A Windbag's Failed Wind Project

I caught Boone Pickens on Bloomberg television last week extolling the praises of natural gas. But, oddly, when asked, he downplayed windpower, explaining that it was priced at the margin and, as such, would be unusable and unprofitable until natural gas rises to $6/tcf.

Is this the same Boone Pickens who was gloating over his huge wind project from Texas to the Montana, or thereabouts, only a few years ago? How he had contracted for large windfarms of tall turbines to produce cheap electricity?

I believe it is.

It's understandable that Pickens would shelve a project which is no longer economically feasible. But what I find troubling is how sure Pickens was at the time that his wind project was a surefire success. That alternative energy was the way to go. He didn't suggest how tenuous the project's economics apparently were.

Now, with the Marcellus shale deposit and fracking having added incredible capacity to America's natural gas supply, the price of that commodity won't be rising anytime soon. And, with it, according to Pickens, wind power won't be economically competitive for, well, decades.

Boone Pickens' Wind Plans Go Horribly Awry

There have been two recent editorials in the Wall Street Journal regarding the folly of wind power as a major component of US energy policy. A lead staff editorial on 23 December discussed a number of questionable aspects of federal wind power energy policy. The 23 December piece, by Robery Bryce, entitled A Wind Power Boonedoggle, lampooned Boone Pickens' vaunted alternative energy policy, announced 30 months ago, featuring wind power.

I wrote posts here, here and here concerning Pickens' "policy." Now it seems his extensive wind farm investments have fallen afoul of the low price of natural gas.

Bryce wrote in his editorial,

"The Dallas-based entrepreneur, who has relentlessly promoted his "Pickens Plan" since July 4, 2008, announced earlier this month that he's abandoning the wind business to focus on natural gas.

Two years ago, natural gas prices were spiking and Mr. Pickens figured they'd stay high. He placed a $2 billion order for wind turbines with General Electric. Shortly afterward, he began selling the Pickens Plan. The United States, he claimed, is "the Saudi Arabia of wind," and wind energy is an essential part of the cure for the curse of imported oil.
Voters and politicians embraced the folksy billionaire's plan. Last year, Senate Majority Leader Harry Reid said he had joined "the Pickens church," and Al Gore said he wished that more business leaders would emulate Mr. Pickens and be willing to "throw themselves into the fight for the future of our country."
Alas, market forces ruined the Pickens Plan. Mr. Pickens should have shorted wind. Instead, he went long and now he's stuck holding a slew of turbines he can't use because low natural gas prices have made wind energy uneconomic in the U.S., despite federal subsidies that amount to $6.44 for every 1 million British thermal units (BTUs) produced by wind turbines. As the former corporate raider explained a few days ago, growth in the wind energy industry "just isn't gonna happen" if natural gas prices remain depressed."

So much for predicting the rise of one energy source by hoping for scarcity of another. And it's sort of funny, because, separately, Pickens has been stumping for natural gas-powered vehicles. So I guess one windfall threw another of his energy bets for a big loss.

Bryce went on to note how well-subsidized wind power has been,

"Despite wind's lousy economics, the lame duck Congress recently passed a one-year extension of the investment tax credit for renewable energy projects. That might save a few "green" jobs.

But at the same time that Congress was voting to continue the wind subsidies, Texas Comptroller Susan Combs reported that property tax breaks for wind projects in the Lone Star State cost nearly $1.6 million per job. That green job ripoff is happening in Texas, America's biggest natural gas producer.
Today's low natural gas prices are a direct result of the drilling industry's newfound ability to unlock methane from shale beds. These lower prices are great for consumers but terrible for the wind business. Through the first three quarters of 2010, only 1,600 megawatts of new wind capacity were installed in the U.S., a decline of 72% when compared to the same period in 2009, and the smallest number since 2006. Some wind industry analysts are predicting that new wind generation installations will fall again, by as much as 50%, in 2011."


According to Bryce, Pickens is moving his wind turbines to Canada, where mandatory alternative energy legislation requires utilities to buy power he'll generate up there with his new toys.

All of this makes you wonder just how much of Pickens' vaunted plan was a way to drive federal subsidies for his investment strategies, doesn't it?

