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BP Capital Management Chairman Boone Pickens: Gone With the Wind

January 30 2009 by Jennifer Pellet

Oilman and former takeover operative T. Boone Pickens begins the last chapter of his book, The First Billion Is the Hardest, with the cunning observation that “a fool with a plan can outsmart a genius with no plan any day.” Anyone with a TV has seen him pitch his “Pickens Plan” (PickensPlan.org) in 60-second spots: the country imports too much “foreign” oil, he says, and the only way to wean us off the addiction is to move natural gas from power generation into vehicle transportation and use wind for up to 20 percent of the country’s electricity generation.

Actually Pickens doesn’t mind “foreign” oil (Canada is the U.S.’s biggest oil provider) so much as he objects to oil from the Middle East and Venezuela, regions of the world that are hostile to American interests. In this he is not alone. In CE’s December issue, FedEx CEO Fred Smith underscored the national security threat posed by relying on such sources for imported oil.

The question is, what is the best way to reduce dependence on oil from volatile sources? As Europe and the Ukraine learned to their cost when Russia turned off the gas spigot, energy can be used as a potent political weapon. Japan went to war with the U.S. in 1941 over the latter’s withholding of oil supplies to that country.

During the 1980s and early 1990s Pickens lost much of his fortune in natural gas when prices failed to rise as expected. But the Oklahoman was not deterred. At the age of 80, Pickens is running a hedge fund and living with his much younger wife, Madeleine; displaying the energy of someone half his age as he travels from town to town; and extolling his deliverance message to both Obama and McCain during the presidential campaign. More recently he has sunk $10 billion into his 4,000-megawatt wind farm in West Texas. Although he concedes that wind is an intermittent energy source, he brushes aside other technical limitations of wind power, namely, its low energy density. (1,200 square miles of windmills are needed to equal the output of three or four coal or nuclear plants, each of which occupies only a square mile.) He allows that government subsidies to advance wind, and his plan, will continue to be necessary.

Recently he spoke at a Manhattan Institute forum in New York where CE Editor-in-Chief J.P. Donlon interviewed him before a Grand Hyatt audience of 200. 

In these pages, FedEx CEO Fred Smith took issue with your energy proposal, specifically your preference for using natural gas for short-haul transportation versus using hybrid electric vehicles. “This doesn’t make a lot of sense to me,” Smith said, “because you have to build a whole new infrastructure in order to distribute the natural gas. We already have an electric grid that could be improved to accommodate hybrids. It would make more sense to use natural gas to generate electricity.” How would you respond?

We can do both. We have as much as 750 trillion cubic feet of gas. That’s a lot. There’s enough natural gas to do transportation and power generation. Hybrid electric vehicles will be more expensive than if they were powered just on natural gas.

Hybrids will continue to use hydrocarbon-based fuels to work with the battery. So you’ll use gasoline or diesel, which today is a foreign fuel. So it doesn’t fix the problem I am talking about. Yes, it helps. So I am for plug-in hybrids. I am for anything that uses less foreign oil. That’s why I support wind energy. We have more wind in America than any other country. Okay, maybe the Himalayas have more, but there are no people there, which is my point. I got in a discussion recently with someone who said we’d have to have windmills all over Connecticut to take care of a large city in the East. But we don’t need windmills all over Connecticut. You could have them all over North Dakota. And the people out there want them because it generates income for them. Same is true for the wind corridor from Texas to Canada.

I’m always reminded, the wind doesn’t blow all the time. Really? If you’re from West Texas you think it does. Wind blows better at night, and the solar is best collected in the daytime. I’ve spoken with people in the corridor from Texas to Canada and they want what I’m talking about. I did 15 town hall meetings that went from McAllister, Okla., to Lamar, Colo., to Topeka, Kansas, to Rapid City, S.D., to Fargo, Chicago, Shreveport, Salt Lake City. I can tell you, the people in those wind areas want it.

