Recasting Oil’s Expertise

August 3, 2020

Two new videos will be coming out shortly, examining the blow that Covid-19 has delivered to the fossil fuel industry, and the possibilities for post-Corona recovery.
Finding new job paths for idled petroleum workers is going to be an important piece.

Jigar Shah and Tim Latimer in Utility Dive:

Big Oil came into 2020 with big promises: big drops in greenhouse gas emissions, big investments in carbon-capture technology, big steps to make oil and gas a viable part of the global effort to slow climate change.

Like so many of the industry’s ambitious claims over the years, the efforts have proved to be little more than a glossy public relations fantasy — and the sector’s supposedly solid market fundamentals were exposed to be as flimsy as Hollywood set-dressing.

Even before the spread of COVID-19 oil investors were running for the exits — dropping holdings in fossil fuel companies and proclaiming the start of a “death-knell phase.” In our carbon-constrained future, with viable clean-energy alternatives ready to be deployed, the economics for oil and gas no longer add up. But with the spread of COVID-19 and the abrupt drop in global demand, the sector is now in free-fall — with tens of thousands of American workers bound to bear the brunt of the impact.

It doesn’t have to be this way. We already know that just a fraction of oil and gas jobs will return once the economy recovers: The bulk lost in the 2014-’16 crash simply vanished as companies found ways to do more with less. Business-as-usual won’t work.

We need to think bigger, to harness this opportunity to launch a bold energy transition, one powered by a ready-to-scale, off-the-shelf solution that will put America’s idled oil and gas workforce back into the field almost immediately: clean, abundant and renewable geothermal energy.

Producing geothermal energy involves deep-well drilling, just like oil and gas. But instead of producing hydrocarbons, geothermal wells release steam that is captured, funneled into pipes to spin turbines that generate electricity, then pumped back underground. The only emission is water vapor, while carbon-free electricity is generated around-the-clock.

Geothermal power plants currently account for a small portion of U.S. electricity generation, but a surge is underway. Three companies in January alone signed contracts to build new geothermal plants in California, spurred by the state’s renewable-energy initiative, recent cost reductions, and the long-term value gained by geothermal’s 24-7 electricity generation. The U.S. Department of Energy projects that the share of electricity produced by geothermal plants could swell to 16%, rivaling the aging U.S. nuclear sector as well as all renewable energy sources combined.

Achieving the kind of growth that the Energy Department envisions will require dedicated focus, but it would put drilling rigs and oil field service companies to work almost overnight and for the long-term, free of the boom-bust cycle dictated by the global oil market. It would catalyze $219 billion in new investment, roughly the same amount of money invested by U.S. fracking companies over the last 10 years.

Government can help capitalize on this once-in-a-generation moment: Passing the Advanced Geothermal Innovation Leadership Act, for example, expanding U.S. Department of Treasury grants for renewable energy, and prioritizing regulatory reform would dramatically accelerate geothermal investment.

But oil and gas firms also have much to gain — and the tools and institutional expertise are already at their disposal. We should know: both of us got our start in the oil and gas industry, Tim at BHP Billiton and Jigar at BP. Many areas of the clean energy industry, from carbon capture to offshore wind, hydrogen, and especially geothermal, require the same skills as the oil and gas industry. 

These industries can provide good jobs in the near-term while building the low-carbon economy of tomorrow — one with the ready tools and technology to be built now.  

The timing for oil and gas firms could not be better: ExxonMobil in September fell outside the top ten largest companies in the S&P 500 for the first time since the list was assembled in 1925. Oil stocks, accounting for more than a tenth of the bellwether index barely a decade ago, now account for just 4% of the S&P 500. BlackRock, the world’s largest investment firm, announced that it would begin dropping investments that “present a high sustainability-related risk,” namely fossil-fuel investments. Shale production, the engine of the U.S. oil and gas boom, has been especially hard-hit, imploding under a mountain of debt obligations, costly break-even prices, and so much excess oil on the market that you can’t pay someone to take a barrel.