Meanwhile, in the earlier Journal staff editorial, the writers note how much less efficient wind power is, in terms of megawatts/worker production. It "takes at least 25 times more workers to produce a kilowatt of electricity from wind as from coal."

The cost to taxpayers for each wind-related energy job was estimated at $475K in the editorial. There's no way private industry could accommodate such expensive job-creating investments. Only government, taxpayer-funded subsidies would be so foolishly squandered.

I think the larger story here is that Pickens' wind-based defeat exposes his eagerness to benefit his investors at the explicit expense of taxpayer subsidies, while never effectively responding to charges that his alarm over the US oil import bill is unjustifiable on purely economic bases.

Boone Pickens' Energy "Plan" A Year Later

I saw Boone Pickens on CNBC Tuesday morning. He was there to mark the one-year anniversary of his non-plan national "energy plan."


Suffice to say, Boone was crowing about Congressional legislation including natural gas. But he begged off commenting on 'cap and trade.'


This seems totally disingenuous to me. He claimed he isn't an expert on that topic, so he refused to comment whatsoever on the bill.


Personally, I don't think that dog hunts. Pickens is smart enough to judge whether or not distorting the prices of energy sources via political machinations is a wise thing.

And nobody has yet explained how we know when we spend "too much" on any one good that requires foreign exchange.

In an unrelated article, for example, I read one pundit ask why spending what the US spends on healthcare is "too much," but continuing to pump dollars into union-run schools isn't?

It's still the same with energy. While it may be unwise to leave so many dollars in the hands of unfriendly powers, that's different than buying a fairly-valued commodity input in the market, to use to create value in the US.

Lastly, if Pickens isn't smart enough to have any opinion on 'cap and tax,' why should we believe he's intelligent enough to propose a sound energy policy/plan?

He can't have it both ways. Either he has informed opinions on energy policy in general, or he doesn't. It can't be a pick and choose thing. Even for Pickens.

A Report From The Field On A Compressed Natural Gas Car

Tuesday's Wall Street Journal carried an article by staff writer Joseph White entitled "Taking Natural Gas for a Spin."

Explicitly referencing Boone Pickens' current push for the use of compressed natural gas in US cars, White sensibly decided to see what it would be like to operate one. Since the topic is one about which I've written in prior posts, and it offers a nice break from writing about the current financial sector debacle, I thought I'd express some thoughts about Mr. White's article.

I liked Mr. White's article. He is clear in his intent and description of his experience. Some excerpts from his article,

"The question for consumers is whether a compressed-gas-fueled vehicle is a better deal.

The only natural gas car on the U.S. market right now is a Honda Civic GX. Honda Motor Co. let me borrow one for a few days to road test the NGV (natural-gas vehicle) lifestyle.
Driving the Civic GX isn't different than driving a standard, petrol-fueled car. My white test car had an automatic transmission and the usual bells and whistles. The adventure of driving a natural-gas fueled Civic only starts when the fuel gauge gets close to empty – and that happens fairly quickly because the car's range is only 200 to 220 miles between fill-ups.

At this point, you'll need an Internet connection to help you find a public natural-gas vehicle refueling station in your metro area. Only if you are fortunate will you find one in your ZIP code, because there are only about 1,100 natural-gas refueling stations in the U.S. The closest one to my house was about 18 miles away at a depot owned by the City of Ann Arbor.

The unmanned refueling station had an imposing looking pump with two hoses that dispensed compressed gas at different pressures. The Civic's manual explained that I should use the one marked 3600 pounds per square inch. Behind the Civic GX's fuel door is a nozzle fitting. After a couple of tries, I got the fitting from the high-pressure hose properly locked on, and threw a lever on the pump to "On" to start the flow.

I realize it was irrational and techno-phobic to worry that I would somehow overfill the compressed gas tank on board the car and turn my Civic into an explosive device. Let's say that I was nervous enough that I had done something wrong that when the pump shut off automatically, I was relieved, even though the system had only refilled the tank to the half-full mark. Mr. Pickens could add another element to his plan: It will create jobs for filling station attendants who can help nervous natural-gas newbies.

