The Pickens Plan: Where Are We One Year Later?

Earlier this week, T. Boone Pickens, the 81-year-old Chairman of BP Capital, appeared on CNBC’s Squawk Box to discuss the progress of the “Pickens Plan.”

Readers might remember it was during the heat of the Presidential campaign last summer, on July 8, that Pickens began his own campaign to wean the nation off of foreign oil.

Spending his own money, he bought time on the major networks and mobilized an “army” of believers in order to get the word out about the dangers of continued dependence on foreign oil.

Essentially, the Pickens Plan seeks to reduce the nation’s dependence on foreign oil with a combination of wind-generated power and natural gas powered vehicles. In the process, the need for foreign oil is drastically reduced or eliminated in as little as 10 years.

His timing - with oil prices hovering around $150 a barrel - got him a lot of attention. He spent time last August meeting with both McCain and Obama in hopes that - regardless of the election’s outcome - the victor would understand the magnitude of the problem and get behind an energy plan for the United States.

In the last 12 months, to his credit no other plan has been articulated as clearly and succinctly as Pickens’ has.

Now it’s one year later: Obama is President, oil prices are less than half of what they were a year ago, and the country is sliding deeper into recession. Is shutting off foreign oil still a concern? Have we made any progress in doing so? Are we any closer to a national energy plan?

The short answers are definitely yes, yes and almost. Let me explain:

Still at the Mercy and Whims of Whackos…

While the price of oil has come down dramatically in the last year, our dependency on foreign oil is as great as it ever was. We still get over 70% of our oil from other countries, and it’s a huge security issue.

While the transfer of wealth - dollars out for oil in - is less, it’s still a huge net outflow of nearly $400 billion annually.

There’s no question that keeping that money here will not only have a positive effect on our trade balance, it’ll make a huge difference in the U.S. economy… a “free” $400 billion annual stimulus package, if you will.

Alternatively, according to Boone, “If we go 10 more years with no plan, we’ll be importing 75% of our oil and it will cost us $300 a barrel.”

Even if he’s wrong by 50% - which is unlikely given increasing world demand - it’s still a big problem. So how do we get rid of the rogues?

Closing the Door on OPEC: Light at the End of the Tunnel

In terms of our progress in displacing foreign oil, there’s only one quick way to do it: replace it with natural gas. Just a few weeks ago, the Potential Gas Committee - the nation’s authority on natural gas supplies - issued a report that shows a substantial increase in natural gas reserves here in the United States.

The report indicated that the nation’s gas reserves increased 25% to 2,074 trillion cubic feet (tcf) from 1,532 tcf in 2006 - the last time the report was issued.

This was the largest increase in the 44-year history of the committee, and its language was reflective of that fact: “[The report] shows an exceptionally strong and optimistic gas supply picture for the nation.”

That’s an understatement: At 2030 projected U.S. consumption rates of about 25 tcf, that’s nearly a 100-year supply, and it pegs the U.S. reserves as the largest in the world.

John B. Curtis, a geology professor at the Colorado School of Mines and the report’s principal author, said, “New and advanced exploration, well drilling and completion technologies are allowing us increasingly better access to domestic gas resources - especially unconventional gas - which, not that long ago, were considered impractical or uneconomical to pursue.”

The findings have shifted the focus onto natural gas as a possible transition fuel as we move from coal and oil to solar, wind, geothermal and other non-carbon sources of power. It couldn’t have come at a more opportune time.

Moving Towards a National Energy Plan: Slowly

As I’ve often said in previous articles, the best thing the government can do to move us away from fossil fuels is to provide funding and tax incentives to develop and use something else (and then get the hell out of the way). It appears as though Congress is trying to do just that with natural gas.

H.R. 1835, known as the “New Alternative Transportation to Give Americans Solutions Act of 2009,” amends the Internal Revenue Code of 1986 to create jobs and encourage alternative energy investments.

Here are the highlights from www.gotrac.us on what this act does:

• An excise tax credit through 2027 for alternative fuels and motor vehicles involving compressed or liquefied natural gas (LNG).

• An income tax credit through 2027 for vehicles powered by compressed or LNG.

• A new tax credit for the production of vehicles fueled by natural gas or LNG.

• A tax credit for alternative fuel vehicle refueling property expenditures for refueling property relating to compressed or LNG and allow an increased credit for such property.

