The Heat Beat
Is Green Drilling the Future of the Oil and Gas Industry? An Interview with Simon Todd
As we march toward the coming energy transition, there is a facet that gets little attention but has significant socio-economic consequences. In the United States alone, the oil and gas industry is responsible for supporting directly and indirectly nearly 10 million jobs, and makes up 8% of GDP. Many individuals employed by the industry have advanced, specialized degrees in geoscience or petroleum engineering, disciplines that are not easily translatable into traditional renewable energy spaces like solar and wind. This is even more true for the army of workers employed by oil service companies, who work on rigs drilling, completing and operating wells. While these jobs may not be easily repurposed elsewhere in the energy sector, they are directly translatable into geothermal energy research, development and production. Could this army of oil and gas scientists, researchers and drillers help build the future of geothermal energy? What would it take to encourage the oil and gas industry to pivot from drilling for oil to drilling for heat?
To explore these questions, I talked with Simon Todd, a 30 year veteran of the oil and gas industry and former executive at BP. A geologist by training, Todd led BP’s multi-billion dollar E&P businesses in the North Sea, US, Trinidad and deep-water Gulf of Mexico. Todd now advises new energy startups and invests in projects through his own firm, Capriole Energy. Our conversation has been edited for space and clarity.
JB: Tell me about your time in the oil and gas industry.
ST: I began my career at BP in the 80s as a geologist, and worked for a decade in exploration and production internationally. In the early 90s I transitioned into executive management at BP, with leadership roles initially in the North Sea and then in the United States, both offshore in the Gulf of Mexico and onshore. I left BP in 2014 to focus on entrepreneurial pursuits related to oil and gas and now the energy transition more broadly. I’m particularly interested in what role the oil and gas sector can play in a low or no carbon energy economy – how they can transform into energy firms of the future. Currently I’m serving as an advisor to a portfolio of purpose driven companies working on future energy concepts.
JB: What gets you excited about geothermal energy and its role in the energy transition?
ST: I believe we will need all options on the table to enable a smooth and expedient transition to a low/no carbon energy economy. First, we need clean, reliable and ubiquitous sources of baseload energy, which is why I love geothermal. But we also need higher degrees of efficiency to reduce energy demand, fuel substitutions, carbon capture technologies, and new business models.
For geothermal, if we are going to take the view that we want to drill for geothermal energy anywhere in the world, that necessarily means drilling deep and technically complex wells in many instances. We are going to need to work on driving down the cost of drilling these wells to start. Is this something I believe the oil and gas industry is well suited to do? Absolutely. The industry has reduced well-to-well cost reduction to a science in the oil and gas context. There will be some learning required in how to most efficiently harvest heat from the subsurface, but again, efficient resource extraction is what the industry has done for a hundred years. The frack boom is an excellent example of how industry innovation lead to drastic efficiency increases in resource extraction in a short period of time. Geothermal is an obvious next step for industry, and could be a huge contributor to the world’s energy needs.
JB: Given your experiences and perspectives working in the industry, why do you think oil and gas companies should be interested in geothermal?
ST: Quite a number of reasons. First, petroleum geologists and reservoir engineers have the skills and knowledge to examine areas - play fairways to use an oil and gas term - for prospects that are most easily and economically accessible for geothermal energy production. The ability to describe the subsurface and predict where the hot spots are for heat harvesting is very similar to exploring for oil and gas deposits. Further, the industry has access to just huge amounts of data that they have collected drilling wells all over the world that could be immediately leveraged with the assistance of machine learning to produce global temperature at depth models. Second, the oil and gas industry, particularly the largest international operators, have the ability to engineer and execute very large projects on schedule and on budget. And then there’s financing. Oil and gas companies can self-fund projects when there may be subsurface risk associated with the geothermal project. Some operators have spent upwards of a billion – with a B – on offshore exploration involving technically complex wells. That illustrates just how resourced these companies are in terms of their ability to take on risk. Finally, again particularly with the largest integrated operators, there is efficient vertical integration, bringing together geology, reservoir engineering, facilities engineering, finance, marketing, and so forth all together in a single value chain. That makes a big difference in terms of getting complex projects off the ground efficiently and effectively.