The more I got into studying the problem, the more convinced I became that Washington doesn’t understand energy. But you can’t work the problem from the top down. It has to be addressed from the bottom up. That’s why we have over 16 million hits on Pickensplan. com. You can’t believe the reaction that I get. They understand that there’s something wrong about energy in America, especially when you’re importing almost 70 percent and going higher. President Obama understands the problem. I had one meeting with him. He sees this as part of rebuilding our infrastructure. A 2007 DOE study released in April of ’07 said you can put 200,000 megawatts of wind power in the corridor from Texas to Canada. It will create 138,000 jobs the first year. And by the time you complete the entire 200,000-megawatt facility in 10 years, you will then employ 3.5 million people.

But experts contend that there’s a technical problem with wind. For one thing, even the best wind farms generate only about 30 percent of their theoretical capacity. In addition, most power generated by wind now is close to the electrical grid so it can go to where the electricity is consumed. The North Texas-to-the Dakotas corridor of which you speak is not near where most of the population centers are. In order to transmit the power to where people actually are, an entirely new electric grid backbone would be required so it isn’t lost over these long distances. That will cost a lot of money. How do you solve that?

Line loss is about 4 percent. And where, if we were going to put something safe in America for power generation, would it be? It would be in the interior of the country, not on the coast. This offers flexibility to go east and west out of the Great Plains. Congress will likely give FERC the power to do that, like they do with gas pipelines. In conversations with both Obama and McCain, they asked me how I would accomplish this. I said, “I’d model it after the Eisenhower Interstate Highway and declare it an emergency.”

Parts of what you say are true. But you’ve got to move to the problem. You can’t sit here and, like a guy said to me once, “You know, Pickens, the best time to have planted that tree was 20 years ago. But the second best time is today.” You better get a plan. We have to have a plan.

Does your plan price the cost it would take to improve our electric grid in order to carry out your wind plan?

Without question. I’ve been over this at length with Warren Buffett. He said, “Boone, we can do this. Private money can do the whole thing.” One thing will happen if you put in a national grid. Power will certainly be cheaper because an upgraded grid will be 20 percent more efficient. There isn’t any question that this is on the table with Obama now. He’s going to do this.

What do you think our President should do with respect to a call on Iraqi oil?

This came up at the White House last April when I got a chance to make a white-board presentation to President Bush and to Energy Secretary Bodman. Afterward, when we were talking informally. I said, “You’ve got to leave the country with a better energy legacy than ethanol.” I said, “If you gave me 10 things that I wouldn’t want to be tagged with, ethanol probably would be one or two.”

But, I said, “Something should be done to get a call on Iraqi oil.” Bush said, “If we tried to do something like that it’d look like we went to Iraq to get oil.” And I said, “No, that’s what it may have looked like back when we did go to Iraq. But we’ve lost 4,000 people there now, and we have over $1 trillion invested in that country. We need and deserve a call on the oil.” He said, “How would you propose to do that?” I said, “Every time they put in another request for money,” I’d say, ‘You sign this one first.’” This would be a call on Iraq’s oil at market price – I’m not talking about a discount or anything – just a call on the oil. That goes for the new administration, too.

The second thing I’d do would be to make a deal with the Canadians for a call on the oil at Fort McMurray in Northern Alberta. That’s about 250 billion barrels of oil, almost twice as much as the Saudis have. They have announced that they are building a pipeline from Fort McMurray to the West Coast of Canada. I’d figure out a way to stop that pipeline, because that’s going to China. The Chinese are aggressively trying to get their hands on natural resources around the world. I’d advise Obama to get a call on Iraqi oil and chop that pipeline off very quickly if at all possible.

If there were no subsidies for wind, and there were no renewable portfolio laws, which more or less mandate that states buy windgenerated power, and if we didn’t have these three- to five-year permit processes to build a nuclear plant, would you not be more interested in investing in nuclear power?

I’m for nuclear. No question. I have no problem with it at all. As far as the wind’s subsidies are concerned, if you want to build 200,000 megawatts, it’s going to be $15 billion a year for production tax credit. Okay, in the 10 years it takes to do the job it’s $150 billion. Compare this to the $700 billion we’re paying for foreign oil.