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Business Week picks up the beat

Via Business Week online:

Many are in love with the idea of alternative energy. But there’s yet to be an economical alternative to petroleum that can generate large amounts of energy without damming up rivers, crowding the landscape with windmills, or generating radioactive waste.

That may be about to change, however, as interest grows in an emissions-free energy source that can generate power at prices competitive with traditional fuels. It’s virtually inexhaustible, and it’s right under your feet. It’s the heat emanating from the earth’s molten core, also known as geothermal energy.

Geothermal could have a major effect on the energy future of the U.S., according to a study published in January by the Massachusetts Institute of Technology. Using existing technology, there is the potential to generate geothermal energy in the U.S. equivalent to 2,000 times the country’s total energy consumption in 2005, the study says.

Read more…

Here’s the key question on geothermal development: If it’s OK to risk $10M on a petrochemical wildcat well, why is it not OK to risk $1M on a wildcat geothermal well? As one of our partners says, nearly all of the producing geothermal fields and plants (including those under development) are as a result of exploration that happened in the 1970’s. Where is the geothermal exploration program? What will it take to engage those with the geotechnical skills to engage in this segment? (We know, money, and lots of it.)

Our view is that as emissions restrictions tighten, carbon taxes become a reality, and peak oil has definitively happened, the talent will engage as geothermal power will be the next frontier. We know from attending the SMU conference that oil companies are starting to wake up, we know one project where Chevron is assembling its own geothermal data set (as one of our partners talked to the primary researcher doing the work.) Can we expect geothermal exploration in the near future?

2 Comments so far

  1. Joe Colosi August 28th, 2007 10:54 am

    I’m not sure where you are getting your figures on well drillin costs. In the larger fields in California, The Geysers, Coso, Salton Sea, the cost to drill a geothermal well is $3 to $5 million. Similarly, the cost to drill an onshore petrochmical well (do you mean an oil well) runs the same or a little less. If you mean an offshore well, now I could buy your $10 million estimate. The fact of the matter is the cost to drill either type of well (geo vs oil) is similar since drilling companies don’t have two different price sheets (save for some small differences for specialized geothermal equipment).

    As to your view that oil companies are starting to wake up, I think you are misinformed. Again, fields like The Geysers and at The Salton Sea were developed by oil companies drilling in the 60’s and 70’s. These included Union, Chevron, Sun, Phillips, Shell, etc.

    As you rightly point out, it will take massive subsidies of taxpayer monies to make geothermal exploitation viable. Again, I am thinking back to the late 70’s when PURPA made geothermal viable and today with state mandated RPS that will cost ratepayers boodles for the joy of receiving green electrons!

    Don’t get me wrong, I think alternative energy is needed, but along with it is clear speaking about what it will cost ratepayers. Unfortunately, this is all falling below the radarscreen and being implemented without the public’s knowledge. Once again, California is leading the way, unknowingly by its citizens, as the elite decide for us that we really can afford some of the highest electric rates in the nation.

    As for the oil peak, again I think you are misinformed. While there continues to be discussion among academics about the peak, history has shown time and again new peaks. The fact is, times have never been greater in the oil patch. Oil prices, which languished below $20 a barrel for a decade are now three times higher. Natural gas prices which were stuck on $2 an Mmbtu are now about $6. Refinery margins have skyrocketed. What do you think these oil companies are doing with this new found wealth, just sending out dividend checks? Drilling rates have skyrocketed, drilling rig utilization is at all time levels. New drilling rigs are being built, after many years. Generally it takes about seven years for all this activity to bear fruit. Peak? Maybe not yet.

  2. mike August 28th, 2007 12:51 pm

    Joe, thanks for your comment.

    Re drilling costs, we see it quoted at $125/foot right now. The point of the drilling comment in the post above is to show that people with money are throwing large amounts at speculative drilling in the petro space. Yet I challenge you to find someone to invest even $1M in a wildcat geothermal well. It’s not happening (except perhaps out of some government agencies.)

    Re oil companies waking up. You’re right, most active fields were developed by oil companies. But, they dropped out in the late 80’s and seem to be coming back in now and perhaps with a vengeance.

    Re alternative energy (I prefer renewable) and this hazy elite you speak of, hey, this is America. People should be able to make whatever decisions they want provided they’re willing to pay the freight. If you don’t like what the government is doing, vote and volunteer to change it. If you don’t like the coming fuel surcharge to fill up a monster truck, choose another vehicle that’s more fuel efficient. It’s all about choices. The government in California, rightfully so, is starting to make the hidden costs of fossil fuel visible and passing them along to consumers so consumers can make a choice. That’s good leadership and it’s what we pay the government to do.

    Re peak oil, re-reading what was written, I can see how you’d interpret it the way you do. I’m not suggesting peak oil has happened, only that it will. There’s a fixed amount of these hydrocarbons in the crust, no more of it is being made. Sooner or later, peak oil will come and when it does it will factor into the investment decisions of large oil companies among others.

    Re the oil business. You’re darned right it’s a good time to be in the oil business, but it’s not going to last forever. And I do happen to think those oil companies, by and large, are investing in petro exploration. I don’t believe as a rule they’re investing in geothermal, yet. Enjoy that bubble because when it pops, it’s going to make the dotcom bubble look like a rounding error…