I’ve just returned from the CME Group’s Global Financial Leadership Conference in Naples, Fla., a top tier event in its second year which drew some some star power again. Among them was T. Boone Pickens, who addressed his Pickens Plan in a version I’d call Pickens Plan Phase I. Pickens touted the virtues of natural gas. That’s nothing new as natural gas, wind and solar have always been part of his plan. But he also mentioned House Bill 1835 and Senate Bill 1408, both of which are designed to encourage use of natural gas as a fuel for large trucks in the US through a number of tax credits. The bill focuses on fleets – such as federal vehicles or large trucks – and requires federal agencies to buy vehicles that use alternative fuels, such as natural gas powered cars and trucks.
Pickens was along side Congressmen Dan Boren, John Sullivan and John Larson when the Nat Gas Act of 2009 (aka House bill 1835) was announced in May and believes that the legislation is closing in on passage. The house bill will soon have 120 sponsors in Congress, which will help push it forward, he says. This legislation fits in nicely with the Pickens Plan because of its focus on using natural gas from the US to help power 18-wheel trucks. In other words, its focus is narrow so the refueling infrastructure is easy to build. It also supports Picken’s main objective, which is to get the US away from importing oil, especially from countries that are hostile toward the country. It also holds the potential of being a major job creator and a big boost to his own firm, Clean Energy Fuels Corp., the largest provider of vehicular natural gas in North America.
There is a strong nationalistic message to the Pickens Plan and its somewhat simplistic in its approach of dealing with oil producing countries the US is friendly with – such as Canada and trimming or cutting ties with those the government does not – such as Venezuela, Iran and others. While the approach leverages a cleaner burning fuel than diesel, a major shift away from crude oil may be problematic. OPEC still holds the power over a large part of world oil production. A major shift away from them may simply trigger a cut back on production, dramatically raising the price of crude.
That said, Pickens is right in that the US cannot continue its policy of importing more than 65 percent of its oil, up from 24 percent in 1970. In Pickens’ view, that shift represents the largest transfer of wealth outside the US in its history. But this also puts the US in a precarious position geopolitically, as Iraq and Kuwait have illustrated.
What was interesting was a pullback on wind from Pickens. One of the largest investors in wind in the US, Pickens now says the economics do not support wind power investment. He said that $7 natural gas is needed to justify financing for wind. Today natural gas stands around $5 per million British thermal units, down 32% from $6.80 a year ago and far under the July 2008 price, which topped $13. Pickens said he still believes in the long-term viability of wind, but that will require government financing, not subsidies, to keep expanding wind projects in the US.
At 81 Pickens is still the sharpest mind in the room when it comes to energy and energy solutions. And if he’s correct now, natural gas may be the bridge to a carbon free economy.