Because there is little demand for natural-gas vehicles, the ones that are available come with a hefty price premium, in part because their fuel tanks aren't molded plastic, but are instead heavily engineered, high-pressure tanks. A Civic GX lists for about $24,590, compared to about $17,760 for the mid-range Civic LX on which it is based. Tax credits can offset as much as $4,000 of that price. And in some states, natural-gas cars can use high-occupancy vehicle express lanes – a major perk for time-pressed commuters.

Mr. Kolodziej says he refuels his Civic GX using a Phill home-fueling system. This costs about $5,000 and allows a natural-gas vehicle owner to refuel overnight with gas from the lines running into the house. (A $1,000 tax credit is available for the Phill system.) But the hardware in Mr. Kolodziej's garage isn't all that's different. He also says he doesn't care that the vehicle has a limited range and takes hours to refill using the home refueling device.

"I go to work. I go to the store," he says. "That's what 99% of people do. Americans want to be able to drive to California tomorrow. They won't."

Mr. Kolodziej, president of NGV America, a Washington advocacy group that represents about 100 natural-gas companies and other enterprises with a stake in promoting natural gas as a motor fuel, would say that. But he's right. A switch to natural-gas cars would require a change of attitudes and expectations both by consumers and car makers. More of us would need to accept owning a car that can do one job – commuting and running errands in fewer than 200 miles a day. It's the same fundamental proposition behind plug-in hybrids such as the Chevrolet Volt or plug-in Prius.

The big hurdle for natural-gas vehicles is that somebody will need to invest substantial sums in a consumer refueling infrastructure. The gas industry was hoping that somebody would be Uncle Sam. Unfortunately, Congress just found out last week it may have to spend $700 billion salvaging the global financial system. That could put big federal subsidies for natural-gas cars – and a lot of other worthy ideas -- on the back burner."

The last few paragraphs are of particular interest to me. As I have written previously, here and here, Pickens has glided over some fairly important barriers to widespread acceptance by the American public of his cherished CNG-fueled cars.

Mr. White confirms that fueling will be a problem for the foreseeable future, both due to few fueling facilities, and the rather more complicated act of actually refueling a CNG-fueled car. He also reinforces some of Mike Jackson's comments on the unsuitability of these cars to Americans who would actually have to pay for them, rather than buy other, gasoline-powered cars.

Let's just say, based on Mr. White's review, I won't plan to be buying a CNG-fueled vehicle anytime soon.

Boone Pickens Writes A Book

Yesterday, the Wall Street Journal published a review of T. Boone Pickens' recently-published book, "The First Billion Is the Hardest," by Robert Bradley, Chairman of the Institute for Energy Research in Houston, Texas.

Perhaps this passage is most telling in what we will learn of Pickens from this book review,


""Boy geologist" Boone quit a promising job at Phillips Petroleum in the mid-1950s and built, over the following decades, Mesa Petroleum, a top North American independent oil and gas producer. Mesa found lots of oil and gas, provided jobs for hundreds of workers, and earned wealth for thousands of investors. During the same years, Mr. Pickens's attempts to take over Cities Service, Gulf Oil, Phillips and Unocal made the whole oil industry shape up: His bids required the managers of each company to look hard at its practices and improve its shareholder returns.

Such accomplishments are the core of Mr. Pickens's 1987 autobiography, "Boone," which was updated 13 years later and retitled "The Luckiest Guy in the World." In those books, Mr. Pickens's political philosophy rang loud and clear. "I believe," he stated, "the greatest opportunity lies in a free marketplace." He warned: "There are powerful forces afoot trying to restrict that freedom in the interests of the vested and already wealthy. I am talking about a relatively small collection of corporate executives who would use the engine of American commerce for their own narrow ends."

And he was as good as his word, rebuffing oil-tariff proposals when crude prices plunged in 1986. In "Boone," he bragged that a U.S. senator once remarked: "Boone Pickens is the only businessman I know that if Congress would leave him alone he would never come to Washington." Alas, "The First Billion Is the Hardest" brings us a new T. Boone Pickens -- one a bit more roughed up by experience and a lot more inclined to travel to Washington."

