T. Boone Pickens Calls for Energy Plan at Stansberry Society Event

kitco.com ^ | 6/12/14

[ckilmer]

The Next Billion (Barrels of Oil): T. Boone Pickens Calls for Energy Plan at Stansberry Society Event

Thursday June 12, 2014 14:12

 

Source: JT Long of The Energy Report  (6/12/14)
http://www.theenergyreport.com/pub/na/the-next-billion-barrels-of-oil-t-boone-pickens-calls-for-energy-plan-at-stansberry-society-event

Known for his saying that "the first billion is the hardest," oil billionaire T. Boone Pickens addressed the Stansberry Society Conference in Dallas at the end of May with a plea for a national energy plan that takes advantage of the billions of barrels of oil being produced each day in the U.S. for domestic use. First addressing the audience, and then in conversation with event host Porter Stansberry, followed by an all-star energy investing panel, the Pickens Plan advocate was optimistic about the prospects for growing the country and individual investment portfolios through smart use of natural resources. 

On making (and losing money): I moved to Dallas from West Texas in 1989 worth about $25 million ($25M). I ran that $25M up to $4 billion ($4B) in 2007. 2008 and 2009 were a disaster. I lost $2B. I've given away over $1B and have $1B left.

On leveraging the oil and gas renaissance in the U.S.: I launched the Pickens Plan in 2008 because I felt that I was running out of time, and this country desperately needs an energy plan. We're the only country in the world without one. We use more oil than any other country, 18 million barrels a day (18 MMbpd) with China's 10 MMbpd a distant second, and we import about half of what we use.

Five years ago, we discovered the biggest gas field in the world, the Marcellus Shale in Pennsylvania. We are now the world's largest natural gas producer; we have more reserves of natural gas than any other country in the world. That is huge for this country. It's huge for the world. It is going to change the dynamics of the oil and gas industry. It's a renaissance that started in the U.S.

We have the cheapest fuel of any country in the world. Our oil here is 10% cheaper. Our natural gas is 75% cheaper. Our gasoline is 50% cheaper. We're now moving businesses back to the U.S because of cheap energy.

On the challenges to energy independence: The only problem is that this administration hates the oil and gas industry. It doesn't want to use fossil fuels. Hedge fund manager and environmentalist Thomas Fahr Steyer recently told me he is going to spend $100M to block the Keystone Pipeline and he wants to get rid of all fossil fuels. His plan to replace all that transportation fuel is to ask the government to find an alternative. We'll see what happens with that.

Some politicians say that we need to export more oil, we should go to Europe and fix the Russian dominance of natural gas, but it's not doable. We will not have one liquefied natural gas (LNG) export facility until late 2015, over a year from now.

The biggest problem is that this country has never had an energy plan.

On use of the reserve: Go back to the Arab oil embargo in 1973. We were cut off from the Mideast's oil and it scared the devil out of everybody. In 1974, we passed a law requiring a 750 million barrel (750 MMbbl) Strategic Petroleum Reserve (SPR) in the salt caverns in Louisiana and Mississippi just in case we had another Arab embargo. In the last 40 years, the most we have ever taken out at any one time is 28 MMbbl. So we have over 700 MMbbl in storage, and the greatest amount we've taken out at one time is 28 MMbbl. Do we really need that much storage?

It would take 10 years to remove even 400 MMbbl without disrupting the market. Selling that oil would result in a profit, because it was purchased at $28/barrel ($28/bbl) and today oil is $103/bbl. That is a big profit, one of the few big profits I've ever seen the government have.

Profits from the reserve could be used to develop energy in America by switching all the heavy-duty trucks to natural gas. A $30,000 tax credit would roughly cover the incremental cost for converting from diesel, which is twice as expensive, to natural gas engines.

The government should use the cheapest fuel for our federal vehicles. That is its fiduciary responsibility. By making sure we use the cheapest fuel—which also happens to be 30% cleaner—we could reduce our imports by 3 MMbpd. That would put a dent in the 4–4.5 MMbpd we import from OPEC.

