The Pickens Kool-Aid
Posted by Sonja Ebron
T. Boone Pickens is a legendary oilman, energy market speculator and hedge fund manager. I applaud him as one of the first industry insiders to acknowledge, almost four years ago, the permanent end of cheap oil. The Pickens Plan to reduce America’s dependence on foreign oil is to build windmills and put natural gas-fired power plants out of commission. He wants the U.S. to break its oil addiction by replacing diesel as an auto fuel with the natural gas no longer needed to make electricity. But what’s in the Plan for T. Boone?
By Pickens’ estimate, his Plan would reduce oil imports by 30 percent. Among renewable sources of electricity, wind is out front in terms of technical stability and cost. There is sufficient wind in parts of the country to provide about 20 percent of our electric needs. While conventional stores of natural gas are in decline, there are huge supplies in unconventional sources such as shale oil formations, which could produce 27 billion cubic feet per day (about 40 percent of current consumption) when the extraction technologies are up to speed. There’s no question compressed natural gas (CNG) is a safe, eco-friendly, and proven technology. CNG has been fueling buses for over a decade, and 1-2 percent of cars on U.S. roads drive on it.
So Pickens’ plan appears feasible at first glance. Look under the hood, though, and the whole thing falls apart. There are many skeptics, and I count myself among them. Here are some of my questions:
- Who’s going to pay to retrofit the 20 million diesel-fueled buses, fleet vehicles and heavy trucks on America’s roads to use natural gas?
- Since there are only 2000 natural gas refueling stations in the country, who’s going to pay to retrofit the 10s of thousands of diesel fuel stations to pump natural gas instead?
- Since the existing CNG pipeline system is less than 2 million miles, what is the cost of the new pipelines required to distribute fuel for natural gas vehicles, and who will pay it?
- Where will we find adequate supplies of natural gas while expensive and dirty technologies like fracking (hydraulic fracturing, used to extract natural gas from shale oil formations) reach cost efficiencies and water quality standards?
- Since the vast majority of electric power plants built over the last decade are fueled by natural gas, and since they produce electricity at higher efficiency and at lower cost than wind or other renewable sources, how will the owners of these plants be persuaded to mothball them? Will legislation be required to ban them? Just exactly how will the natural gas they use be liberated for use in natural gas vehicles?
- Since natural gas-fired power is available on demand, while wind power is intermittent, who will pay for the “smart grid” and rights-of-way required to dispatch wind power from wherever it’s available to wherever it’s needed?
- Since even Pickens has delayed his planned 4000MW wind farm (just before Barack Obama’s election because no smart administration would take this Plan seriously), who’s going to risk investing in new windmills while natural gas prices remain low?
As far as I can tell, the short answer to all these questions is that government (that’s us) will make it happen, providing tax incentives, legislative mandates, land takings, environmental exemptions, and trillions of the hard-earned dollars we would otherwise use on a workable plan. Absent the force of logic, Pickens believes the government must be compelled through the democratic process to sponsor his Plan, and he’s trying to generate enough public support to do it. He’s built an activist network to grow a popular consensus in favor of his Plan, using social media tools like Facebook, MySpace, YouTube, Twitter and proprietary “push” technologies designed for social action. Only a little common sense and a few facts are required to understand these issues, but there’s very little debate or discussion of no-nonsense questions within this network. Pickens, author of The First Billion Is The Hardest, has spent $60 million on social tools and PR to generate a political force. His investors have put $2 billion on the table for the entire Plan, which includes his wind farm development.
But why place such a large bet with so many unanswered questions in the air? I’ve never met Mr. Pickens and have no reason to suspect he’s anything other than a fine man. But there’s a paradox I can’t get my head around. Investing in wind power to replace natural gas-fired power is betting that natural gas prices will increase (demand up and/or supplies down) to make wind power relatively cost efficient. That’s what T. Boone and his partners are doing. On the other hand, investing in natural gas vehicles is betting that natural gas prices will decrease (demand down and/or supplies up) to make oil relatively cost inefficient. That’s what he wants us to do. But we can’t have it both ways. Somebody’s gotta win, and somebody’s gotta lose. The Pickens Plan requires that natural gas-fired power falls above the cost of wind power and that natural gas vehicle fuel falls below the cost of diesel. There is no geophysical way to fix natural gas prices in the middle. The Plan cannot succeed because it is betting against itself.
Only a speculator would bet that fracking or other technologies needed to extract unconventional natural gas sources will pass muster under stricter environmental regulation, so we can’t expect large increases in supply. More likely, natural gas supplies will continue to decline, resulting in higher prices. T. Boone wins. The Pickens Plan would increase demand for natural gas, raising the prices even further. T. Boone wins double. To the extent the Plan’s PR succeeds, smart money is very long on natural gas, betting on dramatic price increases in the future. If Mr. Pickens has his way, perhaps the last trillion will be the easiest.
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3 Responses to “The Pickens Kool-Aid”
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Excellent article. Mr. Pickens has recently been heralded in some circles as a Green pioneer and Eco-tycoon do-gooder but unfortunately his ‘plans’ fall short of catalyzing positive change. I’m sure you’re familiar with the vast ground water supplies he’s buying up in the southern states. This, to me, is far scarier than any oil or natural gas strategy as water supplies dwindle and become increasingly contaminated. I would argue that this will be his ‘easiest trillion’.
Well said! Thanks for the comment, Sara.
Sonja, I found this interesting on MANY levels. Thanks so much for sharing it. Lisa