Mr Bradley relates, in his next paragraphs, parts of Pickens' story which, at the time, I'm pretty sure I knew, but had long since forgotten,

"In the late 1980s and early 1990s, Mr. Pickens faced financial death: Mesa had made major acquisitions on the assumption that natural-gas prices would not drop; but drop they did, and Mesa's debt proved so burdensome that the company was poised on the brink of bankruptcy. New owners eventually fired Mr. Pickens, a defeat that still rankles him. Then he founded BP Capital, devoted to investing in energy futures. It got off to a rocky start, though in the past eight years it has earned roughly $8 billion in commodity speculation. Now Mr. Pickens has new dreams -- and he is lobbying Washington to make them come alive."

This, along with a later opinion that, along with already having substantial investments in natural gas distribution stations and wind turbine projects, a third major reason for Pickens' current energy 'plan' is,

".....less obvious. Mr. Pickens refers to Big Oil as "the monster." Why such an animus toward an industry that has been at the forefront of the American dream? As it turns out, both Mr. Pickens and his father (a failed independent) spent unhappy years at Phillips Petroleum. During the takeover battles with Big Oil, Boone was professionally and personally smeared and was ultimately denied his dream job: running an integrated major. He also links Mesa's fall to overdrilling by the cash-flush majors."

You don't hear that from Becky Quick on CNBC. Or from Pickens himself, obviously. But I think it's not a small thing in this recent crusade by Pickens to 'save' America from the horrors of free, Ricardian trade. By that, I mean paying $700B/year for oil imports, which we, it is assumed, use for more valuable purposes, ultimately creating one-quarter of the world's GDP in the process.

Finally, Mr. Bradley finds some problems, as I did in these posts- here, here and here- with Pickens' choice of wind and natural gas as immediate substitutes in America's energy mix,

"His arguments for a government-led remake of the nation's energy use are sketchy at best, dangerous at worst. Despite his grand claims, generating wind power is uneconomic, and transmitting it is even more so (windy places are far from electricity markets). Wind is unreliable, requiring constant backup from natural-gas-fired plants in particular. Wind takes summer days off. In Boone-speak, wind is all hat and no cattle.

As for natural gas: Mr. Pickens scarcely mentions the manifold problems with natural-gas vehicles, from the price premium for a new car (around $6,000) to the cost of fuel conversion (averaging around $12,000 per car). Converted vehicles must sacrifice trunk space to accommodate a heavy natural-gas cylinder. The task of retrofitting service stations, let alone cars, puts the cost of the Pickens Plan north of a trillion dollars. And what happens if oil prices fall and natural-gas prices spike?"

It seems I was not alone in wondering about the details of these proposals. Holman Jenkins castigated Pickens for skipping the details, and Mr. Bradley now provides some reinforcement as to why that may be.

I've written a few other posts involving Pickens and his energy 'plan,' which sentiments are also echoed in Mr. Bradley's piece. Specifically, that Boone Pickens is enjoying celebrity and attention over all of this, while casually dismissing his critics as being anti-progressive.

To my knowledge, nobody such as, say, Brian Wesbury, has weighed in on Pickens' claims of the danger of importing a lot of a commodity of which you have less, like oil, than you need for your economy's requirements. Nor have I heard any economists crediting Pickens with being a capable and reliable macroeconomist.

Yet, at base, those are the supposed foundations of Pickens' argument for his wind- and natural gas-driven energy 'plan.'

Mr. Bradley's review provides me with both good news and bad news. Good, in that I am apparently on target questioning Pickens' credentials, motives and analysis. Bad, in that, well, I'm on target questioning Pickens' credentials....motives....and analysis.

Few other people seem to be calling for more details on how you construct a nationwide natural gas distribution system for automobiles, nor for research on consumer acceptance of the new types of cars they'll be buying as a result of Pickens' self-enriching energy agenda.

As a friend agreed with me last night, whether we were to make a nationwide switch to electric-powered, or hybrid, or natural gas-fueled cars, either will require some pretty steep investments and detailed logistical questions to be answered. For example, how does a street-parked car in Manhattan get its batteries recharged? How does an average American family cope with having one car without a trunk, and only a short driving range before refueling?

And you can bet, whichever alternative power source were to be standardized in our country, you are going to be paying for the construction and operation of its distribution system. Who else will?

