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Examining the Picken’s Plan
Some conservatives are questioning T.Bone Picken plan (Michelle Malkin, Paul Driessen). I had not looked at his plan until today. I pretty much rejected it immediately because I figured a geologist in the natural gas business really doesn’t understand the electric power business.
I have now read through his online plan (LINK) and find that not only does he not understand electric power…he doesn’t even understand free market economics. On his “What’s the plan” page, he says
Despite growing demand and an unprecedented increase in prices, oil production has fallen over the last three years. Oil is getting more expensive to produce, harder to find and there just isn’t enough of it to keep up with demand.
Mr. Pickens is either failing to recognize or refusing to acknowledge that the increase in oil prices brings a whole host of new technologies into the market. There are oil sands, shale oil and coal gasification. The resources for these technologies are abundant. Although they are relatively expensive compared to oil selling at $20 a barrel, these sources are now viable with oil is $130 per barrel.
When the supply of oil was manipulated in the 70′s, consumers adjusted their demands by investing in efficiency. Thirty years ago OPEC reduced their output in order to raise prices thinking that they could make more money. Americans reacted by investing in efficiency solutions. People insulated their homes. Windows were replaced. Appliances were upgraded. These investments might not have happened without the oil crisis. Once purchased, these energy saving investments were then part of our lives. Insulation was not torn down after the price of oil returned to pre-crisis levels.
Today’s problem is not just a supply problem. It is a demand problem. China and India are soaking up more and more fuel. This is not likely to change anytime soon. The implication of this is that our current situation is a long term problem. There is no group of oil men plotting to make the price high, and therefore the price is not being set by the whims of men. It is set by supply and demand.
Business can now make long term investment knowing that the price of oil is likely to stay high for quite some time. Turning oil sands into fuel is economically viable at $60 per barrel. It is no longer a question of weather business can make money converting the oil sands to fuel. The current limitation is the number of skilled workers available to increase production. Other technologies that require large capital expenditure to get started like shale oil and coal gasification can now proceed with a higher level of confidence that they will make money for years to come.
Once these investments are made, they will not be abandoned. Although I am generally for government staying out of business, they have a roll to play here. Since energy independence is a national security issue, government can assure business that they will have a customer even if oil drops below pre-determined price. Filling our strategic reserves could be used to increase the demand for domestically produced energy sources. This does not need to be an open ended commitment, just a commitment long enough to allow business to cover capital expenditures. In such a case, it will seem like an expensive deal to buy fuel at and inflated price, but it is significantly cheaper than building nearly half a million wind mills and redesigning the national electric grid.
Harnessing the power of the wind is undependable, expensive and can not be stored. Investing trillions of dollars in a dubious wind plan seems extremely risky considering there are better solutions at hand. T. Bone has initiated a PR stunt because his plan is not economically viable. The only way to proceed with such a plan is to have tax dollars diverted to such a cause.
I would prefer to see government make a small, time-limited commitment and then get out of the way.
