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a different opinion ....

Energy’s Prevailing Winds
By Philip Klein
Published 5/16/2008 12:08:08 AM
This interview appears in the May 2008 issue of The American Spectator. To subscribe to our monthly print edition, click here.


T. Boone Pickens has spent a lifetime in the oil business. Shortly after graduating from Oklahoma A&M (now Oklahoma State University) in 1951, Pickens went to work for Phillips Petroleum. In 1954, he borrowed $2,500 and joined with two other investors to start a domestic oil and gas company. The business would eventually become part of Mesa Petroleum, which Pickens built over several decades into one of the largest independent natural gas and oil production companies in America. He left Mesa in 1996.

Pickens, who turns 80 this May, is still hard at work running his multi-billion-dollar energy hedge fund, BP Capital. But the legendary oilman, who built his fortune by placing timely bets, is now looking at alternatives. Last year, Pickens correctly predicted that we would be seeing a $100 barrel of oil, and he recently announced plans to build a $10 billion, 150,000-acre wind farm in the Texas panhandle, which would be the biggest in the world.

Through the T. Boone Pickens Foundation, Pickens has become one of the largest philanthropists in America, having donated $600 million over the course of his career to medical care, education, and college athletics. He also is the benefactor of The American Spectator's Young Journalism Training Program.

TAS reporter Philip Klein spoke to Pickens over the phone about his views on the future of energy.

PHILIP KLEIN: Why is it so important for America to develop alternative sources of energy?

T. BOONE PICKENS: According to the crude oil report, as of today [March 12] we have imported crude oil at the cost for $1.4 billion for the week. Multiply 52 weeks times $1.4 billion [a day]. You'll get right at $600 billion a year you're paying for imported crude oil. We can't keep doing that. It's the greatest transfer of wealth ever recorded in the history of the world.

PK: What would you say to free trade purists who say it's not a big deal to purchase products overseas?

BP: You can say it's just free trade. You're just buying somebody else's products. I understand that argument, but if you're going to continue to do it as you have in the past, then in ten years you're going have to burn up $6 trillion.

PK: In the 1970s oil was very expensive, then it went back down. In the late '90s we had very cheap oil. Why can't that happen again?

BP: That will never be repeated, because we've had a fundamental change. The world's oil production has peaked. Now supply is capped at 85 million barrels a day and demand is growing. We've never seen that before. It's also going to be declining at a rate probably of 6 percent a year. This time next year you're probably going to have 80 million barrels a day.

It's unlikely that growing production can ever happen. What you're really focused on is even maintaining production at 85 million. You're going to have to replace 5 million barrels a day every year.

PK: What about discovering new oil or drilling in Alaska or in the oil sands?

BP: I don't think the ANWR is going to be released to be developed, but you're familiar with the transportation of crude oil off of the North Slope in the pipeline area. Do you know what the capacity of that is? Some people have the idea that ANWR could solve a problem for the United States, which is ridiculous.

ANWR, they try to compare to Prudhoe Bay, an oil field where the ultimate recovery out of it is 14 billion barrels. It's depleted substantially. At one time that field could fill that Alyeska line, which is 2 million barrels a day. Keep that in mind, that's all it is: 2 million. That has now declined to about 700,000 barrels a day and they put in satellite production from Endicott and other fields around Prudhoe Bay. But they've pretty well gutted everything that's available to go into that line.

It's unlikely that ANWR will be as productive as Prudhoe Bay. Probably a third as much. But let's just say it's as productive. All that oil coming off of ANWR does is fill up that line. You go back to 2 million barrels a day. We're importing today 14 million barrels of crude and products in the United States, using 21 million barrels of crude and products. So, the 2 million barrel Alyeska line would be 10 percent of what we use every day. It has no hope of solving many problems for us.

When you go to the oil sands, you should focus on a recent announcement to build a line from the oil sands to the west coast of Canada. That is a 528,000-barrel-a-day line. The plan is to move that oil into the Asian market. We haven't even moved ahead in the United States to make sure we capture everything coming out of the oil sands.

The cost of the oil sands is incredibly high but necessary. So all those projects in oil sands run up costs several times what they were originally estimated to be. So, you can't just go in and develop the oil sands. The oil sands is a manufacturing/mining operation. It has a huge amount of manpower necessary, equipment, everything else and I think the oil sands now are producing somewhere around 1.3 million barrels a day.

You don't have the option of just turning it on or anything like that. It takes years. And ANWR could not go on production for instance if Congress passed something that would allow entry into ANWR in the next session, it would take ten years to go into production.

PK: So even if we find different sources of oil in different parts of the world, it will take a long time to bring that oil online and difficult to transport it?

BP: That's exactly right. To do anything more than 85 million barrels a day is probably hopeless.

If I were the United States, it would be very disturbing to me to see anybody thinking about transporting any oil from North America to Asia. We let ourselves down if we don't capture that. Now you've got the Democrats talking about taxing it all and they have got the Canadians stirred up [on NAFTA] that they're going to change that. Canadians don't like to hear that type of conversation and the people of the United States who are doing the talking about it don't understand energy, because the last thing you'd want to do is to be at odds with Canadians on NAFTA and have some of that oil cut off from you and let it go to Asia. The Canadians are openly discussing this. They don't like NAFTA changes that the United States has talked about.

PK: The New York Times reported that you are going to build a new 150,000-acre wind farm for $10 billion. Why are you so bullish on wind power?

