A future with less oil and more hard choices
T. Boone Pickens Jr. roiled Los Angeles decades ago with an attempted hostile takeover of Unocal Corp., best known for its orange-ball 76 service stations.
But these days, the Texas oilman is drawn to a different kind of drama. His investment firm, BP Capital Inc., wages battle in the commodities markets, where the wildly volatile prices of crude oil and natural gas can turn big losses into gains in an instant, and vice versa.
After roller-coaster results with his Mesa Petroleum Co., Pickens has found new success with his hedge funds, one of which invests in energy stocks. In fact, at age 78, Pickens says he’s making more money now than he ever did in his rough-and-tumble days of drilling for riches in the ground and on Wall Street.
His love of hydrocarbons hasn’t waned since the era when he paid 11 cents for a gallon of gas, but Pickens thinks more broadly now. And though he’s most at home at his Texas ranch, he also has ties to California. His wife, Madeleine, owns the Del Mar Country Club in San Diego County along with a home overlooking the golf course. Last week, he landed in Beverly Hills to talk about oil prices at a conference sponsored by the Milken Institute. In an interview, Pickens elaborated on his views about oil and other matters.
What is the value of oil, and is it different from the price of oil today?
I’m a great believer in markets. So I think the value of oil is what people will pay for it.
What about the extra boost to oil prices that people say represents a “war premium” or a “terrorism premium”?
I hear people that I have a lot of respect for their opinions talk about a premium. A terrorist premium. I immediately say, do you give it to the terrorists? Is that who gets the premium?
Of course not. I just don’t understand how the price can be up because of some fear.
When you come out here to California, are you surprised by the cost of gasoline? Do you look at it?
I look at it. I sure do. Gasoline’s cheap in the United States compared to the rest of the world. So it doesn’t surprise me.
When was the last time you bought gas?
Why do you ask me, when was the last time? ... I actually bought gas Sunday. I went out to Lone Star racetrack and put $40 worth of gas in my car.
I’ve heard that you are in favor of something that would increase gas prices in the United States. Do you think that would be a tax?
It’s either going to be a tax or it’s going to be the market. If the price were higher, there would be less use. I had a congressman come and see me and he wanted the price to be $1.50 [a gallon], and I said, “If you have it at $1.50, everybody thinks you have plenty of gasoline, and we don’t have plenty of gasoline.”
Everybody should know that. And the price will make them aware of that. And then demand will slack off. Price is the only thing that’s going to kill demand.
We could get there faster with a tax, but that doesn’t seem politically feasible, does it?
Oh, politically, it’s a disaster. When I mention it to my political friends, they say, “Absolutely not. Think of another idea, that won’t work.” If you had a tax, you could balance it off for people that are most affected by the price of gasoline and give them an offsetting credit somewhere.
What are your thoughts on alternatives?
I think every alternative’s going to get a chance. The public’s ready for it. If it’s clean, they’re really ready for it. They’re all going to get a chance.
You’re a fan of natural gas and natural gas vehicles? [Pickens is the largest shareholder in Clean Energy, a company that sells vehicular natural gas for buses, garbage trucks and other fleets.]
Natural gas is the best transportation fuel of all, because it’s 90% cleaner than gasoline. It’s just a better fuel. It’s used in California ... by a lot of fleets, and trash trucks are a great one. Mass transit.
If you do drive a natural gas car, we do have an HOV [carpool] lane, single-occupancy. If I lived in California and commuted, that’s exactly what I’d do -- buy a natural gas vehicle and get in the HOV lane.
On the transportation side, attempting to wean ourselves from oil-based fuels seems so daunting.
We’re in a very difficult position because we are the largest importer of crude oil in the world. China is second-largest. Then you look at the other side of the spectrum, and who are the two largest oil producers in the world? And it’s Russia and Saudi Arabia.
Well, what can we do about it? You’re going to use every alternative that can get into the market.
In California, our biggest consumer of natural gas is our power plants. It’s caused some people to say, “Well, that means we need to import liquefied natural gas.” If we’re going to have to import natural gas ... and if California’s already at that point, it just seems like we’re trading one problem for another one.
I think that’s right. That’s exactly what we’re doing. Right now, if you look at California. I don’t remember what the power costs are, but I know they’re high. Texas is second to New York, and the reason for that is Texas went to natural gas, and when they went to natural gas, it was cheap. Now it’s expensive.
So we have people complaining about the cost of their electricity. It’s expensive because you’re using expensive fuel to generate power.
Is there a point where we achieve some sort of energy independence? Is it even possible?
I can’t see it now. If we went fast-track for nuclear ... and I think you couldn’t have a nuclear plant on in 10 years. But we will go to nuclear at some point. We’re going to have to.
I want everybody to understand what we’re all up against. Your options, really, for big power generation are coal, nuclear and natural gas. But natural gas is not a good fuel to generate power. It’s too expensive.
If you were the head of California and facing our energy problems, what would you do?
The czar or the governor?
Both. Let’s do both.
I’d go to nuclear as quick as I could.
What about the transportation side of it? What would you do with that?
I would go to natural gas.
How would you do it?
It’s happening. If you were czar, of course, you could force that. But natural gas would be your best transportation fuel. And power generation would be nuclear.
And if you were governor and you had to deal with politics?
I think Gov. Schwarzenegger is doing about as good a job as you can do. He has said what he wants in reduction of carbon. I like the way he did it. He said, “That’s what we’re going to do, and you figure out how we’re going to accomplish that.”
That’s good. I think managers and CEOs, they like to have the burden of how it’s going to be accomplished put on them.
Are you still an oilman? Is that still an accurate description now that you are a trader and more tied to natural gas?
I sure don’t want to be called a gasman. Please don’t call me a “greenmailer.” I never greenmailed anybody. Who did I greenmail? I keep trying to get that off my ... it’s confusing people. I was in the business of corporate takeovers, but the last time I ever tried to make a corporate takeover was in 1985 or ’86. You’re talking about 20 years ago. Unocal.
Unocal was ultimately acquired by Chevron Corp. If you had won that battle, what would Unocal look like today?
Remember, they had mandatory retirement at 65, so I wouldn’t be there. I thought Unocal had mediocre leadership back in 1985, and after that contest was over, I didn’t really follow Unocal.
When you look at folks who don’t believe that worldwide oil production has already peaked, do you think they’re wrong or the data aren’t convincing?
It’s pretty convincing to me. From what I’ve read, they believe that there will be technology advancements that will cover the gap. I don’t agree with that.
I’ve been in the business over 50 years now. I’ve drilled a lot of oil wells. It’s expensive to find, and I think the big fields have been found. Today, you’d have to replace 30 billion barrels a year to keep up. And we don’t even come close to that.
