The Heat Beat
Geothermal Energy at Oil and Gas Scale: A Chat with Lance Cook
Let’s cut straight to the point. Immediate action is needed to save oil and gas jobs and to preserve US energy independence. What form of action the government takes could result in a range of outcomes, including continued volatility, preservation of the status quo, or building a baseload green energy portfolio so large that in the relative near term it could dwarf most other sources of energy in the US. To explore, I talked with Lance Cook, former Chief Scientist for Well Engineering and Production Technology at Shell, and 37-year veteran of the oil and gas industry. This interview has been edited for clarity.
JB: The industry has been through an unprecedented few weeks, and we are likely to see a wave of bankruptcies to come, particularly in the service sector - rigs in storage and crews disbanded. What are your thoughts on a role for geothermal development in all of this?
LC: I notice there is a lot of concern about the production operators, and the focus seems to be there in terms of stimulus. I am thrilled you are focusing on the service side as there have already been huge job losses, with many more on the way from that sector. We need to find a way right now, in the near term, to keep all this idle equipment and crews active – and in a way that does not add to the oil glut. So what are you going to do with drill rigs and oil service workers if they aren’t drilling for oil? Geothermal is a near perfect fit here. If we don’t do this and we allow these staff members and equipment to be sidelined for a couple of years until oil and gas prices rebound, we put our hard fought energy independence at risk, while hemorrhaging jobs that may not return to the sector. It’s a loss that I’m not sure has been fully quantified, but the level of urgency is clear.
Geothermal energy projects need the same types of staff and equipment as the oil and gas industry uses. And geothermal is a naturally and completely bipartisan opportunity. Political partisanship should not obstruct immediate action to support activity in this space. Just go go go. I can quote many Republicans on the importance of the oil and gas industry to the US and as a strategic industry. That part is easy. So let me quote AOC instead this time: “…along with low interest rates means it’s the right time to create millions of jobs transitioning to renewable and clean energy. A key opportunity.” She is spot on. Give the geothermal industry the funding for rig ready projects that they have been trying to get funded for years in the immediate and near term, and we can transition idle oil service workers and equipment to geothermal, while diversifying the customer base for this equipment, and keeping the skills and equipment available for the next oil shock. There is also no better way to convince an industry as large and entrenched as oil and gas to engage in a new concept than to support them in doing so. I see this as a foot in the door for oil and gas to engage more broadly in geothermal in the years to come.
JB: How should operators approach geothermal strategically? What’s your advice to the majors, both short and long term?
LC: Let me broaden the question: How should service providers AND operators AND the US government approach geothermal strategically. I’ll start with the end in mind. The government has had a 30% tax credit for geothermal for years that is about to expire, but with little uptake. Why? The service providers have had plenty of business from 2014 to late 2019 drilling for oil and gas. They understandably have had a primary focus on ploughing their own backyard. The operators have been busy adding production at heroic rates, effectively diminishing OPEC, but unfortunately over supplying the market even before the coronavirus. The industry has been a victim of its own success. As Trump recently said, if you view the energy independence that the oil and gas industry has delivered as strategic and worth preserving, the US government needs to act.
What would I suggest to really get some movement at scale in the industry?
1) Extend the 30% tax credit for geothermal projects,
2) Set aside 150 billion dollars to fund shovel ready geothermal projects at 0% interest rates and offer a -1% interest rate for any projects that commence drilling prior to September 1, 2020,
3) Extend the same tax credit on offer for solar and wind, per kWhr generated, to geothermal.
If the government did these three things, I would expect companies like Schlumberger, Baker and Halliburton to team up with rig companies with all their kit and crews, and partner with geothermal companies with rig ready geothermal projects to support the government’s strategic initiative in a big way.
As far as the operators, they too have a lot of the skill sets needed to move rapidly into geothermal. One problem I think geothermal has encountered in the past is competition for capital. What do I mean by that? If I am CEO of Major X USA today and I have 10 billion dollars sitting around after paying dividends, my first thought is to buy back my own stock at these extremely low prices. However, that being politically incorrect, my second move is to buy production from the many smaller operators on the verge of bankruptcy. Sorry Geothermal.
