By David Yager
April 20, 2020
It is clean, green, steady, unlimited and, as an energy source, free.
It employs many of the keys elements of Canada’s oil and gas industry from geophysics to engineering to drilling rigs to tubulars to chemicals to pumps.
And it is in the same place as the oil and gas that has paid the rent for over a century: right under our feet.
It is geothermal energy (GE), heat from the earth’s core for structural heating and electricity generation. Like oil and gas, it comes from under the ground. And like oil and gas, the people and equipment used to exploit it are same ones currently losing their jobs and their companies.
After years of probing the WCSB, the public geological and geophysical data and knowledge base is extraordinary. The temperature at the bottom of every wellbore is known. When it comes to dealing with steam, hot water and hot reservoirs, Canada’s in-situ oil sands sector is a global leader.
GE should be a win/win good news story for all Canadians. But for most of this century, concerns about climate change have created the mantra that the best oil business is no oil business. That the people and equipment that have been keeping the earth warm, moving, wealthy and healthy are obsolete, dinosaurs soon to serve no useful purpose following the essential transition from fossil fuels to clean energy. We hear it every day.
But does the world really want clean and reliable low-carbon energy? Something that makes more sense than interruptible power from wind and solar? That doesn’t require scouring the earth searching for rare minerals to make batteries and magnets for wind-driven generators? An unlimited energy source that Canada can develop domestically, become world leaders, and export its application all over the world? Energy that uses the same the people and equipment as oil and gas without retraining or massive disruption?
We’ve got it! Let’s just change the channel.
The serial entrepreneurs of Canada’s oilpatch know the direction society wishes to go. The result is three companies that have approached the GE opportunity in three unique ways that all accomplish the same thing: unlocking GE using conventional oil industry knowledge, equipment, and techniques. Two are from Alberta, one is from Saskatchewan.
Razor Energy – Low Carbon Energy From A Legacy Oilfield
The Swan Hills oilfield was discovered in 1957, a whopper containing 1.4 billion barrels. The field went on production in 1962, a waterflood began in 1965 and miscible flooding with hydrocarbons commenced in 1985. A news story in 2016 reported the main Beaverhill Lake pool at 2,500 metres had already yielded 620 million barrels of oil.
Razor Energy Corp., a Calgary independent producer, purchased Penn West Petroleum’s interest in the Swan Hills unit in 2017. It included 84 wells and surface facilities connected to northern Alberta’s electricity grid. After nearly sixty years on waterflood, production volumes are high but so is the watercut. Each produced barrel is comprised of about 3% oil and 97% water.
Really hot water.
Razor’s first move was to use the associated gas to generate electricity and get off the power grid. This yields about 9MW of juice for the subsurface pumps and surface equipment. But there was another element of the production that also held commercial opportunity. Swan Hills has a high reservoir temperature of 120oC and Razor’s wells were yielding 120,000 b/d of water at over 100oC at surface.
The GE potential of the Swan Hills oilfield was known when Razor bought the asset, and it didn’t take long to move to the next logical step which was to generate more electricity from the hot water. The water was made hotter yet by utilizing exhaust heat from another 15MW of gas fired power generation. Employing a 6MW ORC (Organic Rankine Cycle heat conversion) turbine, Razor figures they will soon be able to generate 21kMW of total power from their oilfield of which nearly 30%, the GE portion, is 100% green and renewable.
As importantly they can sell this power back into northern Alberta’s electricity grid to which the property is already connected.
Lisa Mueller is Razor’s Vice President of New Ventures. She brings years of experience with Shell as a mechanical engineer and as CEO of Epoch Energy Research, a private Alberta company focused on exploring GE opportunities. About the logical transition of oil and gas companies moving into alternative energy sources Mueller said, “We’ve always been energy companies. When are people going to start being proud of what we already do and our ability to morph to a cleaner future?”
Further, the marriage between GE and oil and gas is stronger than many believe. Take produced groundwater for example. Whether GE comes from tapping hot water or steam from oil reservoirs or fissures in earth – Swan Hills or Iceland – it is never pure. Steam and hot water are generated and recycled in SAGD. Produced formation water of any type is dirty and contaminated with all manner of chemical compounds. Treating and handling it is a major oil services subsector.
Mueller explained that when it comes to GE, “Water chemistry is something that scares people off in geothermal. It is second nature in the oil and gas industry.”
Bring it on.
The current downturn is, of course, as terribly inopportune for Razor as everyone else. The project has received some financial support from Natural Resources Canada and Alberta Innovates. Razor has purchased the ORC turbine but needs some additional capital to finish the project in 2020. Because of the oil price collapse cashflow from existing production is a fraction of what it was.
But the company is adamant that ultimately the “hydro-geological loop” it owns must and will be commercially viable and self-sustaining. If Razor can complete its Swan Hills project in 2020, Mueller says it will be the first commercial geothermal electricity generation project in Canada.
From the same industry too many believe is, or should be, on its last legs.
