Do Low Hydrocarbon Prices Help or Hinder Geothermal Development?

As a constant and independent form of renewable energy supply, geothermal energy can play a key role in the world’s future energy balance. Yet, the total contribution of the geothermal sector to global power generation remains relatively small (0.3%). According to the International Energy Agency (IEA), geothermal electricity production did not experience significant growth between 1990 and 2016, with an average annual rate of 2.3%, from 28.6 TWh to 51.8 TWh. Some believed that continued low fossil fuel prices and high project development risk have created unfavourable conditions for geothermal power development, but some believe low oil prices represent a major opportunity for the geothermal industry, lowering costs of drilling and services. Based on the IEA’s ‘2°C Scenario’, which lays out a pathway for energy system deployment and an emissions trajectory consistent with at least a 50% chance of limiting the average global temperature increase to 2°C (reducing CO2 emissions by almost 60% by 2050, compared with 2013), geothermal exploitation is not on track. In 2017, the IEA recommended devising plans to address technology-specific challenges to achieve faster growth and improving policies that tackled pre-development risks for geothermal energy. In this picture, the role of natural hydrocarbon gas plays a relevant role, depending on how gas (and LNG) price relates to oil price. However, geothermal energy growth has also lagged behind the exponential growth in wind and solar power generation. Within a decade, starting from almost nothing, solar and wind in the USA have overtaken the geothermal output. This raises the question of whether it would be more appropriate to focus on the competitiveness of geothermal energy vs. other renewable sources, rather than against conventional fossil fuels. More specifically, a joint evaluation of levelled costs of electricity and net present value may be required to compare, on equal grounds, the value of investment in geothermal projects vs. other energy projects. This paper reviews historical trends in installed geothermal capacity (thermal and electrical) against drill rig count and oil and gas price, while considering energy incentives and policies, and R&D opportunities for pilot projects while drilling and services costs remain low