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Lower Energy Prices May Doom Pickens' Energy Push

Friday, 31 Oct 2008 01:43 PM

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The ambitious campaigns by energy billionaires T. Boone Pickens and Chesapeake Energy Corp's Aubrey McClendon to wean the United States off foreign oil and toward natural gas and wind power may fall victim to crashing energy prices and the global credit crisis.

As part of his plan, Pickens has argued for an overhaul of the nation's power grid, while Chesapeake Chief Executive Officer McClendon wants the nation's fleet of vehicles to run on compressed natural gas rather than gasoline and diesel fuel. Both ventures would cost hundreds of billions to implement.

The energy sector has been socked by worries that the financial crisis could cause a worldwide slowdown that would cut into energy demand. Since reaching a peak over $147 per barrel in July, crude oil futures have fallen more than 50 percent.

"Presumably, a lot of capital would have to be raised to move these things forward, and that looks to be extremely difficult in these current conditions," said Richard Murray, director of the University of Houston Center for Public Policy.

"And if crude drifts back down to the $50 to $60 range, it is going to take a lot of the incentive away to shift your energy paradigm," Murray said. Crude was trading below $65 a barrel on Friday afternoon.

As part of their push to break U.S. dependency on foreign oil, Pickens and McClendon have appeared in numerous commercials and print advertisements they have bankrolled. Pickens has also become a media favorite, making frequent appearances on television, including newsmagazine "60 Minutes."

While the two are credited with raising public awareness, their efforts are not completely altruistic. Both men stand to gain should U.S. policies favor their plans. McClendon heads up one of the nation's largest natural gas producers and Pickens aims to build the largest wind farm in the U.S.

Both executives made their fortunes in the oil and gas business and have, along with other investors, seen staggering losses in recent weeks. Pickens has suffered a drop of around 60 percent in his BP Capital hedge fund this year, while shares of Chesapeake have dropped more than 40 percent.

CRACKS EMERGING

Some cracks have surfaced. The credit crisis could threaten financing of Pickens' wind project, while McClendon and Chesapeake have sharply cut back on public outreach programs.

Chesapeake has curtailed its advertising campaign. McClendon said on a conference call on Friday that several "tens of millions" of dollars were spent in the last six months or so on his push to educate the public about natural gas.

"Given all the financial crisis concerns, of the past month or two and given the political campaign, we decided to dramatically reduce our advertising campaign over the last 30 days," McClendon said, adding that he did not think "it was money well spent in this environment."

Representatives for Pickens did not return telephone calls or answer e-mails seeking comment.

GETTING TRACTION

The opportunity to shape the debate is ripe, with the White House and U.S. Congress up for grabs. Pickens has met with both U.S. presidential candidates, John McCain and Barack Obama, and claims a host of politicians support his plan.

Wind industry supporters have nothing but praise for Pickens' effort to launch a debate on the nation's energy future. But few think his ambitious scenario to replace natural gas generation, which makes up about 20 percent of U.S. power generation, with a massive amount of wind power has a chance of becoming reality.

"His outcry has neighbors talking over the fence about our energy future," said Ned Ross, director of regulatory affairs for a unit of utility FPL Group Inc in Texas. "People who either paid no attention to energy or didn't care are in the debate."

FPL Energy is currently the nation's largest wind developer.

But it is a lot easier to convince people to switch to alternative forms of energy when they are paying record amounts for gasoline and other forms of energy.

Now that gasoline prices have fallen below $3 per gallon in many markets, people can afford to fill their gas tanks without making other sacrifices.

So the need to overhaul the nation's energy program is less apparent to many in the general public.

Meanwhile, Pickens aims to have 1.4 million members in his "New Energy Army" by election day. He is urging his army to pressure the presidential candidates to adopt his plan to reduce U.S. dependence on foreign oil.

"I think they see themselves as statesmen," Mike Breard, senior energy analyst with Hodges Capital Management in Dallas, said. "There's at least some patriotism in wanting the country to wean itself off foreign oil.

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