BP: What are my other choices? There's only one source of energy that's going to make a substantial difference for this country, and it's wind. It's renewable, it's green, there's no question it will work, and it's being developed very aggressively now in Texas, western Oklahoma, Kansas, and up in the Great Plains. For the next ten years, America will need about a 15 percent increase over the amount of energy that our country uses now. Where is it going to come from? It could come from wind. The government would have to give access, right of way, to move that, but you'll be able to put that huge wind area in the central part of the United States to work. It would rejuvenate the Great Plains. Go look at what has happened in Sweetwater the last three or four years. That could be replicated all the way from Sweetwater to the Canadian border. At the same time there is a wind and solar corridor that would extend west of Sweetwater, Texas, to the California corridor.

PK: How is planning on the wind farm coming along?

BP: We're under way. We have leased the land, we'll put turbines under contract next month, and the question is, where do you take the power? One option is to go to the wind area in the panhandle of Texas, which is one of the best wind areas of the United States, and move it down to ERCOT (the Electric Reliability Council of Texas) about 250 miles south of us, or we might move it to the West Coast.

PK: How difficult will it be to transmit that power?

BP: Transmission has got to be solved, there's no question about that. We feel that we've got it solved if we move it to ERCOT from the panhandle, we have a right of way that we're working on at the present time. California is a bit more difficult, but transmission has got to be solved. If this country wants to take care of their energy needs and requirements, they're going to have to make some of this happen.

PK: Is it difficult to build transmission lines more because of zoning and energy regulations or because of the amount of capital needed for the initial investment?

BP: Well, if you're going to put turbines under contract, you're going to have to transmit the power. We're okay to transmit in Texas. We have that solved. As for the rest of the country, you're going to have to have some leadership come forward or this is going to be a disaster for us.

PK: What should the government's role be in all of this?

BP: I'd say in going to renewables, they'd need to have a production credit in place for a number of years, not renewing it every two years. That doesn't get the interest into it that you need to have, because people are frightened that they're investing in something that they can't get help on. So you need the production tax credit on wind. And you need to free up the right of way.

PK: In Congress, "alternative energy" often translates into ethanol subsidies, or other pork barrel spending projects. How much of the move toward alternative energy is going to have to be aided, at least in the short term, by government subsidies? Why won't companies see it in their interests to invest in alternative energies without government help?

BP: There's no question you're going to have to have the production tax credit. That's a must, because it can't stand alone without it. You're better off to create jobs at home, and recycle the money. I was against ethanol originally, but hell, I'd rather have ethanol than I would Saudi oil. They're the number two provider after Canada. They're selling about 1.8 million, 2 million barrels a day to us. Ethanol is not going to solve it. Nothing is going to solve the problem for us, because we've got such a huge appetite. We're now importing 62 percent of our crude oil. Out of the 85 million barrels a day the world produces, we're using 25 percent of it, with less than 5 percent of the population.

PK: What are your thoughts on solar power?

BP: Don't know anything about it. I just said there's a corridor for solar power from Sweetwater, Texas, to California across Arizona, New Mexico, and the California border. We're not in any solar power projects. But these are the kind of things that somebody in government is going to have to get involved in and make something happen. The country is desperate for leadership on energy. I don't think any of these politicians running for the president of the United States even have a clue we're up against.

PK: What about nuclear power? Do you think licensing more nuclear power plants would be a good option?

BP: I'm for nuclear power. We should do it. We should do everything, because we need energy from all sources and get away from what we're doing, importing so much crude oil. But, being a geologist, I have some concern over whether you've got uranium available to you.

I think the greatest source of uranium is Russia, and they're no friend. And then you look at the two largest oil producers in the world, it's Russia and Saudi Arabia, and the two largest natural gas producers, and it's Russia and Iran, and the two largest importers of oil are the United States and China. So, you're in a bad spot, and you have to get some leadership in getting this country off of the imported oil as our primary energy source.

PK: What are some of the more promising alternatives that are out there to power automobiles?

BP: The obvious one is natural gas, and natural gas is a domestic fuel. So, anything you can replace with natural gas as far as diesel gasoline is concerned, you cut down on the imports, and natural gas is a cleaner, cheaper fuel that's available. That infrastructure should be developed. It doesn't need much in the way of help from the government.

You've got to try to develop everything. You don't push anything off the table now. You just have to go balls-out to get it done, and get off of this crude oil. I just can't believe, I keep saying this. It's just a huge outflow of wealth from this country.

PK: People have been talking about alternative energy since the 1970s. What is different now?

BP: In the '70s, there wasn't a shortage of oil. Whenever oil would go up, and activity would start in alternatives, they would make more oil available, and drop the price. It would stop all of that activity. It's entirely different today, because you've peaked on the oil. In the Mideast, they can't give you any more oil than they're giving you. The game has changed.

PK: Do you think that now the technologies exist that make things more achievable than they were back when we were talking about energy alternatives in the 1970s?

BP: Sure, they're more achievable, because the price is better. Of course, the cost of development has gone up dramatically too. The only way you're going to kill demand is with price. But back in the '70s, you were taking a chance with alternatives, believing that oil prices were going to go up. When activity would start up some place, OPEC would just provide more oil and drop the price. Those days are gone.


This interview appears in the May 2008 issue of The American Spectator. To subscribe to our monthly print edition, click here.

http://www.spectator.org/dsp_article.asp?art_id=13223