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 and he has been in the energy field ever since. In recent years, Pickens has turned his focus toward investing in and advocating for alternative sources of energy to end America’s dependence on foreign oil. As part of his efforts, he funded a $62 million ad campaign to promote his Pickens Plan to accomplish that goal.
Through the T. Boone Pickens Foundation, Pickens has become one of the largest philanthropists in America. He also is the benefactor of The American Spectator‘s Young Journalism Training Program.
In the May 2008 print edition of TAS, Pickens discussed wind power. This Tuesday, TAS spoke with him over the phone about why he believes in broader adoption of natural gas in the United States.
TAS: When we last spoke, you were talking a lot about wind power, and now you’ve shifted emphasis more toward natural gas. If you could explain the evolution of your thinking on alternative energy…
T. Boone Pickens: Wind is renewable, and natural gas is alternative. But the wind is priced on the margin. And the margin is natural gas for power generation, since they’re both doing the same job. And so the wind is priced off the natural gas. And natural gas has been so cheap, it’s been hard to really finance a wind deal. So I haven’t lost any enthusiasm for that. In fact, we’re getting ready to announce more wind deals within the next two to three months that are very far along. So wind is good, but wind is not going to move an 18-wheeler. Natural gas is so versatile, you can use it for power generation, but you could also use it for transportation fuel. So natural gas is the only thing we have that can reduce foreign oil imports.
TAS: Now, if I remember correctly, your broader plan talked about using wind for electricity generation to free up more natural gas for transportation fuel…
BP: Actually, what happened to us is we have so much natural gas, more than I thought at that time.
TAS: So you’re saying we have enough natural gas to address the electricity generation needs, and transportation fuel needs?
BP: Yes, but I want to keep using wind too. The overall concept that I have is, let’s get on our own resources. And that means you’re going to use natural gas, wind, solar, ethanol, nuclear. I don’t care what it is, but get on our own resources.
TAS :Some economists would say that economically, it’s not a big deal whose resources we’re on. That oil is a fungible commodity, and the only thing that matters it to decide what is the most economically advantageous energy source for us to use at any given time. So, they’d argue that right now, oil is still the most economically efficient. And they question this whole idea of getting off our dependence on foreign oil. How would you respond to that economic argument?
BP: Well, the first thing is, no question, is in a global market. You go into to buy oil, you don’t know where you’re getting it from or anything. But we import five million barrels a day of oil from OPEC. That’s five million barrels that I think is a security issue for the country. Then, to that person who asked me that question, I’d say, how much do you consider security to be an issue? Well, you’re buying oil, and you don’t know where it’s coming from. Because international oil companies buy oil from any place they can get oil. And so the argument is not unreal. The point is, you need to replace oil from the Mideast, the OPEC oil, and you replace it with the one resource you have in America, which is natural gas. We don’t have any other resource that will replace that oil. Now, you say it’s more expensive. Well, no it’s not, it’s infinitely less expensive. One Mcf of natural gas is $4.50. It’s the equivalent of 7 gallons of diesel. They’ll do the same job. One Mcf at $4.50, or 7 gallons of diesel, and $21. So it’s very easy to say which one is the cheapest. They’ll say, well, let the markets take over. Let the free market dictate what fuel to use. Well, if you think OPEC is a free market, you’re kidding yourself. It’s that OPEC sets the price of oil. And if they told you this year they wanted $70 to $80 oil, what do we have? $70 to $80 oil. They are accommodating in telling you what oil is going to cost. So you can call it a fungible global market, or whatever you want to. It is not a free market for a commodity. So get on your own natural gas, and try to control it one way or another if you want to eliminate oil from the Mideast. With that, if you look at the cost of oil, and you factor in for our military, you’re probably paying $300 or $400 a barrel for oil from that area. So, it’s pretty easy for an economist to just dismiss it by saying, well, just let the free market dictate. But it’s not a free market.
TAS: To translate it into terms for an average person, when you talk about how much it’s going to cost, and how it translates with diesel, doing the rough math (if $4.50 of natural gas is the equivalent of 7 gallons of diesel), does that mean that a gallon of the natural gas equivalent would cost around 60 cents?
