Steffy: Pickens’ new plan to break OPEC’s grip on U.S. energy markets

T. Boone Pickens was headed to a private lunch with outgoing Energy Secretary Steven Chu when I caught up with him by phone this week.

In the four years that Chu’s been in office, he’s never met privately with Pickens, the outspoken former oilman turned investor who’s been a proponent of natural gas vehicles.

For the past few years, Pickens, who lives in Dallas, has been promoting his plan to wean the country off foreign oil. Critics are quick to point out that Pickens’ agenda would promote his investments in natural gas and a company that makes natural gas vehicles. Others call that putting his money where his mouth is.

But his latest proposal, which he outlined in a speech to the Energy Department on Tuesday, bears consideration. He wants to leverage recent increases in domestic oil and natural gas production to break OPEC’s grip over the U.S. economy.

To understand why this is important, look no farther than the nearest gasoline pump.

The persistent increases at the pump undermine the recent talk of oil abundance or U.S. energy independence. It’s a reminder that we remain beholden to a global oil market that is anything but free.

“OPEC is a cartel,” Pickens said. “They control prices with production. Since October, the Saudis have sharply curbed production, and consumers are seeing the impact at the pumps today.”

For decades, we’ve relied on Saudi Arabia to keep its production high enough that crude prices remain affordable. Yet in the past year, as our own production surged to an 18-year high, the Saudis cut theirs to a 19-month low.

The reduced production from Saudi Arabia and other OPEC members has kept global oil prices high, and those costs are passed on by refiners to the pump.

Gasoline prices are a complex calculation, and as always, other factors also come into play. Most U.S. refineries, thanks to decades of processing overseas crude, lack the ability or the infrastructure to process oil from the interior of the U.S., forcing them to rely on higher-priced imports.

The dynamics of the global oil market aren’t likely to change, and with about 80 percent of the world’s oil controlled by state-owned oil companies, we need to rethink our approach.

The U.S. can’t beat OPEC at its own game, and we shouldn’t try. Instead, Pickens is calling for “fuel competition,” especially for motor fuels.

“It isn’t going to be with oil,” he said. “Natural gas is the answer.”

Thanks to hydraulic fracturing, natural gas is abundant and cheap, making it the logical choice to bridge the gap between current transportation needs and the more viable renewable fuels we’ll need in the future.

I’m still skeptical that natural gas vehicles will catch on with the public faster than electric cars, but fleet vehicles are already being converted. For trucks that return to the same place every night, such as delivery vans and city buses, natural gas makes a lot of sense.

It’s that fuel diversity that will best insulate the U.S. from global price shocks.

Pickens has a new set of proposals that he was planning to bounce off Chu, although he didn’t know how they would be received.

They included a review of federal tax policies to eliminate measures that favor diesel over natural gas. His most radical proposal is also the most interesting: eliminating the Strategic Petroleum Reserve. The reserve was created 40 years ago in response to the Arab oil embargo, and like many of our energy policies, it’s rooted in decades of dependence and a presumption of scarcity.

The 700 million barrels in the reserve were amassed at an average price of $28 a barrel, which means the government stands to make a nice return on its investment, assuming it disposes of the reserve carefully.

“You can mess up the oil market with it” if you sell it all at once, Pickens warned. He proposes we “dribble it out over 10 years” then use the proceeds to fund renewable energy initiatives.

Pickens is quick to note that while he supports renewables – he once planned a massive wind farm in the Texas Panhandle – most aren’t viable based on current technology, and they don’t address our biggest use of oil: transportation.

“Renewables do not move an 18-wheeler,” he said.

I first interviewed Pickens in 1990, when he was beginning an effort to promote natural gas vehicles. Regardless of how you feel about his plan, you can’t fault his persistence.

Pickens’ plan isn’t perfect, but he’s been effective at getting the country talking about energy issues, and his latest ideas deserve consideration. They outline a pragmatic progression to fuels of the future.

Even if Chu didn’t listen to him, someone at the Energy Department should.