• Requires 50% of all new vehicles purchased or placed in service by the U.S. government by December 31, 2014, to be capable of operating on compressed or LNG.

• Authorizes the Secretary of Energy to make grants to manufacturers of light and heavy-duty natural gas vehicles for the development of engines that reduce emissions, improve performance and efficiency, and lower cost.

Now before I get a dozen e-mails pointing out that natural gas is just a different fossil fuel, let me head them off. There’s no argument there.

However, it’s much cleaner burning, produces less carbon emissions and, most importantly, it’s found here in abundance. It’s a walk in the park to produce new cars and trucks that run on it, and convert older ones as well.

And if it helps free of the grip of rogue nations around the world in 10 years or less, then I’m all for it. We’ll all be better off economically, and we’ll all have greater piece of mind.

How do you play it? Take a look at Clean Energy Fuels Corporation (Nasdaq: CLNE), a provider of natural gas as a vehicle fuel, primarily for fleet use in the United States and Canada. It designs, builds and operates natural gas fueling stations, and provides financing for natural gas vehicles. It and others in the sector will undoubtedly benefit from this legislation when it’s passed.

Next week, I’m going to take a look at the state of the wind power industry, and why it’s currently in stall mode.

Comments

[Respirate:]

Mr Fessler, your voice is among many in the seekingalpha community in promoting US energy independence and increasing use of North American natural gas.

It will take a long term vision and supportive national policy initiatives beyond the immediate gratification focus of market trading to be able to exploit all abundant domestic resources in a timely manner. There's no need to wait for a crisis to develop.

Contributor Michael Fitzsimmons has carried that banner for some time. As you both state, "the fundamental realities of worldwide oil supply/demand are the biggest threat to the United States economy" and our national security. While precise numbers concerning reserves, consumption rates, and years of supply are debatable, the need has been well established by Pickens and others.

Discl: Long CLNE and several companies in the NG E&P / supply chain.

Jul 10 07:09 AM

[A Barrel Full:]

Compressed natural gas would be a windfall for natural gas producers. So much so that I cannot see why they are not doing more to make it happen.

To do so however, they need to work together. Perhaps thats why they are finding it difficult.

Jul 10 07:10 AM

[redbaron:]

Another company who will benefit is Fuel Systems, FSYS. They make the hardware used to convert old gasoline fuel systems to CNG. I own both CLNE and FSYS.

Jul 10 07:56 AM

[Longinvestor:]

Letting cars alone use gasoline and converting semi's and trains to hydrogen makes more technical sense to me. The little drop in CO2 emissions with natural gas is not going to get any of my investment money. I would prefer to use wind and solar power to make hydrogen & oxygen gases. These stored gases would then run zero CO2 emission fuel cells 24/7 per the recent MIT invention.
web.mit.edu/newsoffice...

The carbon footprint:
www.eia.doe.gov/oiaf/1...

Motor Gasoline MG 156.425 Pounds CO2 per Million Btu
Anthracite Coal AC 227.400 Pounds CO2 per Million Btu
Bituminous Coal BC 205.300 Pounds CO2 per Million Btu
Methane ME 115.258 Pounds CO2 per Million Btu
Natural Gas (Pipeline) 117.080 Pounds CO2 per Million Btu
Hydrogen Gas (electrolysis) 0.00 Pounds CO2 per Million Btu

Jul 10 09:45 AM

[Falconflight:]

All of this is surreal when politicians, mostly demo/socialists, refuse, actually refuse, to promote or even allow for drilling of oil, mining of coal, or the building of nuclear power plants. We are Not moving toward a coherent national policy that will create wealth, jobs, or energy independence. It's laughable and pathetic, a mirage in corrupt craven minds.

Jul 10 10:04 AM

[Ferdinand E...:]

T. Boone Pickens. I mentioned him in one of my books as being a clever man where futures contracts are concerned. That was a long time ago.

I saw him on 60 minutes some years ago. At that time he wanted coal output increased by a large amount, and either gasified or its carbon captured and disposed of. I had my best academic energy economist in the world cap on at the time, and declared this a loser. Ditto on his wind corridor from the Rio Grande to the Canadian border, which it seems that he has now decided against. Now its talk about large amounts of natural gas being used as motor fuel. According to some people on this site, this should be a major component in a national energy policy.

Maybe so, but for Qatar or Iran.

Where this talk about new gas reserves is concerned, I intend to treat it as exactly that, talk, at least for the time being..

