T. Boone Pickens: How Ukraine-Russia tensions could get the U.S. to rethink energy policy

June 2, 2014, 2:20 PM UTC

China National Petroleum


FORTUNE – Once again, energy has vaulted to the top of the agenda in Washington, D.C. Too bad it has nothing to do with Congress or the administration showing any leadership on getting America an energy plan for the first time in 40 years. The reason energy is such a hot topic right now? Two words: Vladimir Putin.

Earlier this month, the Russian president inked a $400 billion natural-gas contract between Gazprom and the China National Petroleum Corporation. All eyes have been on Russia for closing this 30-year mega deal, but from my perspective, what matters most is that it demonstrates yet again that the Chinese have an energy plan that they are diligently pursuing, and we don’t.

That’s the geologist in me venting about America’s lack of leadership on energy security. The conflicts between Russia and Ukraine has made everyone an expert in oil and gas production, oil and gas transmission, oil and gas refining, and oil and gas exports. The only problem with these self-appointed energy experts is that none of them have any idea what they’re talking about.

What has happened with Putin and Ukraine is that they have focused attention on Europe, which is dependent – to a major degree – on natural gas produced in and shipped from Russia. Before we roll our collective eyes at how the Europeans could be so stupid as to put themselves in that situation, remember we’ve done the same thing ourselves.

Every day America imports about 50% of the oil it uses. A good deal of that comes from our major trading partners, Canada and Mexico, but about 36% of the oil we import comes from OPEC at a cost of over $11 billion per month. The truth is we are just as dependent on OPEC oil as Germany is on Russian natural gas. Germany imports 36% of its natural gas imports and 39% of its oil imports from Russian energy suppliers. Now what do you think?

But there’s a key difference: America has the capacity to reduce its dependence on OPEC oil to about 25% of our current imports. That’s because the United States is blessed with the largest oil and gas reserves in the world. Thanks to modern drilling techniques, the natural gas and oil in shale formations are now working their way into the nation’s energy supply and powering state and local economies.

A lot of people have jumped onto the “export natural gas to Europe” bandwagon. Their goal is to destabilize the Russian economy by undercutting the European natural gas market. They say America’s natural gas producers should have access to higher price markets overseas, but it’s just not that simple.

First of all, I’m not sure we want Russia going from being a bully operating from economic stability to a bully operating from economic desperation. Second, permitting and actual exports are no quick fix. Export terminals need federal permits, and, even if they were fast-tracked, you are looking at late 2015 or even 2016 before full-scale exports are even feasible. Third, we should be looking for ways to use that oil and natural gas right here at home to help rebuild our economy on the back of cheap, domestic fuels, not rebuild the economies of Europe.

During their safety announcements you’ve heard flight attendants say, “Put on your own oxygen mask first before helping someone else with theirs.” The same goes with energy. Let’s figure out how to use it best here in America before we go helping someone else use our energy.

Here’s a simple for instance. On Monday, the Obama administration is expected to unveil new climate change rules that looks to replace one domestic energy source – coal – with another energy source – natural gas. Wait a minute. Why aren’t we replacing a foreign fuel source – imported diesel – with a domestic fuel source – natural gas? Not only would this help the administration achieve its goals of lowering emissions and cleaning up the environment but it would also go a long way toward zeroing out our trade deficit.

Instead of exporting our cleaner burning natural gas as all of these self-appointed energy experts are suggesting, we should be exporting our technology. The North American continent is not the only place in the world where shale oil and gas exist. It is estimated that by using hydro-fracking and horizontal drilling techniques, Ukraine could dramatically cut its dependence on foreign oil and gas. Same with the UK, Ireland, and a good deal of the European continent. We can sell them the technology, the workers, and the equipment to help them get off Russian oil and gas – or at least reduce the size of the club that Putin threatens them with – while utilizing the energy we’re producing to power our way to prosperity.

Another effect of reducing our reliance on OPEC oil is reducing or removing our Fifth Fleet in Bahrain. One of the Fifth Fleet’s principal roles is to protect OPEC oil that is shipped from the Persian Gulf, through the Strait of Hormuz, and on to its final destinations. Americans – you and I – pay 100% of those costs. Yet, 90% of OPEC oil ends up in China, India, Japan, and other countries. We pay all of the costs of protecting all of the oil, yet we get only 10 percent. So the next time someone brings up the Keystone XL pipeline, ask them how many of our aircraft carriers it would take to protect Canadian oil.

The quickest way to better our energy security is to help heavy-duty truckers and fleet owners switch from imported diesel and gasoline to domestic natural gas. Mind you – I’m not talking about your car or mine. It isn’t feasible to shift a significant percentage of personal vehicles – cars and light trucks – to natural gas. By the time we made a dent in the 250 million vehicles on the road we’d be bumping up against a completely new fuel source – electricity or hydrogen.

But, there are only 8 million heavy-duty trucks – 18-wheelers, refuse and recycling trucks as examples – on our highways.  Over-the-road trucks tend to travel the same routes on a regular schedule, so placing refueling facilities at appropriate places on our Interstates is a simple logistical problem that private industry is well on its way to solving.

Fleet vehicles like delivery and utility vans, taxis, municipal buses and government vehicles that go to a central parking facility every night can easily refuel with natural gas.

If we did those two things – shift heavy-duty trucks and fleet vehicles to natural gas – we would reduce our need for OPEC oil by 75% in about five years. If we also showed the Europeans how to use modern drilling techniques during that same period, we could reduce their dependence on Russian natural gas and oil in a well-ordered fashion and keep the Russians from panicking.

Making America’s energy policy a top priority on our national agenda is a very good thing. Using the Russian/Ukraine situation to force us to think about how we should best use that energy would change the course of the American economy for the rest of the 21st century.

T. Boone Pickens is chairman and CEO of BP Capital and architect of the Pickens Plan, an energy plan for America. Follow him at @BoonePickens

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