Which also brings me back to my point in this recent post- when is Pickens going to tell us all how his energy 'plan' will cause a rise in inflation for US consumers?

Mr. Bradley's review is timely and informative. I may even read the book, although, to be honest, I don't really want to further line Pickens' pockets with my money.

Boone Pickens' Energy "Non-Plan" & Inflation

Normally, I clearly separate my political sentiments from my business/economic ones. That's why I have my companion political blog.

However, this recent post is post-, trans-, bi-, or maybe non-partisan. Or whatever word is in vogue and applicable.

No matter which party or who champions Pickens-style energy solutions, there's something nobody is telling you about these alternatives and inflation.

But I am.

Boone Pickens Fires Back At Holman Jenkins

Boone Pickens wrote an editorial in the Wall Street Journal on August 6th of this year in which he unveiled his plan for American energy development and usage. The next day, Holman Jenkins, writer for the Journal, replied via his weekly editorial, on which I commented in this post. Yesterday, Pickens fired back at Jenkins in a letter to the editor in the Journal.

For me, the crux of Jenkins' remarks, some of which I had already written prior to his editorial, were, as I wrote in that earlier post,

"Echoing my own position, as expressed in this post from February of this year, Jenkins calls into question Pickens' outrage that America spends some $700B per year for foreign-produced oil.

He characterizes the purchases as a fair exchange of value for value. Then lampoons Pickens by asking if he would be similarly exorcised to learn that the US also accounted for 23% of worldwide advertising purchases?Going beyond my economically-based criticism of Pickens' hand-wringing over foreign oil, Jenkins then finds justifiable fault with the description of Pickens' effort as a 'plan.'

He's right. I have, in the past few weeks, heard several people question the viability of a LNG car. No less a car salesman than Mike Jackson, CEO of AutoNation, pointed out that such a car 'has no trunk,' and can't be driven anywhere, anytime. It is pretty much restricted to being a short-distance commuting car.

Further, I've read some reports that the vaunted wind power on which Pickens hangs so much of his 'plan' is not quite as efficient as is claimed. Allegedly, California wind farms generate only about 20% of their rated power."

Pickens attempts to refute Jenkins', and my, criticism that the fact that the US imports oil at $700B/year is not, by itself, a problem. Unfortunately, Boone doesn't have a clear, disciplined approach to economics in this instance.

His retort is essentially a restatement of his original cry of alarm. Nowhere, for example, does he explain why it is okay for the US to import much of its steel, and probably all of its titanium, as well as some other rare, strategic minerals used in defense production.

If Boone could tell us why oil is so special, his position might be more tenable. But he does not refute Jenkins', and my, suspicions that America makes good use of that oil, creating much more than $700B of value-added which is, in turn, bought by others around the globe.

Sure, relying on others for 70% of a key commodity is risky. But that's a different argument, as Jenkins and I both noted, than the economic one. Pickens mixes the two in an intractable tangle of verbal warnings.

The remainder of Pickens' editorial simply restates his by-now familiar wind/natural gas concepts.

I write concepts because, as Jenkins noted, Pickens never provides details of how these alternative energy sources will magically be distributed across the continent.

For what it's worth, in addition to the faults Holman Jenkins noted, I added in my post,

"Finally, as I wrote in this post early in June, why doesn't Pickens mention coal and synfuels?The US is as rich in coal as it is in wind. And we know that coal can be gassified to become liquid hydrocarbons at no more than $5/gallon. Probably substantially less than $4/gallon if properly incented by Federal pricing and volume guarantees.

Such a fuel would require no new vehicle designs, distribution systems, nor diversion of natural gas from its use to generate electricity in the US."

Pickens ends by claiming he has now represented his plan, writing,

"My father used to tell me that a fool with a plan is better than a genius with no plan. So I ask, what's Mr. Jenkins's plan?"

In my opinion, Pickens still doesn't get it. Anyone can stand up and say we should use domestic natural gas and wind power. Fine. We should drill for oil offshore and in ANWR, too.

But that's not a plan. It's more of an overall approach to substituting domestic energy sources for imported oil, despite potential economic penalties, in order to provide more security for our energy sources.