Jul 10 10:12 AM

[Red Raider:]

Long Investor:

Your comment is typical of that of an academic who does not function in the real world. Please be better than that.

Although your numbers may be accurate, they are misleading to say the least. Hydrogen is not found in nature in useful quantities. Most hydrogen is "manufactured" from natural gas, and must be assigned the relevant carbon footprint. The electrolysis of water eliminates the carbon issue, except for the coal required to generate electricity.
Of course, if you have a magic wand and move the calendar out some 20 years to the future, you may be able to get your power from wind and solar. Has anyone seriously considered the cost to our economy, and to the federal defecit, if we were to build enough "clean" generation and transmission grid to make the required hydrogen??? I believe it borders on insanity, and I will not believe we will ever do it unless and until I see a valid economic impact study.

The obvious answer is nuclear in the long term, natural gas in the near term. It will take an honest responsible engineering and economic study to prove it....not likely until you get the politicians out of the game!!


On Jul 10 09:45 AM Longinvestor wrote:

>
> Letting cars alone use gasoline and converting semi's and trains
> to hydrogen makes more technical sense to me. The little drop in
> CO2 emissions with natural gas is not going to get any of my investment
> money. I would prefer to use wind and solar power to make hydrogen
> & oxygen gases. These stored gases would then run zero CO2 emission
> fuel cells 24/7 per the recent MIT invention.
> web.mit.edu/newsoffice...
>
> The carbon footprint:
> www.eia.doe.gov/oiaf/1...
>
> Motor Gasoline MG 156.425 Pounds CO2 per Million Btu
> Anthracite Coal AC 227.400 Pounds CO2 per Million Btu
> Bituminous Coal BC 205.300 Pounds CO2 per Million Btu
> Methane ME 115.258 Pounds CO2 per Million Btu
> Natural Gas (Pipeline) 117.080 Pounds CO2 per Million Btu
> Hydrogen Gas (electrolysis) 0.00 Pounds CO2 per Million Btu

Jul 10 10:27 AM

[drewriders:]

We can not drill our way out of this problem. I am for drilling in ANWAR but it would only meet 10% of the U.S. oil consumption needs. Republicans are all for nuclear energy BUT they refuse to
store the waste in their district because it would be a career ender for them.

Stop blaming Dems for something both parties should be trying to accomplish. That is what is wrong with Congress. They keep trying to save their own skin instead of making the tough choices this country needs to prosper in the future.


On Jul 10 10:04 AM Falconflight wrote:

> All of this is surreal when politicians, mostly demo/socialists,
> refuse, actually refuse, to promote or even allow for drilling of
> oil, mining of coal, or the building of nuclear power plants. We
> are Not moving toward a coherent national policy that will create
> wealth, jobs, or energy independence. It's laughable and pathetic,
> a mirage in corrupt craven minds.

Jul 10 10:37 AM

[Longinvestor:]

Red Raider:

I am not an academic, but I understand physics, chemistry, and electrical engineering. If you read the Massachusetts Institute of Technology link that I provided, you will find that the source of hydrogen is from the electrolysis of water using a newly discovered catalyst that makes that way much more efficient. Using natural gas to make hydrogen is not the method MIT proposes. They propose using solar generated electricity, water, and a reusable catalyst.

Oh, by the way when use the "free enterprise" method of starting a business, you always factor in the costs of raising the cash do the work.


On Jul 10 10:27 AM Red Raider wrote:

> Long Investor:
>
> Your comment is typical of that of an academic who does not function
> in the real world. Please be better than that.
>
> Although your numbers may be accurate, they are misleading to say
> the least. Hydrogen is not found in nature in useful quantities.
> Most hydrogen is "manufactured" from natural gas, and must be assigned
> the relevant carbon footprint. The electrolysis of water eliminates
> the carbon issue, except for the coal required to generate electricity.
>
> Of course, if you have a magic wand and move the calendar out some
> 20 years to the future, you may be able to get your power from wind
> and solar. Has anyone seriously considered the cost to our economy,
> and to the federal defecit, if we were to build enough "clean" generation
> and transmission grid to make the required hydrogen??? I believe
> it borders on insanity, and I will not believe we will ever do it
> unless and until I see a valid economic impact study.
>
> The obvious answer is nuclear in the long term, natural gas in the
> near term. It will take an honest responsible engineering and economic
> study to prove it....not likely until you get the politicians out
> of the game!!

