The job losses related to $55-a-barrel oil could be as high as 23,000 this year as Alberta’s oil patch adjusts to new market realities.
That was the recent warning from the Canadian Association of Oilwell Drilling Contractors, which predicted that the number of active drilling rigs in service will fall to an average of 203 a day in 2015 from 370 a day last year – a 41 per cent drop.
“If there are not as many drilling rigs working, there will not be as many rig workers on the job,” said association president Mark Scholz. “This will have significant adverse effects on indirect employment throughout the economy, well beyond just rig workers.”
That’s bad news for Alberta – and bad news for the country more broadly – but a silver lining is in there somewhere, at least as far as Canada’s nascent geothermal industry is concerned.
Next Monday, the Canadian Geothermal Energy Association (CanGEA) will be holding a technology transfer workshop aimed directly at oil and gas contractors looking for ways to adapt their technologies and approaches to geothermal development.
The event will be held at the Calgary Petroleum Club, and while it was planned before the oil-price collapse, CanGEA chair Alison Thompson said the timing is fortuitous.
“These drilling rig operators are selling their services right now at half the price,” said Thompson. “So this is a prime opportunity for us to be more cost-competitive, but to also get out-of-work people back to work.”
When times are good in the oil patch, it’s tough to find drillers, let alone one whose services are reasonably priced. Thompson said it’s understandable that engineers are drawn first to projects where the cost structure and profitability is highest and services are in such strong demand. This, unfortunately, has made it difficult for the fledgling Canadian geothermal industry to attract and afford skilled workers.
In Alberta, the cost of hiring a drilling contractor in an overheated oil market can represent up to 30 per cent of the cost of a typical geothermal power project. Under current market dynamics, however, “our whole capital expenditure has just come down by 15 per cent,” Thompson said.
“It’s just such a wonderful opportunity to have some cost decreases in our own industry,” she said. “Now, when they find themselves out of work, we’re welcoming them with open arms.”
Canada cool on Geopower
Canada is the only country along the hot-earth zone known as the Pacific Ring of Fire that doesn’t have commercial geothermal power facilities, though the potential is unquestionably there. CanGEA estimates the country could conservatively develop 5,000 megawatts of baseload geothermal power by 2025 with a bit of political will and creative financing.
Beyond that low-hanging fruit, geothermal could play a much more active part in Canada’s electricity mix, particularly in British Columbia and Alberta.
There is about 12,000 megawatts of installed geothermal power capacity globally and another 12,000 megawatts in the development pipeline, amounting to nearly 700 projects in 76 countries, according to the U.S. Geothermal Energy Association.
The United States is the top producer with 3,500 megawatts of installed capacity, representing 30 per cent of the global total.
“The rest of the world has moved on, it’s not up for discussion anymore. They’re doing it,” said Thompson, who believes provinces such as Alberta are missing out on a huge opportunity to diversity their power mix and economy.
She’s dismissive of a recent Alberta Department of Energy study asserting that the lack of commercialization of geothermal power in Canada eliminates it from consideration, despite the department’s recognition that geothermal generation potential in the province exceeds total provincial electricity demand.
“The study treats geothermal energy as a far-off, yet promising energy source, when in fact, the first geothermal power plants were developed nearly 100 years ago,” according to a CanGEA report released in February that questions Alberta’s reliance on natural gas as a replacement for coal-fired generation.
The report recommends that the Alberta and federal governments support geothermal power demonstration projects, as well as accelerate the phasing out of the Canadian Exploration Expense, the Canadian Development Expense and other tax incentives enjoyed by the fossil fuel industry. The added tax revenue from such a move should be redirected to support geothermal power and other renewable projects.
“The Alberta Green Energy Fund should also remain true to its intended purpose, and direct more funding away from the fossil-fuel sector, and towards renewable energy project,” the report states.
Other recommendations include development of a geothermal permitting process, creation of a drilling fund to help finance geothermal well drilling, and a tax change that would allow geothermal developers to write off dry wells – an incentive currently enjoyed by the oil industry.
“It’s not a level playing field right now, and the public wouldn’t know that,” said Thompson.
She pointed to oil giants in other countries that are taking advantage of their skills base by applying it to geothermal development. Chevron, for example, has become one of the largest geothermal power producers in the world. “They drill their geothermal wells in half the time as the rest of the industry,” Thompson said. “Their learning curve is just different, so we want to emulate that here in Canada.”
Norway’s Statoil, meanwhile, is conducting deep-drilling projects in Iceland for geothermal – another example of tech transfer from the oil industry.
Even with these companies, however, competing with the profitability of oil is challenging. Last year, top brass at Chevron pull the plug on the company’s plan to expand its geothermal presence in Europe, despite the fact that such projects are returning profit margins of up to 20 per cent.
The Chevron executives, according to a BloombergBusiness report, said the money that was to fuel the European geothermal expansion was needed for oil and gas projects.
Thompson is hoping that the fall in oil prices will cause many in the oil industry to reconsider the geothermal opportunity and the need for diversification into renewables.
And it seems some Alberta authorities are beginning to listen. Richard Dixon, chief of strategic foresight at the Alberta Energy Regulator, recently reached out to Corporate Knights requesting information about geothermal research conducted in Canada.
Thompson said the regulator has been reaching out to others in the industry as well, including herself.
Whether it leads to anything concrete is unclear, but Thompson said something has to give. “You’re not going to change anything by thinking about a solution through the lens of what you’ve already done.”