JB: What particular opportunities for geothermal in the industry do you see, both short and long term?
ST: The potential for geothermal to replace fossil fuels as baseload is a big opportunity. Let’s take Ireland, where I grew up as an illustrative example. The intermittency of traditional renewables on the island necessitates a quick solution on low or no carbon baseload. On the grid in Ireland, at times there's more than 50% wind powered electricity, and baseload comes from coal and natural gas power plants. Economical grid-scale energy storage solutions are quite limited, and near term options are needed for cleaner baseload. Ireland is a technically challenging problem for geothermal energy, which is why I find it particularly interesting. It’s a low heat flow or low enthalpy geologic setting. To get to 100C one has to drill two probably 3 or 4 km, and much deeper still for hotter and more economically interesting temperatures. I’m engaged currently on the economics of short term deployment of low enthalpy geothermal power generation solutions in Ireland, for example where organic fluids with much lower boiling points than water are used to drive the turbine for power generation – binary cycle plants as they are called. But in the long run and from a more global perspective, it may be easier to make the economics work on high enthalpy, even supercritical geothermal solutions, as long as we can drive down drilling costs sufficiently.
JB: What obstacles need to be overcome to encourage oil and gas companies to embrace and invest in future geothermal concepts?
ST: We need a clear picture on the economics. And as you know, the economics of geothermal projects aren’t easily translatable into traditional methods of valuation used in the oil and gas industry. We need to do some quick work on that, along with some deep inquiries into how to reduce costs and increase the efficiency of very deep, high temperature drilling and completion of wells to harvest heat. We also need to look at how to maximize the efficiency of steam turbines and electrical generation plants themselves, and how to increase the efficiency of transmission of electricity from those plants to yield a cost of supply that is competitive with other sources of energy – both clean and fossil-based.
In addition, oil and gas companies need to figure out - as they do with any renewable project - how the risk reward business model fits with their strategy. Renewable projects are typically lower risk but also lower return, at least compared to conventional oil and gas projects. It’s not clear though, at least in the high enthalpy geothermal context, that this model will hold true - geothermal projects may in fact be higher risk and higher reward than traditional renewable energy projects. But since renewable projects can lend themselves to different forms of finance that may offer cheaper cost of capital than oil and gas projects have historically attracted, this sets up an interesting set of factors for oil and gas that might encourage robust industry engagement. And of course in today's context, new oil and gas projects are beginning to struggle to attract capital, so there is a lot of alignment here that looks good for geothermal.
But there is an obvious shift in perspective that needs to happen from a business modeling perspective for oil and gas companies, where you are talking about drilling a well that will become an operating asset that could last decades – 30-50 years, as opposed to a producing asset for a fraction of that. Really switching from a liquid asset to heat as the asset will require a paradigm shift from the industry. It’s going to require a different way of thinking to evaluate these projects.
JB: What would you say to environmental interests who may have reservations about the oil and gas industry leading the clean energy future?
ST: I hold the view that divestment, punitive action and measures to stop and oil and gas companies in their tracks is ill-advised. It's clear from even the most optimistic projection that we need oil and gas around for probably decades, not only to ease the transition, but ironically to energise it. There’s also an often overlooked point that in the future after we have figured out how to stop burning oil for energy, we will still need to use the resource for all of its useful molecules as a feedstock for plastics, polymers and other such materials that are the foundation for many manufacturing processes.
I would argue that in throwing out the oil and gas industry on principle, you are eliminating one of the most capable resources we have at the table for energy transition in terms of assets and capabilities, along with a century of know-how and a huge workforce. Let’s leverage that. I happen to believe that particularly the major multinational operators, perhaps most notably the European ones, are quite authentic and very genuine in their expression of their societal purpose on wanting play a valuable role in the energy transition. Therefore, if an oil and gas company took interest in geothermal and started to generate and finance projects, I see that as a major win for our future carbon free economy. We need energy companies of the future that have clear purpose to deliver energy to our economy that is low/no carbon, predictable and affordable, and if oil and gas companies can leverage what they know and do to make that happen quickly, then all hands on deck.