Jul 10 10:51 AM

[user396040:]

I am nervous about having the government decide which direction the transportation industry should take. I think there is a very good argument that the best direction is for motor vehicles to move in the plug in hybrid direction with the electricity generated by natural gas and alternate fuels (and nuclear when necessary). The electric engine has huge advantages in stop and go city driving. A commuter could charge his car every night in his own garage. Very little new infrastructure has to be built for the motor vehicle industry (a lot of the battery charging can be done at existing locations - garages, etc.); this may be much more feasible than switching motor vehicles to natural gas engines. On the other hand, I have seen natural gas work well as a vehicle fuel for the taxi system in China. The government's role should be to get the price signals right by raising the price of gasoline to reflect greenhouse gas and national security costs and let the market figure out what makes the most sense under those price signals.

Jul 10 11:47 AM

[Jimbo:]

I wholly support the author. Natural gas is in use almost all over the world as a transportation fuel. Yes, it does release carbon dioxide but I am suspicious of the "climate change/global warming" argument. I support the move to alternative transportation fuels simply because oil is going to get evermore difficult and expensive to produce. Hydrogen presents more technological and logistical problems than nat gas. Someone needs to get to our Nobel Prize Energy Secretary and square him away on nat gas.

Jul 10 12:50 PM

[rajsekar:]

Leave aside all calculations and numbers favoring wind and natural gas. Boone Pickens has a basic credibility problem. Anyone trusting this guy with his Pickens Plan will lose his shirt? US needs to take a hard look at current energy hogs (cars and coal fired power plants) and make tough decisions. There is a platonic shift taking place in auto sector and all automakers who have setup manufacturing in US is going to end up with excess capacity. Our oil consumption can lower only by producing less number of cars. This number will have to settle below 5 million units. There is nothing that guys like Pickens can do about it.

Jul 10 01:40 PM

[jarco:]

Anything that will require significant infrastructure, such as hydrogen, is problematic at best which all but precludes private capital participation sufficient to get it off the ground, tax credits notwithstanding. Regards the Fed (that’s us taxpayers and freeloaders), we don’t have the money to maintain what’s there.

Let’s discuss the automobile. The thought expressed earlier here suggesting 5 million yearly purchases down from 10 million is unrealistic. Despite the poor record maintaining our roads, cars as we know it are here to stay in this century.

With plenty of NG, private capital will build both power plants and pipelines to provide the increased need for electricity. If pure electric or gasoline/electric hybrid cars are a success, and I’m betting they will be, the battery charging public will soon out grow the excess power now available after peak use hours.

New NG fueled power plants are both fast to build and economical. Electric grid upgrades and capacity expansions are manageable. Last I knew nearly all garages had electric outlets. No new or vastly modified fueling stations required. With lower gasoline demand, current fueling stations will be retired and by the appearance of many, it won’t be too soon.

Lest we forget the diesel truck. Maybe converting long hauls along the interstates to NG will prove beneficial and perhaps a dire necessity. Why? Don’t forget the important results in all oil refineries. For every barrel of crude oil processed, out pops a fixed (well almost) amount of gasoline, fuel oil, Naphtha, Xylene, and a whole bunch of residual lower boiling point fuels plus road building/repairing asphalt along with some disposable crud. One barrel in, so much of this stuff out. Our use has to mirror the output.

Finally, at about 2050 most of the coal fired power plants will be nuclear. How many of us will be there to see it?

Jul 10 05:40 PM

[Bruce Pile:]

The energy crisis we face is all about timing and EROEI. The energy sources are all there - solar, wind, future ethanols that will work, and our remaining fossil allotment. The problem is that most of the nonfossil alternatives will never have the EROEI to effectively replace high EROEI oil and supply the world's energy and will take many years to scale up to what is needed for oil replacement. The other stuff that will have the needed EROEI will take too long - we will face the net energy cliff edge before they are scaled up to what is needed (see my Instablog post "The Alternative Energy No One Is Thinking About").

That leaves natural gas as the only here and now critical bridge fuel to get us from the cliff's edge to the other side where we will have high EROEI non fossil fuels scaled up and economical.