Additional perspective from the Houston Chronicle, the shale industry is showing itself to be nimble in the crisis..

Paul Takahashi in the Houston Chronicle:

Shortly after oil markets started to collapse in March, I wrote a story that raised a simple question: Can shale survive another bust?

After years of lackluster performance and dwindling Wall Street investment, the shale sector faced an uncertain future as the coronavirus pandemic slashed demand for petroleum products and Saudi Arabia and Russia threatened to flood the global market with cheap crude. There were fears oil and gas companies were going to run out of space to store all the unwanted crude, and an industry debate ensued over whether Texas regulators should mandate production cuts for the first time since the 1970s.

Shale drillers in Texas, however, responded swiftly, slashing crude production by 710,0000 barrels per day from March to June, a decline of 13.1 percent in just three months. By contrast, it took 18 months for companies to cut the same amount of production during the oil bust of 2014-16, according to the Texas Alliance of Energy Producers.

“I was shocked at the rate and speed of the production decline,” said Karr Ingham, the alliance’s petroleum economist. “I have never seen anything like that before.”

The drastic, self-imposed production cuts paid off. Fears about running out of storage never came to pass, and crude prices, which plummeted to a record negative-$37 a barrel in April, have recovered more quickly than expected, climbing above $40 in June and hovering there. In recent weeks, several shale drillers, from ConocoPhillips to Diamondback Energy, have restarted much of their oil and gas production.

To be sure, oil companies around the world shared in the sacrifice, making painful production cuts to boost crude prices to ensure the survival of oil states and industry.

But shale drillers’ unique ability to quickly ramp up production or scale it back surprised many observers. Shale can close wells or restart them in the span of a week, while conventional onshore and offshore drillers cannot shut down and restart production as quickly because of concerns about well pressure, spills and leakages.

“It’s a competitive advantage for shale production,” Ingham said. “The more nimble companies can be, the more helpful it is.”

Shale still faces a long road to recovery. The U.S. operating rig count has fallen 20 straight weeks to 251 oil and gas rigs, down 73 percent from a year ago. Texas has lost 46,100 jobs in production and oil-field services from February to June, and Ingham fears employment may never fully recover as new technologies and consolidation require fewer workers.

But oil and gas companies are taking note of shale’s nimbleness and resilience.

Chevron, which recently announced plans to acquire Houston-based Noble Energy in large part because of its shale assets in West Texas and Colorado, said it is increasingly looking for flexibility in its assets, seeing it as a core strength.

“We’ve shifted our portfolio toward one with more flexible capital components, so that as we experience the market cycles, we have a greater ability to respond to those with flexible capital,” Chevron CEO Mike Wirth said.

Maybe shale can survive yet another bust.


4 Responses to “Recasting Oil’s Expertise”

  1. rhymeswithgoalie Says:

    Aside from large-scale, steam-based geothermal, lots of small-auger operators can expand and shift to HVAC geothermal for buildings and campuses. You just spend less time on the job putting on extenders because you don’t have to go nearly as deep.

    For that matter, you can sell the extenders to people in California’s Central Valley so they can drill to the bottom of the aquifer. 😦

  2. Glenn Martin Says:

    Flexability is not the same as profitability,

  3. J4Zonian Says:

    “Shale still faces a long road to recovery.”

    “Maybe shale can survive yet another bust.”

    And on and on.

    What is wrong with these people? I understand the one guy is from a Houston paper so can’t even think about being anti oil and gas, but this is our chance to avoid the end of civilization by shutting down fossil fuels and building clean safe renewable energy at a pace at least as incredible as the US WWIII mobilization. It’s a symptom of a very serious disease to be thinking about oil and gas coming back instead of working to build the new energy system we need. It’s been an addictive, abusive relationship for a hundred and fifty years but it’s time to let go and move on to a healthier relationship with our energy, nature, and ourselves.

  4. greenman3610 Says:

    like it or not, shale drillers have been nimble.
    they may not be nimble enough to survive this, if Saudis and Russia keep the pressure on.
    stay tuned for discussion in new videos, coming soon

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