On funding both sides of the war: Eliminating Middle East imports is important because some portion of the money for oil purchased from OPEC inevitably goes to the Taliban. That's not really because the Saudis are trying to hurt us; they're just paying ransom so the Taliban will leave them alone. That means by using Mideast oil, we're paying for both sides of the war: the Fifth Fleet to protect the world oil transport through the Straits of Hormuz while funding the terrorists that attack those transport ships. And we only get 10% of the oil we are protecting. It makes no sense. That is why I am working so hard for an energy plan.

Porter Stansberry: You have been so successful. Your commodity fund is up 24% this year and your equity fund is up 19%. You are 86 and clearly enjoying life and newly married. Why are you still in the game?

TBP: I love the game. I'm not going to do something I don't like to do. As long as I can play the game, I'm going to bluff my way through.

PS: I think a lot of people are stuck doing jobs that they don't love. I tell people all the time, if you don't love what you do, if you wouldn't do it for free, then you have no chance at being the best at it.

TBP: Excellent advice.

PS: Let's talk commodities. Would you invest in coal or uranium? These are two energy commodities that have seen their prices plummet.

TBP: Over 40% of the power generation in the U.S. comes from coal. We're going to have to use coal. A congressman once said to me that he was going to get rid of all coal-fired plants. I responded that if you shut down all the coal-fired plants, you could multiply the price of electric fuel by 10.

PS: They're doing that in Germany.

TBP: They went to turbines, and they don't even have good wind.

PS: And they invested in solar, without any sun.

TBP: At the same time France put a moratorium on fracking wells. Then they complain about relying on Russia.

PS: So you would be an investor in coal. What about uranium?

TBP: We have had three failures over the years. Another report on the viability of nuclear is on the way. I can tell you what the executive summary will say. Do not build a nuclear plant on the coast. Do not build it on seismic faults. That's it. You can put it in stable areas and it works.

PS: So I'll take that as a yes, you would invest in coal and uranium.

TBP: Not today, but I would, yes. There will be a time to come into both of those. I am not just an oil and gas guy. I'm a guy who wants the best, cleanest energy for America.

PS: Berkshire Hathaway Vice-Chairman Charlie Munger has said that as long as the world agrees to exchange worthless paper for oil, we should let them. To me, it sounds foolish because if you do that long enough, your paper is going to be worthless, and that's going to cause much bigger problems. I think his argument is nonsensical, but I wondered what you thought about it.

TBP: Of course the paper dollar is worth something.

PS: Less and less every year.

TBP: I haven't talked to Charlie face-to-face in probably five years, but I can't agree with Charlie on that.

The Energy Report via Porter Stansberry: Does OPEC have the influence it used to have? Does the Middle East matter anymore?

TBP: It does because OPEC sets the price for oil. Of the 92 MMbbl produced every day in the world, OPEC is producing a third of it. It is big enough, and it is organized and credible. It is a cartel. 30% of oil can set the price by adjusting on spot. Saudi Arabia has made it very clear that it has to have $100/bbl for oil to meet its social commitments. Over half the people don't work in Saudi Arabia. Theirs is not an economy that provides jobs, so Saudi Arabia has to pay its people.

Now the Iranians are a little bit squirrelly. Credibility is not that important to them. They'll tell you they have to have about $23/bbl. But they have increased production, and China is cooperating with them. China has an energy plan and imports half its oil. China uses 10 MMbpd and imports 5 MMbpd through deals with Venezuela, Brazil and Iran. China loans them money and gets oil in payment at a discount.

PS: What do you think the chances are, in the next couple years, of finding a really huge shale oil field that can produce a 100 MMbpd well either through technology or luck?

TBP: Slim to none. East Texas was discovered in 1931. It is a huge field. It's out of the Woodbine sand, but it comes from source rock—the shale reservoirs—that was heated, pressured and squeezed into the trap. The East Texas field is a conventional trap for oil. Even then, we knew the oil was in the shale, but not until George Mitchell, the father of fracking, did we think we could get more than 5% of the gas out of the Barnett Shale. Lo and behold, now we're going to get 40%. We may get 80% before it's over.