But even if you did not even consider all the net energy situation (which no one is considering anyway) NG, in addition to being the most energy dense and highest EROEI energy source, is also the quickest and cheapest way to cut all forms of pollution! Compare these pollution rates for the three fossil fuels NG, Oil, and coal:

Pollutant NG Oil Coal:

CO2 117,000 164,000 208,000
Carbon Monoxide 40 33 208
Nitrogen Oxides 92 448 457
Sulfur Dioxide 1 1122 2591
Particulates 7 84 2744
Mercury 0 0.007 0.016

Source: EIA - Natural Gas Issues and Trends, 1998

And also from the DOE, they estimate that 50 % of all air pollution comes from our cars and trucks (80% in cities). They say that an immediate switch to NG powered vehicles would:

cut CO2 by 25%
cut NOx by 35% - 60%
cut carbon monoxide by 90% - 97%
cut other nonmethane hydrocarbon emissions by 50%-75%

And we have the technology already developed to do this! You can switch your vehicle over with a trip to the mechanic and about a $1500 bill. They commonly do this in many other nations. Considering that NG engines run so much cleaner that the oil stays pure and engines last 2 and 3 times as long, that switchover bill pays for itself, not to mention that domestic nat gas is less expensive per mile even during times of geopolitical peace.

What other government programs looking at putting windmills on cars soaking up billions of our tax payer dollars would immediately cut pollution by the percentages above? None.

But they ignore the Pickens Plan and would rather fill the air with unnecessary pollution from our current imported oil.

Jul 10 10:56 PM

[nerfer:]

Fuel cells are not zero CO2. Their operation is, but not generation of hydrogen (most of which comes from natural gas today). The fuel cells are expensive (6 figures is standard for something that could power a car), the storage and transportation of H2 is still problematic. We'd need multiple practical breakthroughs before we could start making a manufacturable car. We can't wait 10-20 years for that to happen.
Plus, on an EROEI perspective, it makes more sense to store electricity in a battery than to turn the electricity into hydrogen, transport the hydrogen, put it thru a fuel cell and get back some of the original electricity to power the car.
I was once a fuel cell believer, but became educated and realized there are better alternatives.

On Jul 10 09:45 AM Longinvestor wrote:
>
> Letting cars alone use gasoline and converting semi's and trains
> to hydrogen makes more technical sense to me. The little drop in
> CO2 emissions with natural gas is not going to get any of my investment
> money. I would prefer to use wind and solar power to make hydrogen
> & oxygen gases. These stored gases would then run zero CO2
> emission fuel cells 24/7 per the recent MIT invention.
> web.mit.edu/newsoffice...
>

Jul 13 05:20 PM

[nerfer:]

Red Raider,
I agree with most of your post, but nuclear is not at all obvious. Uranium is a limited resource, and what do we do with the waste? Nuclear has never been cost-effective unless the government pays for building the plant.
There is no one solution, and limited nuclear may be useful, but we need to do what is practical for each location. I think geothermal is a vastly underestimated resource, particularly for all of the mountain/west states. Unlike solar and wind, it operates 24/7.

On Jul 10 10:27 AM Red Raider wrote:
>
> The obvious answer is nuclear in the long term, natural gas in the
> near term.

Jul 13 05:28 PM

[nerfer:]

F. Banks:
For claiming to be a Picken's expert, it's apparent you haven't read his website for awhile. Windmills are not out, they are there to replace/supplement the national electric grid. This frees up natural gas for trucks and long-haul vehicles (in-city and commuting cars can be electric powered). Wind and gas have both been part of his plan for a couple years now and that hasn't changed (I read about it well before his commercials were aired).

What is your proposal for not keeping our economy under the reins of unstable and unfriendly countries? We can't drill our way out of this problem, and we can't take over another oil-producing country.

On Jul 10 10:12 AM Ferdinand E. Banks wrote:

> in the world cap on at the time, and declared this a loser. Ditto
> on his wind corridor from the Rio Grande to the Canadian border,
> which it seems that he has now decided against. Now its talk about
> large amounts of natural gas being used as motor fuel. According
> to some people on this site, this should be a major component in
> a national energy policy.
>

Jul 13 05:46 PM

[effeff63:]

The long-standing relationship between the gov't and the oil lobby will
be very difficult to overcome. Reducing and holding down the price of crude oil have been employed in the past to cloud the issue of moving to other fuel sources. Pickens wind farm was a victim of the fall in crude prices, as well as the credit crunch brought about by deriviatives and the mortgage defaults.

Jul 17 07:07 PM