Although Pickens is fond of citing how few of the world's natural gas-powered vehicles are in the US, he avoids telling you what Mike Jackson does- that those cars can't replace all the capabilities of the current, modern, average US car.

If yesterday's editorial was Boone Pickens' best reply to Holman Jenkins' criticism of his energy 'plan,' then I think Boone has a lot of work to do before anyone should follow his prescriptions.

He may be correct in warning that we are sending $700B to potential or real enemies, in exchange for their oil. But that does not mean you should necessarily accept his concept for a solution.

As I stated in my original post on Pickens' energy plan, and Jenkins echoed, it is unclear to me that, merely on economic bases, importing $700B of oil is a bad thing for the US economy. We import plenty of other commodities, goods and services, on the bases of David Ricardo's 'law of comparative advantage.'

If, however, we now believe that it is vital to keep US dollars out of the hands of those who own oil around the globe, then we can and should expect to pay an economic price for producing domestically the substitutes for imported oil.

Isn't that going to result in a lowering of American standards of living, and perhaps some inflation, as well?

How do you answer those questions, Mr. Pickens?

Boone Pickens, The New Man On Horseback

I confess to becoming worried now about Boone Pickens' activities in support of his new energy 'plan.'

Going back to February, when I wrote this post on Pickens' wrongheaded contentions on CNBC, it has worried me that Pickens uses specious logic regarding US spending on one imported commodity- oil.

Holman Jenkins agreed with my assessment in his WSJ column last week, on which I wrote, here.

I wrote this in the earlier linked post,

"Boone went on to cite, as I noted in that prior post, the continuing trend toward nationalization of oil reserves. He pointed out that Exxon pumps only 3% of the world's current 85B bbls pumped per day. He then cited a statistic that the US has 5% of the world's population, but consumes 25% of its oil production. That this "isn't fair."Maybe, maybe not.

What Boone didn't note is that the US produces 25% of world GDP, using 25% of oil, but only 5% of population.

Doesn't that make us a productivity wunderkind?So here's my question: what if Boone, though well-intentioned, is wrong?Could he be overlooking Ricardian economics?How much do we export? Is our oil usage for our 300MM population, or our 25% of global GDP? on the latter basis, it seems actually fair.
Don't we effectively produce for export, as well? Can you actually align US oil consumption purely with domestic consumption, or is it, in a value-added-chain manner, an input into GDP, too?

Don't our exports of intellectual property-based value-added goods and services represent a usage of imported oil? Just like we import aluminum, steel, titanium, diamonds, and a dozen other important, necessary commodities for manufacture of US-sourced goods?"

I'm worried that Pickens, because of his financial resources, including his own wealth, is quickly becoming a 'man on horseback.' That is, a man who begins to hold sway simply by causing a public outcry and and calling others to his 'plan,' no matter how cockeyed it may be.

For example, why doesn't Pickens mention synfuels, as I did in this June post? Because Mike Jackson of AutoNation doesn't agree with Pickens on the production and sale of LNG vehicles.

Doesn't it make much more sense to fill currently-produced vehicles with synfuels made from coal? Then use nuclear and natural gas power sources to produce electricity?

Rather than spend additional resources to design and produce both entirely new vehicles, as well as a new LNG retail distribution system and aftermarket servicing infrastructure?

But it's beginning to seem as if disagreeing with Pickens means you are against 'progress.' He's now appearing on CNBC to report on how many Americans are flocking to his cause, while dismissing critics lightly.

The last thing we need now is another wealthy, prominent American, in addition to Congress, thinking and acting badly concerning the global energy situation.

Holman Jenkins On Boone Pickens' Energy "Plan"

Yesterday's Wall Street Journal editorial by Holman Jenkins unequivocally voiced nearly-identical sentiments to my own regarding some of Boone Pickens' remarks about US energy and trade policy.

Echoing my own position, as expressed in this post from February of this year, Jenkins calls into question Pickens' outrage that America spends some $700B per year for foreign-produced oil.

He characterizes the purchases as a fair exchange of value for value. Then lampoons Pickens by asking if he would be similarly exorcised to learn that the US also accounted for 23% of worldwide advertising purchases?

