BALTIMORE, MD — Over the past two days front month oil futures have gotten the wind knocked out of them, losing 3.4% since Monday's open.

Crude for October delivery closed today at $63.76 a barrel, a five month low and representing a 16% decrease since the beginning of August.

And there's no denying that short-term oil prices still look quite bearish. All technical and fundamental indicators point to even further declines.

But take a look at the long-term picture and you'll see a completely different story.

Crude has increased two-fold in the past two and a half years alone with no end to the rally in sight.

With global demand rising at alarming rates and the peak in global oil production looming, there's little serious debate over the mid and long-term outlook for oil prices.

 

Bottom line: Oil prices are going much higher.

Given this information, we'll all need to somehow adapt to a new way of life. And one airline is already making plans.

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Airline Plans for Peak Oil

Ultra-high oil prices promise disastrous economic consequences for the majority of businesses worldwide. There's just no denying this fact.

From basic material suppliers to technology firms... From financial organizations to the service industry... From the consumer and industrial goods sector to conglomerates...
Mark my word: No enterprise will escape the coming oil crisis unscathed.

Some industries — those which do not rely too heavily on cheap oil — will get off relatively easy.

But for businesses whose revenue is highly dependent on the cost of oil, such as trucking companies and airlines, the impending oil spike could be catastrophic.

For industries like these, any technology that would lead to lower fuel costs would be a godsend, which leads me to what I want to talk with you about today...

Over the weekend I managed to get my hands on two documents marked "CONFIDENTIAL" that outline a well-known airline's plan for continually increasing oil prices.

These documents include: 1) a presentation that calls for action and offers a viable solution to high oil prices and; 2) a discussion draft of a congressional legislation proposal seemingly written by the same airline.

The airline is JetBlue Airways (NASDAQ: JBLU).

The JetBlue presentation begins by summarizing our dependence on foreign oil claiming that, "In 2005 the U.S. imported 3.7 billion barrels of crude oil." And that, "75% of these imports came from unstable governments with a high risk of supply disruption."

Obviously foreign dependence on oil should be of serious concern to JetBlue. Any major disruption in the nation's fuel supply would likely ground most of JetBlue's planes as few could afford a ticket once the airline is forced to build the cost of jet fuel into ticket costs.

The airline continues in the presentation to say, "With limited reserves and growing global demand, prices are not expected to decrease. Any number of events, which are out of our control, could drive the price of oil even higher. We need a practical solution to this growing crisis."

So what is the practical solution their suggesting?

It's something we've talk about many times before in Energy and Capital...

Coal-to-Liquids

It's no secret that the United States contains the lion's share of the world's coal reserves with about 250 billion tons of recoverable coal. And according to JetBlue, "On an equivalent energy basis, we [the U.S.] have a larger energy resource base of coal than the OPEC nations have of oil."

JetBlue believes that the nation's coal reserves can be transformed into a whopping 800 BILLION barrels of synthetic fuel!

(You can see this presentation for yourself by Clicking Here)

Now, it is not the existence of this presentation itself that is such a landmark. It is the author.

For major coal producers like Peabody Energy (NYSE: BTU) or Arch Coal (NYSE: ACI) — which have proven and probable reserves of 9.8 billion tons and .3.1 billion tons respectively — to create such a presentation would be no huge surprise.

These firms would directly benefit from significant implementation of this technology as coal would increase in demand and price.

But for an airline to begin touting the technology is a completely different animal. It underscores the impending problem of high fuel costs airlines will be faced with in the near future.

To further endorse CTL technology, JetBlue has seemingly drafted a discussion draft for a congressional legislation proposal for an act called the "Consumers Transportation and Energy Security Act of 2006."

The draft appeals, "To utilize domestic coal reserves to produce petroleum products such as jet fuel, low sulfur diesel, naphtha, propane, butane and kerosene, necessary to maintain the United States' transportation industries, augment national defense and reduce dependence on imported oil."

According to the draft, the purpose of this legislation will be:

(1) to increase the energy security of the United States;

(2) to reduce the importation of petroleum;

(3) to reduce the price of petroleum products to American consumers;

(4) to diversify our sources of petroleum products and fuel;

(5) to expand refinery capacity;

(6) to produce a favorable change in the balance of payments;

(7) to further develop the United States' coal reserves;

(8) to reduce greenhouse gas emissions via carbon capture and sequestration and add recoverable reserves of oil;

(9) to encourage the use of Integrated Gasification Combined Cycle (IGCC) systems in power plants; and

(10) to promote, via a strategic partnership with the United States Government under this Act, the development and construction of a minimum of 10 and a maximum of 70 coal to liquids plants that utilize coal to produce a range of petroleum products required by consumers, industry and the national defense.

(You can see this draft for yourself by Clicking Here)

But why would JetBlue want to keep these documents confidential?

Who knows.

Maybe they don't want to be among the first airlines to sound the alarm. Or maybe they're afraid to admit to their shareholders and to the general public that they think the oil jig is up.

As far as the immediate future for CTL, it doesn't look great. Especially now that Chevron and team have proved that extracting crude from deep under the Gulf of Mexico is possible. I expect that there will be many more efforts to drill in areas like the Gulf over the next few years and this will delay implementing the technology on a significant scale.

Nonetheless, cheap crude oil is almost out. Once that happens, CTL will be in.

-Luke Burgess 

"Energy stocks... The only way a human is going to make any money."

-- Matt Simmons, Peak Oil's first and most vocal proponent,
and founder of the country's last pure play energy investment banking firm.

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