Pickens Drills Down On Saudi Oil And Comes Up A Duster

English: Washington, DC’s Metrobus powered with compressed natural gas. (Photo credit: Wikipedia)

T. Boone Pickens has an outsized presence in America’s oil industry, but not particularly because of his exploration and production activities.  He shook up the US oil industry in the 1980s with his so-called greenmailing activities, rightly arguing that some companies were investing their money unwisely,  and has made his mark this decade promoting government support for the natural gas industry, and especially for advocacy of switching trucks and other vehicles to compressed natural gas (CNG).  For a brief time, when his plan included the construction of large-scale wind farms to displace natural gas from power generation, he was a liberal darling and was even received by President Obama.

CNG actually has a number of benefits which have allowed it to penetrate some markets.  It burns cleaner than gasoline and, sometimes, is cheaper, particularly in areas that have gas reserves but insufficient demand.  A country like Malaysia or New Zealand, with limited territory, are well-suited to CNG because they can be saturated with fueling stations.  In theUS, the enormous price disparity is not enough to overcome the larger fueling tanks and limited number of fueling stations for private vehicles.  These constraints do not, however, affect fleet vehicles such as buses or delivery trucks and many have been converted as a result.

But recently, he referred to the “running out” of Saudi oil as reason to support natural gas development in this country.  Pickens pessimism about Saudi oil would seem to be based on the work of his late colleague Matthew Simmons, who published Twilight in the Desert in 2004, arguing that Saudi oil production would soon peak and decline.  Simmons based his theory on a reading of technical papers by Saudi petroleum engineers, arguing that the problems they described could not be overcome.

In reality, there was no basis to his thesis.  None of the problems described was insurmountable and Simmons’ insistence that, for fields like Khurais, “the odds of reaching that production goal [of 800 tb/d] must be relatively long.”   Instead, the field is now producing 1.2 million barrels a day.  Even more damning, the Saudis have increased their production capacity to a reported 12.5 mb/d, and repeatedly stepped in to provide extra oil when political turmoil interrupted other supplies.

Still, the book was quite popular in some circles, primarily because it was not read critically by those who embraced its message.  It contained a number of technical errors, such as the insistence that fields whose pressure dropped below the “bubble point” became inert, and contradictions, including a description of a secret government study that is later said to have been found in a local library.

A  number of analysts, including myself, have debunked the arguments made in Twilight, to the point where even peak oil advocates (those few that remain) rarely mention it.  (Pickens seems to have dropped his earlier claim that world oil production peaked nearly a decade ago.)  Why, then, does Pickens revive the issue?  For one thing, he’s looking for a rationale for his program.  But also, despite his claimed expertise, he doesn’t seem too well read in the subject of petroleum.  Celebrity can be very time-consuming.

His exuberance for expensive programs to increase vehicle use of natural gas echoes that of a similar industry personality, Aubrey McClendon, who was gung ho about the development of shale gas.  Unfortunately, McClendon was convinced that natural gas prices would not drop, and invested unwisely as a result.  The Pickens plan of federal support for vehicle conversion appears to be similarly unwise and he would be wise to substitute informed decision-making for exuberance.