Audience Question: How long do you think it will take to get natural gas infrastructure in place in the U.S. so that conversions to natural gas engines are viable to the public?

TBP: Actually, it's there now. I've got a natural gas car. I could plug it in in my garage and my fuel costs would be $1/gallon through the gas line that powers my stove. There are plenty of fueling stations in California.

PS: One last question. What's your favorite way to profit from energy in the stock market today?

TBP: I'd get into the commodities. We've done a great job. Why do you think the economy has recovered in the U.S.? It's all due to energy.

But let me make one request. I've got 2.5M people signed up with me in PickensPlan.com. Please join us.

PS: Thank you very, very much for your time.

(Editor's note: We followed the T. Boone Pickens discussion and a panel discussion on the shale boom with some questions of our own for Porter Stansberry and his associate, Matt Badiali.)

TER: Porter, I would like to ask you to answer the question you asked T. Boone. Based on the new technologies like zipper fracking and the challenge of a lack of infrastructure, how do you suggest gaining exposure to the energy market?

PS: There are a lot of opportunities in the energy sector because as the cost of dry holes disappears and as production methods become more efficient, the cost of production will decline. Eventually that should lead to lower oil prices, which sounds bad at first. But, as long as margins remain reasonably robust, lower total energy prices will actually increase demand substantially. . .and that will power the industry forward for decades, not merely for a period of temporary high prices.

The best way over the next few years to profit from these trends is to gain the arbitrage between the low domestic price of oil and gas and the higher international price. That's why there's been an explosion in propane exports. These "refined" products and all of the infrastructure associated with them will do very well over the next three to five years. Firms that are able to vertically integrate from wellhead to export markets will do best. "Capture the arb" will be the strategy that wins in the medium term.

The best way over the longer term to participate in these trends is to focus on buying the most attractive energy resources at the lowest possible price. That's why we see companies making material changes to their asset base, selling off marginal assets and focusing their production and exploration activities in the highest quality shales close to centers of distribution.

TER: Matt, same question: How will new technologies open new investing opportunities and what companies are well positioned to take advantage of those opportunities?

Matt Badiali: The economics of shale wells are improving every single day. Sometimes it's due to new techniques like zipper fracking, sometimes it's due to simply longer horizontal legs and more sand in the fracks.

[Graewoulf]

America is broke, go away Boone!

We can’t afford your damn ideas!

[BenLurkin]

Central Planning is un-American.

[ckilmer]

Pickens says the quickest way to energy independence is to pull the oil out of the national energy reserves. We don’t need them anymore. The oil was bought for $28@ barrel.It could be sold for over $100@ barrel. There’s currently 700 MMbbl in storage. (That would yield something over 70 billion dollars. The profits could be used to help convert trucks & buses to natural gas.”A $30,000 tax credit would roughly cover the incremental cost for converting from diesel, which is twice as expensive, to natural gas engines.”

“The government should use the cheapest fuel for our federal vehicles. That is its fiduciary responsibility. By making sure we use the cheapest fuel—which also happens to be 30% cleaner—we could reduce our imports by 3 MMbpd. That would put a dent in the 4–4.5 MMbpd we import from OPEC. “

Since the USA will be adding 1 MMbpd in each of 2014 and 2015 and over .5 MMbpd every years from 2016-2020... the USA will quickly become an oil exporter.

[punchamullah]

“a national energy plan that takes advantage of the billions of barrels of oil being produced each day in the U.S. for domestic use”

What sort of cretin can write such foolishness?

[familyop]

"...a national energy plan that takes advantage of the billions of barrels of oil being produced each day in the U.S. for domestic use."

"Billions...each day...in the U.S.?" The propagandist deserves a free vacation to Venus, and so do the sponsors.

