NEW YORK (Reuters) - This week when President Barack Obama touted an initiative to slash U.S. oil imports by a third by 2020, he gave a major nod to a billionaire financier who could be central to the plans.
T. Boone Pickens, 82, a Texas hedge fund manager and former corporate raider who made his billions in the U.S. oil patch, is now a leading evangelist for U.S. natural gas.
He claims the Pickens Plan, a lavishly marketed campaign launched in 2008, which earlier failed to gain support in Washington, would cut 2.5 million barrels a day from U.S. oil imports by converting the country’s heavy vehicle fleet from diesel to natural gas.
“We need to get off OPEC and use our own supplies, so I’m very, very encouraged by the president’s speech,” Pickens said in a phone interview. “Natural gas could be the way to do it.”
With a new bill encouraging the use of natural gas in U.S. vehicles about to make its way through Congress and U.S.-produced natural gas trading at record discounts to soaring crude oil prices, the time could be ripe for Pickens’ grand plans to prosper.
Pickens says he has invested $80 million of his own cash in the plan so far, and hasn’t earned a dime. But as a shareholder in U.S. natural gas drillers, fueling stations and a company that converts vehicles to run on natural gas, a major shift to the fuel could pump up Pickens’ personal fortune, estimated by Forbes at $1.4 billion.
“Gas is domestically produced and currently one-fourth the price of oil: it’s a no brainer that people will look for ways to push out oil and use more gas,” said Nikos Tsafos, senior analyst at PFC Energy in Washington.
While Obama is not calling for U.S. natural gas to supplant the entire 3.6 million barrels per day of oil imports he aims to cut by 2020, the potential cost savings from switching to gas are becoming too big to ignore.
At $107 a barrel on Friday, buying 3.6 million barrels of oil on futures markets would cost $385 million. At $4.33 per million BTU for U.S. natgas futures, buying the energy equivalent in gas — around 19.5 trillion British thermal units — would cost $84.5 million.
Based on Friday’s futures market prices, the annual savings on energy could amount to $110 billion, equivalent to the gross domestic product of Pakistan.
U.S. oil futures are trading at a near-record 24 times the price of U.S. gas contracts. As unrest across the Arab world boosts oil prices to near 30-month highs, the natural gas price has slumped due to near record U.S. production, on track for a 40-year high this year.
U.S. oil touched a fresh 2-1/2 year high on Friday near $108 a barrel, while natural gas prices slipped, widening the price spread between the two fuels.
Pickens peppers his frequent sermons on natural gas with equal measures of scaremongering and optimism. If the country fails to break its addiction to oil, he said, prices could soar to $300 a barrel in the next decade.
A U.S. natural gas boom and wide-scale conversions of its vehicle fleet, on the other hand, would create hundreds of thousands of American jobs, he said.
The United States is sitting atop 100 years of natural gas supply, President Obama said on in a speech on Wednesday, thanks to hydraulic fracturing technology. The technology has allowed drillers to tap vast reserves of gas trapped in shale rock, bringing on large volumes of production that have helped push down gas prices.
The bounty of U.S. natural gas reserves has attracted a string of foreign investors over the past year, including Chinese offshore oil producer China National Offshore Oil Corp (CNOOC), which has bought $1.6 billion of acreage in the United States in two deals with U.S. gas producer Chesapeake Energy.
U.S. presidents since Richard Nixon have all talked up plans to cut the country’s reliance on foreign oil, and all have failed.
Since around 70 percent of U.S. oil goes into making transportation fuels, Obama said, any realistic plan to cut consumption must address Americans’ long-held penchant for oil-guzzling cars and trucks.
A new bi-partisan bill, heavily lobbied for by Pickens, offers potential solutions. The NAT GAS act as it is called, will be launched next week and would provide billions in subsidies and grants for converting heavy vehicles to natural gas.
Past bills have failed, though bill sponsor Congressman John Larson said that the more limited focus of this bill — concentrating only on natural gas vehicles and not climate change — could smooth its passage as early as this year.
“We have bi-partisan support and this is a narrower bill. Last year’s (energy) bill got caught up in wider issues,” Larson told Reuters.
Among Pickens’ holdings are Clean Energy Fuels and BAF Technologies, which respectively operate gas refueling stations and retrofit cars to run on the fuel. His hedge fund, BP Capital Management, is invested in natural gas drillers.
The U.S. vehicle fleet mostly runs on gasoline and diesel, but converting vehicles to natural gas is not a new phenomenon. From Argentina to Thailand, Pakistan and even oil exporter Iran, the conversion kits have been popular for years.
Conversion offers the added incentive of cutting emissions, since natural gas burns cleaner. But critics have concerns, including huge up-front costs and a lack of fuel stations.
“I’m after the 18-wheelers. There are 8 million of them on our roads and they consume 2.5 million barrels a day. It would take a while to convert them, but this will create jobs,” Pickens told Reuters.
Retrofitting 18-wheelers to run on natural gas costs about $40,000 per truck, according to Pike Research senior analyst Dave Hurst in Detroit. Based on Pickens’ estimate of 8 million tractor trailer trucks, the implied conversion cost could be up to $320 billion.
Hurst said those costs could be recouped in two years with cheaper fuel and government perks for converting diesel trucks to natural gas. Others have doubts.
“Both the timeline and magnitude impacts are extremely difficult to predict,” Deutsche Bank analysts said in a report on Wednesday.
Concerns also remain about the affects of hydraulic fracturing, or fracking, on water supply. The technology is currently under review by the U.S. Environmental Protection Agency. It involves blasting water, chemicals and sand into shale rock to release trapped gas.
“I have personally fracked over 3,000 wells,” Pickens said. “I have seen nothing about fracking that concerns me — this issue will clear up on investigation.”
Additional reporting by Joe Silha in New York; Editing by Matthew Robinson, Alden Bentley