BP: I look at it that it would be $1 to $1.50 a gallon cheaper. So if you’re paying $3 for gasoline, that get it to about $1.50. It would bring it down to $2, or maybe $1.70 or $1.80. These are not hypothetical numbers I’m throwing out there, because you have that here in California. I mean, they use natural gas out here. I mean, the LAMTA is on natural gas, has been for 20 years. And that’s an air quality issue. It was a cleaner fuel is the reason why they used it.
TAS: In trying to convert to natural gas, don’t you run into a chicken and the egg phenomenon? In other words, in order to build more fuel stations, there would have to be a demand fuel, so you’d need vehicles that are equipped to run on natural gas, yet people aren’t likely to want to convert to natural gas to natural gas vehicles unless there are enough fuel stations to service them.
BP: Yeah, see, I’m not talking about your car. I’m not interested in your car. I’m interested in 18-wheelers. Because they use 20,000 gallons a year. So if I could get the 8 million 18-wheelers to natural gas and away from diesel, that’s 2.5 million barrels a day. So that cuts OPEC in half with 8 million vehicles. And there are 250 million vehicles in America. So, the stations will come with the vehicles. That’s a no brainer. If you set it up so the heavy duty is going to go to natural gas, and they’ll put the islands into the truck stops, would be one way to work it. The other way it works, Southern California decided they would go to natural gas because it was cleaner than diesel. And so with trash trucks, they said, if you buy a new one, it has to be natural gas. And the incremental difference was $50,000, so they gave a $50,000 grant for when you bought the natural gas trash truck and now 70 percent of them are on natural gas. And the fueling stations just came with the vehicles.
TAS: What do you think needs to happen at the federal level in order to achieve what you’re arguing for, which is to convert heavy duty trucks to natural gas?
BP: Well, see it’s already in the legislation. In the House, it’s H.R. 1835, the natural gas act. And they give a $65,000 credit when you move from diesel to natural gas. It’s the same thing in Senate bill 1408. But in Senate bill 1408 they’re working on it now, and they’re adding different things to the bill to see if they can get it passed. The natural gas will pass quickly. We have 144 co-sponsors in the House on 1835, and if it goes standalone on the first vote you get 350 votes for it, so no question it will pass.
TAS: The thing that makes a lot of conservatives wary about a lot of the alternate energy is the idea that it translates into subsidies. Even if it’s called a “tax credit,” effectively it’s the same as the government subsidizing a certain kind of energy. And a lot of conservatives who don’t want to see the government handing out subsidies and picking winners and losers in the energy market have a lot of skepticism about this, and that’s why they’re reluctant to embrace these sorts of ideas. How would you respond to them?
BP: Well, if that’s the best way out, then you’re going to use foreign oil. So you’ve got to help it get started — and here you’re only talking about $7 billion, would lead to 143,000 18-wheelers — and then the incremental (cost) in California with the trash trucks went from $50,000 down to $10,000 once you got up to scale. So if you don’t like that idea, we’ll just use foreign oil.
TAS: The question would be, that if, as you’re saying, that the economics make so much sense in terms of how much cheaper it would be to fuel on natural gas than with diesel, then why wouldn’t trucking companies themselves want to convert to natural gas to save the fuel costs?
BP: You’re saying, let the free market work.
TAS: Well, the basic question is that if oil prices get to the point where it’s no longer economically feasible for companies to use oil-based fuel to fuel their vehicles, then wouldn’t the free market naturally convert everything to natural gas over time, if that’s the economically more efficient product?
BP: Well, it’s going to take a long time to do it for one thing, and you need the leadership to take you in the direction that is best. And this is clearly better. You’re dealing with a domestic fuel that’s 30 percent cleaner and cheaper in preference over a foreign oil that is dirtier and more expensive.
TAS: But if it’s so much cheaper, what would be preventing, right now, a trucking company from wanting to convert over time its fleet to vehicles that are able to take natural gas? Why would they need a government tax credit to do it?
BP: Well, because it’s $65,000 difference in the truck. So, until you get up to scale on the natural gas engine, it’s more expensive to buy the natural gas engine. So you’ve got to get some help to get it started. But you’re spending $1 billion a day on foreign oil. So you start turning some of that around, the money’s here. The money is creating jobs, profits are made, taxes are paid, and the economy is helped by it. And right now, you’re just pouring money out of the country.