Oil Majors Poised To Make Biggest Geothermal Investments In 30 Years

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Oil Majors Poised To Make Biggest Geothermal Investments In 30 Years

The green energy revolution is well and truly underway. Renewables have proven to be highly resilient, emerging as the only energy sector to record any kind of growth at a time when the traditional energy sector is going through its worst existential crisis.

Indeed, the latest report by clean energy watchdog Bloomberg New Energy Finance (BNEF) reveals that a broad measure of global energy transition investments in 2020 clocked in at a record $501.3 billion, good for 9% Y/Y growth. The firm’s analysis shows that both public and private investments in renewable energy capacity came to $303.5 billion, up 2% on the year, thanks mainly to the biggest-ever build-out of solar projects as well as a $50 billion surge for offshore wind.

Yet, one renewable energy source has been conspicuous by its absence: Geothermal energy.

Private equity research firm PitchBook has revealed that $675 million of investors’ capital flowed into geothermal investments last year. Whereas that was a good 6x higher than the previous year’s figure, it represents a minuscule amount of clean energy investments, including emerging technologies such as carbon capture and storage (CCS), which encouragingly tripled to $3 billion or hydrogen, which attracted $1.5 billion in new investor capital after declining 20% Y/Y.

But that is about to change, with struggling fossil fuel companies about to put their capital and skills to work on something that’s far less degrading on the planet.

Oil and gas majors are about to make their biggest geothermal investments in more than 30 years, as geothermal economics improve while financials for the fossil fuel sector continue to pose a major challenge amid stubbornly low energy prices.

Why geothermal makes sense

The oil and gas sector has perfected the art of extracting fossil fuels many miles below the surface of the earth, increasingly using sophisticated drilling technologies such as millimeter waves (MMW) high energy beams, aka Direct Energy Drilling that has been developed to drill through tough rock formations.

Whereas oil executives have always viewed geothermal energy as a potential source of revenue, the potential returns have been viewed as not attractive as the core business. Which is perfectly understandable in an era when oil prices averaged north of $100 per barrel.

Indeed, U.S. oil companies drilled hundreds of geothermal wells around the world in the 1970s and 1980s. Over the years, numerous sites along the Pacific Rim, from California to the Philippines, were prospected.

Unfortunately, the returns were usually dismal, with most geothermal wells turning up nothing or failing to cover the cost of new prospecting and development whenever they did. This reality led to Unocal, a company that outcompeted Chevron Corp. (NYSE:CVX) and Texaco to become the world’s largest geothermal producer, selling off the majority of its geothermal assets in the early 1990s. The oil and gas majors soon followed suit.

But new technology has gradually been changing the drilling economics in favor of the geothermal sector. Currently, more than 90% of newly drilled geothermal wells are profitable compared to about 10% in the 1990s, thanks in large part to shale oil technologies such as geological sensing, horizontal drilling, and high-intensity fracturing. Meanwhile, newer technologies such as Enhanced Geothermal System (EGS) allow oil and gas companies to create geothermal reservoirs wherever hot rock exists.

Clean energy

Geothermal energy can be found almost anywhere from remote deep wells in Indonesia and as close as the dirt in our backyards.

Other than seismically active hotspots, there is a steady supply of milder heat–useful for direct heating purposes–at depths of anywhere from 10 to a few hundred feet below the surface. This heat can be found in virtually any location on earth since it has its origins from when the planet formed and accreted, heat from the decay of radioactive elements, and also from frictional heating caused by denser core material sinking to the center of the planet.

Indeed, just 10,000 meters (about 33,000 feet) of the earth’s surface contains 50,000 times more energy than all the oil and natural gas resources in the world.

Compared to wind and solar, geothermal energy is highly reliable since it’s constant and available throughout the year regardless of the season or weather. Geothermal power plants have average availabilities of >90% compared to ~75% for coal plants.

Geothermal power also has something even more impressive going for it: It’s one of the cleanest energy sources–and dirt-cheap to boot.

True, geothermal power plants are frequently associated with sulfur dioxide and silica emissions, and the reservoirs can contain traces of toxic heavy metals, including arsenic, mercury, and boron. However, the pollution associated with geothermal energy is nowhere near what we see with fossil fuels.

Geothermal power plants do not burn any fossil fuel to generate electricity, automatically meaning the air pollutants they emit are much lower. Indeed, the U.S. Energy Information Administration (EIA) says geothermal power plants emit about 99% less carbon dioxide and 97% less acid rain-causing sulfur compounds than fossil fuel power plants of similar size.

Geothermal power plants are frequently equipped with scrubbers to remove the hydrogen sulfide naturally found in geothermal reservoirs. Further, the vast majority of geothermal power plants recycle the steam and water they use by injecting them back into the earth. This recycling helps to renew the geothermal resource. The EIA says direct use applications and geothermal heat pumps have almost no negative effects on the environment.

Consequently, Iceland’s capital city, Reykjavik, which heats 95% of its buildings using geothermal energy, is considered one of the cleanest cities in the world.

At USD 0.04-0.14 per kWh, geothermal power plants have the lowest levelized cost of all US generation sources, both conventional or renewable.

Estimates of lifecycle greenhouse gas emissions by power generation source

Enhanced geothermal systems

Enhanced Geothermal Systems (EGS) promise to increase the areas where geothermal energy can be exploited as well as boost the energy output of wells over a smaller footprint.

Enhanced geothermal systems (EGS) are geothermal reservoirs enabled for economic utilization of low permeability conductive rocks by creating fluid connectivity in initially low-permeability rocks through hydraulic, thermal, or chemical stimulation.

An Enhanced Geothermal System (EGS) is essentially a man-made reservoir, created where there is hot rock but insufficient or little natural permeability or fluid saturation. In an EGS, fluid is injected into the subsurface under carefully controlled conditions, which cause pre-existing fractures to re-open, creating permeability. Increased permeability allows fluid to circulate throughout the now-fractured rock and to transport heat to the surface where electricity can be generated.

Advanced EGS technologies are young and still under development; however, EGS has been successfully realized on a pilot scale in Europe and now at two DOE-funded demonstration projects in the United States. The European Union has taken this idea a step further, and is supporting research into converting oil wells into geothermal wells. One option involves converting oil wells for geothermal production while the other involves co-producing both oil and heat from existing oil wells.

A 2006 Massachusetts Institute of Technology (MIT) study predicted that in the United States alone, 100 GWe of cost-competitive capacity could be provided by EGS in the next 50 years, or more than 6x what the entire planet currently manages.

The next Shale industry?

Some experts are optimistic that geothermal’s trajectory may follow that of the US shale industry, which exploded in the space of less than two decades. Indeed, geothermal could soon become a ubiquitous renewable energy source with predictable returns, much like the solar and wind industries.

This would undoubtedly unlock billions in new financing. Investors have started taking notice, and have bid shares of the only major geothermal energy publicly traded firm, Ormat Technologies Inc.(NYSE:ORA), up 33% over the past 12 months.

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