Pickens Explains His Plan

By Brad Zigler

Energy-mogul-turned-hedge-fund-manager T. Boone Pickens has spent the summer pitching his plan for American energy independence in a series of town hall meetings and media appearances across the nation. And, like any shrewd oilman, he's found a way to fund his adventure with OPM (other people's money). Stick with me a moment. I'll explain shortly.

Pickens' plan calls for a rejiggering of energy resources to provide the United States with enough technological breathing space to develop alternatives to a $700-billion-a-year imported oil habit.

Conceptually, the plan is simple: Replace the natural gas that's used in the generation of electricity with wind power. Then, use the freed-up natural gas to supplant diesel fuel in the nation's fleet of 18-wheeled tractor-trailers.

The Pickens mantra goes like this: Natural gas is clean, it's cheap and, best of all, it's American. There are plenty of natural gas reserves to tap in the United States, says Pickens. Converting the U.S. truck fleet to natural gas, using nothing but existing technology, would slash America's imported energy demand by 38% alone, giving the country time to develop a permanent energy solution and avoid energy bankruptcy.

To make Pickens' plan work, a step-up in the supply of wind-generated electricity is required. More wind turbines would have to be constructed in America's Midwestern "wind corridor." That's a trillion-dollar - yes, trillion with a "T" - investment that Pickens says can be financed privately. He claims to have the backing of Warren Buffett on that score.

Another $200 billion would be needed to build out the power grid to transmit the wind-generated energy to cities and towns. Pickens says the $1.2-trillion one-time cost, compared with the $700 billion annual expenditure for foreign oil, is a bargain.

Road Show

Pickens is crisscrossing the nation to sell his plan for two reasons. First, he's building grassroots support in the wind corridor, using his folksy manner to sell the economic development and job creation potential of wind farms.

Pickens claims that developing wind power represents an investment in rural America. His model is the town of Sweetwater, Texas, a town revived when a large wind power facility was built nearby, offering high-paying construction and maintenance jobs. Wind farms don't interfere with farming and grazing, either, so the jobs are additive to local economies.

Second, Pickens is using the media and meetings with politicians to push for a national energy policy that will incorporate his "bridge to the future." Pickens has schmoozed legislators on the left and the right as well as presidential candidates John McCain and Barack Obama to pledge action in the next administration.

Pickens' political approach is multifaceted. His California-based Clean Energy Fuels Corp. (CLNE) is backing Proposition 10 on the Golden State's November ballot, a measure, if passed, that would, among other things, subsidize purchases of natural gas vehicles. Clean Energy Fuels Corp., which operates the largest network of natural gas fueling stations in North America, stands to gain customers if the measure passes.

Pickens also hopes to cash in on wind-generated power through Mesa Energy, a firm he created to develop a 4,000 megawatt wind farm in the panhandle north of Sweetwater. The project, being built at a cost of about $10.5 billion, includes a 750-megawatt coal-fired generation plant to supply energy when winds are idle, a 600-megawatt natural-gas-fueled facility to handle peak loads and a 320-mile transmission line to ship electricity to the Dallas market. Altogether, the project is expected to produce 5,000 megawatts.

Pickens says he has no partners in his wind project yet, though he expects to bring in partners or, in fact, get bought out by the time the project is half completed.

Now, about that OPM financing ...

Pickens is offsetting the cost of his road show with proceeds from the sale of Clean Energy Fuels Corp. stock. Before his Pickens Plan campaign was launched on July 8, Clean Energy's shares traded at the $10 level. Over the course of the next two months, as Pickens met with pols and proles, and made countless media appearances, Clean Energy's stock price nearly doubled. When, on September 10, Pickens made appearances on CNBC with Maria Bartiromo and on CNN with Lou Dobbs, Pickens' wife began selling a 1.1-million-share stake in the company, netting $19.3 million. Her sales accounted for 17% of the company's share volume over the three-day sale period.

Pickens' Clean Energy Fuels (CLNE) Stock Sales

None of this should come as a surprise to anyone who's spoken to Pickens. "If I'm going to invest money," he says, "I'm going to expect a profit."

Clean Energy shares have fallen 21% since the stock sale.

Comments

[Brian Pursley:]

Oil is abiotic, renewable, and infinite. For the first time scientists have observed biomarkers contaminating abiotic oil: oilismastery.blogspot..../

2008 Oct 02 04:07 PM

[goodiedr:]

CLNE reached 20 at one point prior to announcement of the Pickens Plan. Anyone who invests money does so to make a profit. Mrs. P has about twice as much stock remaining in CLNE as she sold. How could anyone hope to change the way we obtain our energy without schmoozing politicians and selling the idea to the public? Comparing CLNE's decline to my other energy stocks such as CHK, RIG, XOM, PBR - it has done as well and better than most in the past month. This all leads me to ask - what's your point?

