Pickens' Audacious Wind-for-Gas Plan Flawed?

Boone Pickens’ plan to massively expand wind production to free up more natural gas for vehicles is an audacious suggestion but it faces a key challenge rooted in natural gas’ virtue as a clean and versatile fuel for utilities to generate electricity.

Some analysts suggested that the plan, which was formally announced Tuesday by the oilman-turned-wind entrepreneur, was flawed by dubious assumptions about natural gas remaining cheap, and that while well meaning, the plan was also ultimately self-serving.

“I don’t think this is a viable plan,” said Clay Perry, of the Electric Power Research Institute, whose members generate 90 percent of the country’s electricity.

Underestimating Natural Gas

One key virtue of natural gas power plants is the critical ability to supply  ‘peaking capacity’ —electricity needed to quickly meet surges in demand, such as air-conditioning use in the summer time, he explained. Wind -- along with coal and nuclear power -- has no such capability. It is also an intermittent energy source, although this shortcoming could be mitigated by future advances in battery storage technology.

“That’s going to be an issue if you are going to try to supplant natural gas with wind, which is a variable fuel, and which is not yet been the kind of thing you can count on as a base load generation option,” added James Owen, a spokesman for the Edison Electric Institute, another leading utility organization.

In fact, rather than reducing its use of natural gas, as Pickens suggests, utilities are set to use even more in the future, in good part because it is significantly cleaner than other fuels (especially coal), for both conventional pollutants and greenhouse gases.

That’s a key reason natural gas use has spiked significantly in recent years, even though it is more expensive than coal. In 1993 it contributed 13 percent of the country’s electricity; today it accounts for about 20 percent.

“In the next five to ten years, more and more gas is going to be used for electricity,” says Owen.

Pickens' plan also raises more basic questions, say critics. They include his assumption that natural gas would remain cheap and the contention that it could be indefinitely be sourced, primarily from domestic sources and hence save the US hundreds of billions of dollars in imports. 

“This plan strikes me as a huge leap of faith that rests on some dubious assumptions,” especially on price, says John DeCicco, a senior fellow with Environmental Defense, a leading nongovernmental group that works with corporations on environmental initiatives.

“Why has oil gotten so expensive – the answer is because it has been trying to service a huge and growing demand for transportation fuel," adds DeCicco. “Once your start trying to replace oil with something, that something is not going to be so cheap any more,” he said

DeCicco noted that the US is importing a growing amount of natural gas, as evidenced by the proposals for – and controversies about – permitting new liquefied natural gas (LNG)  terminals here.

The Case For Wind

Pickens plan, however, does have its clear supporters,

Under his plan natural gas could become a major source of vehicular fuel (currently at about half the cost of gasoline) if there is an enormous expansion of wind power, freeing up more natural gas. Pickens agrees with a recent Dept. of Energy study concluding that wind power could supply at least 20 percent of the nation's electricity needs by 2030, far more than the current one percent.

Wind farms would be built in a wide corridor in the middle of the country, from Texas to the Dakotas, where the ‘wind resources’ could make the US the “Saudi Arabia of wind power,” Pickens says.

“I think Pickens plan is brilliant, it is something we can do and we should do,” argues Rich Kolodziej, president of NGVAmerica, a national organization that promotes the use of hydrogen and natural gas vehicles.

There are currently only 120,000 vehicles capable of running on compressed natural gas in the US but this could be rapidly increased if manufacturers had the right incentives to resume production of such vehicles which stopped in the 1990s after federal government policy changed, he said.

Kolodziej said the country would have to start by replacing commercial fleets first, especially long-haul trucks, in part because of the very limited distribution network for natural gas  - just 1,200 out of the total universe of 190,000 gas stations. He said opposition from oil companies is inevitable.

While acknowledging that government policy is critical in shaping a new energy future, DeCicco said Pickens’ plan was fundamentally flawed because it favored a particular technological solution, an approach with a long history of failure going back to the government’s promotion of synthetic fuels.

“You can’t pick today what’s going to work in the marketplace tomorrow, the best you can do for policy is to set a general goal in terms of carbon reductions – put a price on carbon - and then let the market sort out what it [the technological solution] is going to be, not Pickens, not President Bush, not Senator so- and so,” he said.

“So, we ultimately believe in the invisible hand, ironically, even though we are environmentalists, rather than throwing a lot of money at some investor or somebody’s favorite solution – that’s the larger message here.”

© 2008 CNBC.com