Hatch (R-UT) and Harry Reid (D-NV) - are below:
  • Allows 100% of the cost of a natural gas vehicle manufacturing facility that is placed in service before January 1, 2015 to be expensed and to be treated as a deduction in the taxable year in which the facility was placed in service. This decreases to 50% after December 31, 2014 and is phased out by January 1, 2020
  • Allows state and local governmental entities to issue tax exempt bonds in order to finance natural gas vehicle projects
  • Increases the refueling property tax credit from $50,000 to $100,000 per station
We were also interested to read T. Boone Picken's name in the press release, where he was referred to as an "energy-independence advocate". Of course, Mr. Pickens is a strong proponent of ending our "addiction" to foreign oil. Presumably though, he would prefer that we replace oil with an energy source that he is heavily invested in - say Natural Gas.

Ultimately, we are better off consuming a resource which is found in abundance in the United States. Furthermore, Natural Gas is supposedly "cleaner" than oil, providing Democrats with the political cover to get behind any legislation that promotes use of the flammable gas. Perhaps this is why investors have stampeded into the Natural Gas ETF (UNG), challenging the fund's ability to keep pace with demand for new shares. From a political standpoint, Natural Gas looks attractive; however as contrarians, we are a bit skeptical of any product as "hot" as UNG.

*no position in UNG
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