2008 Oct 02 07:04 PM

[keithpiccir...:]

Goodieder has a point.
Real issue is do we have monies to improve the grid and technology for implementing it.
East and West coast needs most of the energy-a long way from Texas. Furthermore, nat gas/cng/lng vehicles need to be retrofitted for this, and both candidates and tonight's VP candidates have only been asked in a peripheral way. Disclosure: Long WPRT

2008 Oct 03 01:09 AM

[Ferdinand E...:]

Mr T. Boone Pickens is a very smart man. I can remember with pleasure those wonderful days when I used his manipulations in the oil futures market as an example in my finance classroom. But this is a different ball of wax. Knowing what has happened in Denmark and Germany, I dont believe for a minute that the kind of investment in wind power proposed by Mr Pickens makes economic sense. Yes, there is almost certainly a place for more windpower in the US, but nothing as extensive as his 'wind corridor'.

By the way, when you start making those calculations that will prove me wrong, please remember that the capacity factor for wind in Germany is about 0.21-0.22%. Given that German turbines are probably deployed in the best (i.e. the most wind intensive) places, some question needs to asked as to whether anyone would want to invest in wind in that country if it were not for the subsidies.

2008 Oct 03 08:22 AM

[sachapp464:]

I have to echo goodiedr's comment. What's your point? Why would anyone get upset that Pickens stands to make money on his plan? I have no problem with that. People HAVE to be able to make money on oil alternatives. Otherwise they'd never be implemented. More power to him, I say!

2008 Oct 03 09:43 AM

[Red Raider:]

Goodideirs comment is well taken. Pickens should be making money. Hopefully lots of it.

Please note that Fred Banks is also correct. At best the availability of wind turbines is about 30%. Oversimply put, this means you need 10 to do the work of 3. Absent the very substantial federal subsidy the entire scheme will collapse. Of course we can all count on the politicians to continue the (enormous) tax rebate subsidy because the treasury can always print more money.

Note: I am long CLNE and WPRT

2008 Oct 03 11:01 AM

[fran:]

i second the comments made by GOODIEDR, FRED BANKS, and RED RAIDER. i would add that i get some guidance from action/comments from FPL ENERGY when acting on wind/solar. long same stocks plus CHNG[OTC], chinese version of CLNE and FSYS.

2008 Oct 03 01:08 PM

[bucksfrombytes:]

Pickens pitches his plan as an integrated whole, in which subsidized wind, subsidized electrical infrastructure, and subsidized purchases of CNG vehicles all happen at once. But in fact, the use of CNG-fueled long-haul trucks could work by itself. The recent development of extraction techniques for natural gas from shale formations means that America - and other countries - have an unexpected and abundant new source of fossil fuel.

Maybe large-scale wind farms and solar arrays, along with a costly improved electrical infrastructure, will be made to pay off someday. But the natural gas network works now in most places, and where it is lacking, moving gas in tankers by truck and rail can work well enough. The major big-rig manufactures offer some CNG-powered vehicles now, and since long-haul tractors are often worked very hard, they wear out and are replaced quickly in many cases. This means that a large market for CNG tractors could emerge quickly, if an adequate system of refueling were established on the Interstate highways, and if natural gas were priced substantially below the equivalent price of diesel fuel.

CLNE looks like the big winner in this scenario, even if windmills, solar panels, pyramid power, and fermented banana peels disappoint.

2008 Oct 03 04:52 PM

[Ferdinand E...:]

Bucks....I think that the correct expression is 'may' have an "unexpected and abundant new source of fossil fuel", because the jury is still out on the exact amount of this new source.

2008 Oct 04 03:31 AM

[xander:]

-at least a 5% increase in usa production of natural gas is likely this year.

2008 Oct 04 03:57 AM

[lefty37:]

If we had a properly priced "Phill" replacement, I would already be on cng.

2008 Oct 04 06:39 AM

[Road Runner:]

Pickens is on the right track with his plan, though ultimately it will not look like what he describes.

Wind power will continue to grow fast and be a significant source of electricity. And, the electric infrastructure will be built for it, though very slowly. Texas has already approved billions for electric infrastructure expansion.

But, wind significantly replacing natural gas? I can't see that. The demand for electricity is growing rapidly and we're going to need all the sources we can get in the next 20 years. Also, in 20 to 30 years solar will be much bigger than wind.

A huge migration to natural gas powered 18-wheelers? I can’t see that. I see the next generation of bio-diesel for that. Though, I can see more use of natural gas in city fleets of vehicle where diesel fumes are a problem. In Dallas, the bus fleet is nat gas. I also see nat gas UPS trucks.

2008 Oct 07 01:49 PM