Going beyond my economically-based criticism of Pickens' hand-wringing over foreign oil, Jenkins then finds justifiable fault with the description of Pickens' effort as a 'plan.'

He's right. I have, in the past few weeks, heard several people question the viability of a LNG car. No less a car salesman than Mike Jackson, CEO of AutoNation, pointed out that such a car 'has no trunk,' and can't be driven anywhere, anytime. It is pretty much restricted to being a short-distance commuting car.

Further, I've read some reports that the vaunted wind power on which Pickens hangs so much of his 'plan' is not quite as efficient as is claimed. Allegedly, California wind farms generate only about 20% of their rated power.

Finally, as I wrote in this post early in June, why doesn't Pickens mention coal and synfuels?

The US is as rich in coal as it is in wind. And we know that coal can be gassified to become liquid hydrocarbons at no more than $5/gallon. Probably substantially less than $4/gallon if properly incented by Federal pricing and volume guarantees.

Such a fuel would require no new vehicle designs, distribution systems, nor diversion of natural gas from its use to generate electricity in the US.

I'm very pleased to see I am not alone in seeing some gaping holes in Pickens' energy 'plan' for America.

Pickens Trumps Trump On Oil Economics

Yesterday morning, while busy writing and working, I listened to what is best described as an entertainment segment on CNBC's Squawkbox morning program.

In its continuing quest to demonstrate that they can call on any CEO anywhere, thus to better position themselves against Fox's nascent Business Channel, the program had Donald Trump on an extensive telephone interview. It was one of those fawning pieces, where the co-anchors gushed about The Donald, and Trump kept blathering about whatever came into his self-absorbed mind.

On the subject of oil, Trump castigated President Bush and anyone else involved in US government regarding oil, contending that we needed a team of seasoned, hardened negotiators to just, and this isn't a quote, but a paraphrase,

'go over to the Gulf and tell them these prices won't fly. And negotiate with OPEC to just lower prices.'

I can't recall if Trump included himself in the group of people he saw doing this, but he did name a few names. He continued on declaring that the country just had to stand up to OPEC and get the price of oil down. Period.

Trump went on to declare that the US is in a recession. Nevermind economic indicators. The Donald just knows, you know?

The Squawkbox co-anchors 'oohed' and 'aahhed' at how forceful and plain-spoken The Donald was, and how effective he'd be as a President, but could never be elected.

About ten minutes later, Boone Pickens was also on a telephone interview with the program's co-anchors. Pickens has a good, perhaps special, relationship with Becky Quick, whom he has taken with, at CNBC's expense, on a recent Chinese business trip.

When asked about oil prices and Trump's remarks, Pickens responded, again, this is a paraphrase,

'Yes, I heard Donald. And let me just say, I think he should probably stick to real estate. Because he doesn't understand how the oil business works. The Arabs have the oil, so they're going to dictate prices by how much oil they produce. That's just how it is, and no amount of talking is going to change that.'

I like Pickens a lot. While I may differ with some of his economic theories, as I did in this recent post, he clearly understands how the current oil market works. And he's committed himself, as he announced yesterday on CNBC, to actually building the beginnings of the vast wind farm about which he spoke in February.

Given a choice of whom to believe on the subject of oil prices, I'll take Pickens over Trump any day.

Boone Pickens On Oil Prices & US Energy Policy

Yesterday morning on CNBC's Squawkbox program, T. Boone Pickens made some major waves.

First, in the course of opening comments and questions, the co-anchors pressed Pickens on his views for oil and other energy prices in the coming year. Noting that he had correctly predicted $100+/bbl oil, Boone gave a rough forecast of softening prices from now until mid-year, followed by higher prices after that. He said the same for natural gas.

The CNBC staff immediately asked if he was now short oil and natural gas. After a moment's thought, in which he obviously considered being coy, Boone said "yes" to each question.

Within moments, futures on both commodities were trading down. It was reported that the major newswires immediately published Boone's remarks on his pricing views and short positions.

But that's not what this post is about. Instead, it's about a topic related to this post of a few days ago.

Pickens remarked that he had lain awake in bed the night before thinking about the topic, it was so important. He reinforced that, saying it was bigger than being long or short oil, or making money in his fund by his prescient energy price calls.