DEEP Energy – Geothermal Power From The Sub-Basement of Saskatchewan
Saskatchewan has a long history of extracting wealth from subsurface resources. Besides oil and gas, Saskatchewan recovers potash, gold, coal, uranium, coal, diamonds, platinum, palladium, rare earth elements, copper, zinc, nickel, sodium and potassium sulphates and mineralized brines.
From its headquarters in Saskatoon, DEEP Energy founder and CEO and geologist Kirsten Marcia is a Saskatchewan native who has worked developing diamonds, gold and base metals, coal, uranium, and oil and gas. Like many in the western Canadian resources business, she has entrepreneurship in her DNA. At the suggestion of fellow exploration geologist and company co-founder Steve Halabura, Marcia agreed that with the direction the world was going it was time to explore underground Saskatchewan for heat as a source for GE. DEEP Energy was born in 2010 with support from local investors and exploration began.
With the assistance of investment capital from SaskPower’s green energy funding and Natural Resources Canada, DEEP began examining the rocks beneath Saskatchewan. The “prefeasibility study” took place in 2013/2014 and cost $2 million. The most promising area with available data was the deepest portions of the Williston Basin along the Saskatchewan/US border. Funding was further assisted by a power purchase agreement (PPA) from SaskPower to demonstrate to investors there was a market for the electricity once it materialized.
The first well was drilled vertically in 2018 to a depth of 3,530 metres, the deepest well ever drilled in the province. It went through the basement of the sedimentary basin and partway into the underlying Precambrian strata. Over 212 metres of core was retrieved from the target reservoir which yielded “brine transmissivity” or moving hot water. Encouraged, another $10 million has been raised in the past two years and invested in 3D seismic, airborne geophysical data and more test wells.
DEEP drilled four wells this year. Three were directional and the third vertical well set the next deepest drilling record, 3,731 metres TVD. DEEP reported in a News Release, “The result of the winter drilling and testing program have demonstrated that the geothermal reservoir is multi-zonal. Fluid contributions in the field are sourced from both a fracture system as well as a sedimentary source.” Further testing will measure flow and injectivity. That done, reservoir analysis will lead to a model that will target where to put more wells later this year. Mineral rights to the Winnipeg Formation and the Precambrian below have been secured encompassing 39,120 hectares.
In an interview, Marcia explained the plans for the rest of 2020 include designing the surface facility and setting the stage for construction in 2021. The downhole temperatures are in the range of 120oC to 130oC, a satisfactory level for lower temperature hot water GE in other parts of the world. DEEP will use the ORC turbine process using produced water to drive electricity generators. The cooler water will be pumped back underground in what Marcia described as a typical oilfield waterflood configuration; several producing wells with a water injector strategically placed to optimize efficiency.
DEEP has strong roots in the oil service industry. Besides proudly hiring local contractors, directors include Doug McNeill who spent many years with Stream-Flo Industries and Hank Swartout, legendary builder of Precision Drilling. Management team members include industry professionals with experience in reservoir engineering and geophysics.
DEEP’s vision is to become a producer of sustainable, base-load renewable energy for a variety of applications. Besides electricity generation, the hot water and waste heat can also be used for greenhouses and aquaculture. While the business model is targeting water hot enough for economical electricity generation, the secondary target is water warm enough for reliable, year-round heating for structures such as buildings or greenhouses.
Encouraged by its exploration results, DEEP will focus its activity on the Saskatchewan/US border where it has the GE heat resource, an established electricity market and power transmission infrastructure.
Eavor Technologies – A New Concept in Geothermal Energy Exploitation
The completely “outside the box” approach to GE development is Eavor Technologies Inc. of Calgary and its “Eavor-Loop” system. Eavor’s approach is to locate hot but impervious rocks then use them to circulate cold water from surface and return it containing enough heat to warm structures or generate electricity.
Eavor CEO John Redfern’s oil and gas exposure came through companies like Accumap in Calgary and IHS Energy in Denver. In 2017 Redfern and colleague Paul Cairns originally conceived using suspended or depleted wells as low-cost conduits to subsurface heat. But after studying the idle well inventory, the wells either weren’t deep enough or were in the wrong places.
Eavor also revisited the wellbore configuration and conceived drilling two wells that connected at the ends toe-to-toe. One well would carry fluid down to the warm reservoir. Once heated, the fluid would rise on its own to surface in the other well. This eliminated the expenses of fluid lifting costs, what energy specialists call, “parasitic pumps loads” that consume power, not produce it. The Eavor-Loop was invented.
Exploiting the continuous advancements in horizontal and multilateral drilling, Eavor envisioned two wells from surface feeding and draining 10 to 12 toe-to-toe multilateral boreholes through the reservoir. Not only did Eavor not want porosity, but it didn’t want casing either. Not casing the horizontal sections cut the cost by 50%. The wellbores would be “barefoot” boreholes sealed against fluid loss by a specialized sealant in the drilling mud. This way heat conductivity and fluid returns would be maximized.