But if the government offers me a 0% loan that I can only use for geothermal and I can use my underutilized engineering staff to move it forward for a US government sanctioned strategic initiative - magic - geothermal finally gets the major operator’s attention in a big way. Everyone wins, and I think it could well win bipartisan support. A call from Trump and Schumer on a party line would guarantee it.
JB: Drilling technology improvements are needed to drill the really HTHP geothermal plays. Given that the hotter the well, the more attractive the economics of a geothermal project, what are your thoughts about the oil and gas industry launching major initiatives with ‘off the shelf’ technologies?
LC: I lived in China for five years, and they have saying of which I hear the last half of regularly in fighting the coronavirus. The wisdom is “You don’t declare war without a well-equipped army! But if war is declared on you, then you go to war with what you have got.” I would open up with what we have in our toolkit now on the geothermal front, as the kit and crews cannot wait for us to develop 300C downhole electronics, mud motors, etc. In parallel, we should start a Manhattan Project style effort to develop the equipment we need to perfect the concept of deep, very hot drilling to the point where it is a competitive source of energy that no longer needs government tax credits and support, and can be effectively drilled most places in the world.
JB: What are some examples that could be informative in this context of quick, real time well-to-well learning that you experienced in industry?
LC: Unconventional drilling is a great example. Once you get in the field, learnings and refinements come fast. Everyone knew Mitchell was nuts trying to get natural gas out of the Barnett, and Harold Hamm was too stupid to know that fracking a horizontal well would just create fractures that grew parallel to the natural fractures. It turns out these ‘nut cases’ were actually visionaries who changed the industry, and indeed changed the energy supply structure in the US, and the world. Let’s deploy those innovators now on geothermal. You’re only crazy until you’re right.
JB: Let’s talk about scale. At what scale could the oil and gas industry deploy rigs for geothermal projects in the very near term – say in the next month, six months and year?
LC: 483 drilling rigs have been stacked in the yard in the last year, while frack spreads have dropped by 20% in the last month. Much of that equipment can get you started next week and get you below 10,000’ before you would need to bring in the bigger rigs to finish the wells. Now, if you are wanting to get down to 20,000 or deeper, we’d need to do a survey of how many of those type rigs are available. But I would suggest there is more than enough capacity to go big. Really big. This is the same equipment that increased US oil production by three million bbls a day in three years or so.
JB: Dream with me for a moment – staying on the topic of how fast things move at the scale of the oil and gas industry – let’s entertain the possibility of an oil and gas pivot into this space. Industry-wide, how many geothermal projects are possible per year – presuming significant industry engagement of all major players and maximum technical difficulty for the wells.
LC: Your limiting factor is going to be how many deep rigs there currently are in the US. We need to check. But while less efficient, if you are willing to go big in areas where there are high temperatures say at 12,000 to 15,000 feet….well let’s just say the geothermal folks would need to stop talking in terms of megawatts and start thinking in terms of terawatts.
JB: You believe it is within the realm of reason to envision a relative near term future where geothermal energy produces up a terawatt or more of the US energy portfolio if the oil and gas industry were to engage at scale?
JB: What are your ideas about how US society might benefit from this marriage of the oil and gas industry with geothermal energy?
LC: Green, cleaner energy, and leading the way on carbon reduction for our electrical grid is the obvious one. But another huge benefit is something we don’t talk about much, and that is the five and even six digit salaries this sort of work offers to those without a college degree. With manufacturing having largely moved oversees, rig service jobs pay extremely well, even better than you might get paid with a college degree in the social sciences.
Why is that? These rigs and frack fleets are very expensive to build, and there is no college and few trade schools that teaches how to operate this specialized equipment. The work involves heavy manual labor, but it also requires skills which you have to teach your employees, usually through on the job training. Most college graduates aren’t interested in manual labor intensive jobs on offer here, so the industry hires good high school graduates and trains them. Now, once you train them and they know your equipment, they are more valuable to you than anyone with a Harvard sheepskin when it comes to field operations. You can’t afford to lose them, so pay in this industry is exceptional. The downside is the work is cyclical.
If you diversify the customer base for this equipment by making it essential for oil, gas, AND geothermal, we can take some of the cyclical nature out of this work. And geothermal is exciting for young folks looking to work in clean energy, so adding geothermal into the mix will attract new talent into the industry.