What Boone Pickens worries about is the $500B per year that the US now pays foreign oil producers to import the precious commodity. Half a trillion dollars. That's how Boone put it.

More than $1B per day.

This morning on CNBC, AutoNation CEO Mike Jackson reiterated Boone's concerns, citing the need for higher oil and gasoline prices, if the US is ever to reverse this trend.

Boone went on to extol the benefits and practicality, feasibility, of wind power across the Midwest and Southwest US, and solar energy development in the latter region, mentioning Sweetwater, Texas by name as a model for economic redevelopment in concert with clean, domestically-produced energy.

Boone went on to cite, as I noted in that prior post, the continuing trend toward nationalization of oil reserves. He pointed out that Exxon pumps only 3% of the world's current 85B bbls pumped per day. He then cited a statistic that the US has 5% of the world's population, but consumes 25% of its oil production. That this "isn't fair."

Maybe, maybe not.

What Boone didn't note is that the US produces 25% of world GDP, using 25% of oil, but only 5% of population. Doesn't that make us a productivity wunderkind?

So here's my question: what if Boone, though well-intentioned, is wrong?


Could he be overlooking Ricardian economics?

How much do we export? Is our oil usage for our 300MM population, or our 25% of global GDP? on the latter basis, it seems actually fair.


Don't we effectively produce for export, as well? Can you actually align US oil consumption purely with domestic consumption, or is it, in a value-added-chain manner, an input into GDP, too? Don't our exports of intellectual property-based value-added goods and services represent a usage of imported oil? Just like we import aluminum, steel, titanium, diamonds, and a dozen other important, necessary commodities for manufacture of US-sourced goods?

I'm reminded of the pre-Ricardian economic comments of one of the men we honor on President's Day. It's the wrong one for today, unfortunately, it being the birthday of our country's first President, George Washington. But Abraham Lincoln is remembered, and occasionally quoted, a la Boone Pickens' remarks yesterday, for this quote, contained in remarks by former Fed Bank President Bob McTeer, in this piece,

"For example, Abraham Lincoln was a very good amateur economist, as I will show later. But he wasn't good enough to get international trade right. Here's what he is supposed to have said about tariffs: "I don't know much about the tariff, but I know this. If I buy a coat in England, I get the coat and England gets the money. If I buy a coat in America, I get the coat and America gets the money." "

That's how I remember the quote as well. And I was born in Illinois- does that count?

By extension, Pickens' and Lincoln's views become one of zero trade. Anything that sends our currency overseas, creating external liabilities, is to be shunned.

But where do you draw the line? Can Boone, or any of us, really know just how much of the $500B annually that we send overseas for oil is 'too much,' given that we use that energy, rather than other, assumedly less efficient domestic sources, to create value?

If we could stop buying foreign oil tomorrow, and, instead, use the $500B to buy onshore energy, would we accidentally reduce our resource productivity, make our exports more expensive, lower our domestic standard of living and, in the end, actually damage our long term economic prospects?

So long as we create value with the imported oil, and the dollars we pay for it are not being used with malicious intent toward us, what's the problem?

I think it's that second clause that is the issue. It was in the prior post, where I noted that the desire of other, oil reserve-owning nations to effectively withdraw from tradeable energy spot markets, makes the whole game different.

But it's not about trade balances, per se. It's about the motives of our putative trading partners, isn't it?

In effect, it's less about economics and productivity than it is about long term national security. And again, as I wrote in this post,

"Rather than global warming or clean air, I think the Journal piece reveals what's really going to drive new energy technologies in the West."

And that was the Saudi plans to consume more of their own oil, eventually changing the economics of many things- aluminum and other basic materials' production economics, oil pricing and supply.

That said, I think Boone is right to simply call attention to the outflow of half a trillion dollars annually for oil. But while he's at it, why don't we tote up the bill for various other commodities, in order to understand just how much we pay, and for what, in order to drive our current economy?

In the end, it's not about oil, is it? It's about creating dollar liabilities in the hands of those who don't wish to merely use them to trade, but, potentially, use them for purposes calculated to undermine our country's long term welfare.

And that's a different issue entirely.