The next step was a demonstration project. The area chosen was near Rocky Mountain House assisted by the availability of surface locations from Certus Oil and Gas of Calgary. Based on offset wells, a suitable formation was identified at 2,500 meters that would have a temperature of about 70oC. What was critical at this stage was that Eavor prove it could drill the series of connected “heat exchange” boreholes as planned and that the Eavor-Loop would indeed deliver warm water to surface on its own. The pilot project cost about $13 million. It received partial funding from Natural Resources Canada, Emission Reduction Alberta, Alberta Innovates and Sustainable Development Technology Canada.
Eavor began drilling last summer and announced its pilot was successful in February of 2020. The two wells were connected on surface and circulation began. In a news release Eavor CEO Redfern stated the test facility “is running on its own, without the need for any pumping, exactly as planned.” It continues to run today, bringing heated water to surface without any pumping.
In an interview Redfern said the demonstration project was necessary to validate several elements of its GE concept. The returning water from this project isn’t hot enough to generate electricity economically, nor was it intended to, but it could easily be used to heat buildings, houses, or greenhouses. With broad investor support from multiple sources, Eavor has raised $37 million to date with investors from as far away as Singapore.
Eavor’s management team comes almost exclusively from the oil and gas industry and capital markets. Most of the technical team has worked for Devon, Cenovus, Husky, EnCana, Total, Schlumberger, and Halliburton.
Where next? Redfern says Eavor will follow the heat and expensive electricity. Right now, Eavor’s best prospect that is closest to home is in the Yukon where both subsurface temperatures and electricity prices are high. Other markets that meet the criteria include Japan, Germany, and the Netherlands. And of course, for structural heating the Eavor-Loop can probably be used anywhere.
But what these international markets don’t have is anywhere near the technical and equipment infrastructure of western Canada, nor its geological well control.
Eavor would prefer to develop and perfect its GE technology and processes in Canada because of the access to the infrastructure and supply chain essential to delivering its unique solution cost-effectively. Since many of the markets don’t have the support services, there is a case to build Eavor out at home and take more than the blueprints and engineering expertise to international markets.
But Eavor could use some help. Ultimately Eavor is targeting market-competitive power, but to be competitive with Eavor’s current first-generation product, Redfern says Eavor needs a PPA equivalent to 12.5 cents per kWh. This is higher than current rates in Alberta, but much less than the $0.30 to $0.52 per kWh consumers pay in Europe and Japan.
According to the International Energy Agency, the world invested US$4.1 trillion in renewable energy from 2000 to 2018. Canadian governments have for years been actively supporting solar power, wind energy, and electric vehicles through higher-than market electricity prices and direct cash subsidies for EVs. This has helped wind and solar costs come down significantly. But the problem of continuous power remains dependent on more research and investment in battery storage.
In its determination to reduce the use of fossil fuels and replace them with lower carbon alternatives, governments and environmentalists have paid a lot of lip service to a “just transition” for dislocated oil workers. For years many have encouraged the oil and gas industry and all the people it supports to get with the program, embrace renewables, and repurpose into other forms energy.
But all this advice is long on “what” and short on “how”. Because you can’t repurpose a drilling rig, casing manufacturer or directional drilling contractor.
Further, nobody has ever put a number on the total cost; developing new energy sources, switching energy supplies, and keeping hundreds of thousands of oil workers employed. Nor does this recognize the glaring limitations of interruptible energy from wind and solar for obvious reasons, particularly in geographically isolated western Canada.
Because unlike oil and natural gas exports which are a major driver of the western Canadian economy, this type of electricity cannot be economically exported long distances.
GE employs many of the same people and most of the same equipment and processes doing the same job as oil and gas. But GE instead delivers promising, sustainable base-load energy 24/7/365.
Governments are eager to provide financial support for oilpatch workers, service companies and environmental protection.
If they provided GE the same support that wind and solar received in their infancy through higher fixed electricity prices, they could achieve a similar outcome with private sector capital. This would deliver a more stable clean energy source better suited to the Canadian climate and latitude than wind and solar. Using local workers, equipment, and knowledge, not imported solar panels or turbine blades.
And create a new clean technology export opportunity where Canada can lead, not follow.
Like all renewable energy resources, GE will never replace oil and natural gas. Nor should it be regarded as having the potential to do.
But existing producers might find this an interesting add-on to what they already do, a potential and practical way to develop emission offsets from activities they already do and assets they already own.
Meanwhile, those demanding governments take this opportunity to let Canada’s oil industry wither and die should put replace doctrinaire propaganda with common sense and think this through.
David Yager is a Calgary oil service executive, energy policy analyst, writer and author. He is currently President and CEO of Winterhawk Well Abandonment Ltd., a methane emission reduction technology company. His 2019 book From Miracle to Menace- Alberta, A Carbon Story is available at www.miracletomenace.ca.