[familyop]

From the U.S. Energy Information Administration:
"The U.S. imported approximately 10.6 million barrels per day of petroleum in 2012 from about 80 countries. We exported 3.2 MMbd of crude oil and petroleum products, resulting in net imports (imports minus exports) equaling 7.4 MMbd. Net imports accounted for 40% of the petroleum consumed in the United States, the lowest annual average since 1991. "Petroleum" includes crude oil and refined petroleum products like gasoline, and biofuels like ethanol and biodiesel. In 2012, about 80% of gross petroleum imports were crude oil, and about 57% of all crude oil that was processed in U.S. refineries was imported. The top five source countries of U.S. petroleum imports in 2012 were Canada, Mexico, Saudi Arabia, Venezuela, and Russia."

[ckilmer]

In a New York Times interview on Tuesday, President Obama renewed his call to use natural gas to help wean the world off coal and oil. “Natural gas, the president said, ‘is a useful bridge’ to span ‘where we are right now and where we hope to be
http://www.desmogblog.com/2014/06/13/over-40-trillion-investment-needed-keep-energy-demand-2035-iea-report-concludes

[dfwgator]

I do agree that energy independence is a matter of national security.

Think about all the blood and treasure we’ve squandered in the Middle East, and why. Because of our dependence on oil from that region, and all of the foreign influence on our politicians...Saudi money buys a lot in this country.

[ckilmer]

“a national energy plan that takes advantage of the billions of barrels of oil being produced each day in the U.S. for domestic use”
............................
“a national energy plan that takes advantage of the millions of barrels of oil being produced each day in the U.S. for domestic use”

There fixed it.

[ckilmer]

I think Pickens has a good idea. Mine the strategic reserve and use the dollars to help push trucks and buses —heck even houses and trains — over to using natural gas. Plus shift federal vehicles in the USA over to natural gas.

That would chop 3 million barrels @ day out of demand for oil.

The USA has hundreds of years of natural gas available via fracking.

[dfwgator]

We need all forms of energy: oil, natural gas, coal, and nuclear to attain true energy independence. We should not discriminate.

[ckilmer]

That info is now already two years old. The USA has been producing about 1 million barrels@day more oil each year for the last couple years.

Look at this EIA chart of Net oil imports as of today. You’ll see that its down to 5 million barrels@ day.
http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=mttntus2&f=m

[weston]

How cool would that be to fill up my car by tapping into the natural gas line that already runs to my house!

[ckilmer]

We need all forms of energy: oil, natural gas, coal, and nuclear to attain true energy independence. We should not discriminate.
................
agree. but I like Picken’s plan because it pulls the USA into energy independence fast.

I also think the other forms of energy should be pushed forward quickly. For example, the big category killer is lftr thorium reactors. I think that even without the feds there’s going to be a very public competition break out in the next year among several players around the world to be the first to prototype an MSR or LFTR reactor. Various players have been shortening up their time frame to completions. This tech promises to deliver electricity for 1/2-1/10 the current lowest cost coal powered electricity.

Between natural gas trucks buses trains and houses and electric cars—maybe in 15-20 years ... the price of oil will collapse so far that the gulf states will not be able to fund the madrases that serve as the opening of the funnel that funnels al qaeda fighters to islamic war zones.

Meanwhile cheap abundant energy will cause an explosion of wealth around the world...as it always does.

[ckilmer]

How cool would that be to fill up my car by tapping into the natural gas line that already runs to my house!
..........
Yeah that’s pretty much the idea.

[ckilmer]

Picken’s is talking about selling the oil from the now out dated strategic oil reserve and use the profits from the sale to help trucks and buses via tax credits shift over to natural gas. That would take about 3 million barrel’s @ day out of US consumption of oil.

Considering that net oil imports are down to 5 million barrels@ day—if you cut out 3 million barrels @ day of demand via switching over trucks and buses from diesal to natural gas -—then complete energy independence is achievable rapidly because the USA has been adding 1 million barrels’ @ day annually for the last several years.,,,and will continue to do so at least through the end of 2015.

[thackney]

The US could make a lot of money selling all the asserts in the army, navy and air force. Maybe we should sell that along with the SPR; it makes as much sense.

[SunkenCiv]

Thanks ckilmer. The oil in the national reserves should stay right where it is until we no longer import oil, or until we bulldoze the dead muzzies into a pile and plant the US flag all over Arabia.

[IMR 4350]

Home run!

You win.