Is T. Boone Pickens Holding a Nuclear Hole Card?

T. Boone Pickens is making a lot of waves in the energy world – again. He has 60 years worth of history in the business as a wildcat driller, corporate raider and hedge fund manager who is proud of the fact that he has paid more than half of the taxes that he has ever paid after his 70th birthday. He recently turned 80 and has taken on a new task of putting some of his resources to work in a quest to reduce American oil consumption.

He has told the world that a trillion dollars worth of wind turbines along with 200 billion dollars worth of transmission lines could push enough natural gas out of electricity and into Compressed Natural Gas (CNG) vehicle fuel that it would reduce American expenditures on foreign oil by $300 billion.

With a budget that some say is in excess of $70 million, he is broadcasting his message – the PickensPlan – in both the new and the establishment media in a big way.

I first saw his commercial early this week while sweating hard on the elliptical machine at my local Sport and Health Club. Like many gyms in the Washington area, nearly all of the screens in the early morning work-out hours are tuned to either FoxNews or CNN. I am not sure which one was playing the particular ad that I saw, but I think it is running on both.

The plan has some merit, but I think that there are some parts of the PickensPlan that he is not widely sharing. That is perfectly understandable – Boone Pickens has made several billion dollars during his career by playing the game of life a bit like a stud poker hand – where a lot of information is freely visible but some bits of knowledge are kept rather close hold.

I have never met the man, but I am sure that he plays a mean hand of poker. After all, he is a good ol boy from the Texas Panhandle who has spent a career in a business where there are a lot of late night poker games to wile away the time in remote areas. When Pickens first entered the American public domain as a “corporate raider” in the mid 1980s, he even made the cover of Time Magazine holding a poker hand. I am also pretty certain that he can count very well.

Without a hole card, his plan is rather weak. He has announced plans to build a wind farm starting with 667 turbines, each producing about 2.5 MWe, and he plans to expand that to a total capacity of about 4 GWe. He expects to invest about $10 billion and earn an annual return somewhere between 15-25%.

The problem with the Pickens Plan – at least what we know about it so far – is that adding wind energy by itself to the grid would probably increase our dependence on using natural gas for electricity rather than to decrease it. Natural gas is more costly than coal on a per unit heat basis, but it can compete if there are substantial charges for carbon emissions. It is also the fuel of choice for quick response generators that can be cycled to make up for the variations on the grid that would be imposed by having a growing portion of the grid coming from an intermittent power source like wind.

People like Pickens, however, do not succeed by throwing large sums of money around without running a lot of numbers and doing some additional homework, so I believe that Pickens understands this fundamental weakness better than he lets on.

As I count the cards in the energy game, I am pretty certain that Pickens has a great hand. His ranch, with its extensive water rights and wind farm are near Amarillo, Texas. He seems to have a workable plan for connecting that water and wind power to major cities like Dallas-Fort Worth.

If you are a long time regular here, Amarillo should be familiar to you. If not, now is a good time to use that Blogger search tool at the top left corner of the page.

I am pretty sure that Pickens knows George Chapman – after all, they are both wealthy land owners who are long time residents of the same rather small Texas town. Transmission lines, like all big capital investments, are far more profitable if they can be employed at a high capacity factor so that they earn a maximum rate of return over the highest possible portion of the 8760 hours available for making money each year.

When you combine reliable, emission free nuclear power plants like the EPR that can load follow with wind turbines that capture the popular imagination – and enable a lot of ground work to be done without ruffling feathers – you can have a very successful effort to displace natural gas in the electrical power market, reduce our dependence on imports, and make a ton of money over the long term with a good return even in the short term.

For people who are good at counting cards, stud poker is a great way to make some spending money.

Update posted on July 12, 2008 at 1934
Energy Outlook has a lively discussion going about the Pickens Plan titled A Man, A Plan.