Oil & Gas Expertise Unlocking the Earth’s Energy Potential

Tim Monachello, CFA 

The Earth’s core produces a steady flow of heat energy, enough to satisfy global power generation many times over, while also being a source of baseload, dispatchable, long-life, renewable, and zero Scope 1 and 2 emission energy. Despite its massive potential, geothermal developments have been largely relegated to select geographies where high-temperature hydrothermal resources are near enough to the surface for commercial exploitation, typically near tectonic plate boundaries. According to the International Energy Administration (IEA), geothermal accounted for roughly 15GW (less than 1%) of total global electricity generation capacity in 2020, but in order to achieve Net Zero by 2050, the IEA suggests geothermal electricity capacity must increase to 126GW (still less than 1% of global capacity). For geothermal to achieve its potential, innovation is required, and over recent years a multitude of geothermal technology start-ups have formed, and energy companies both small and large have increasingly been investing capital and expertise, together pushing the envelope of geothermal technology. Ultimately, we believe developments being pursued in geothermal technology have the potential to make geothermal energy a viable and widely competitive form of renewable energy that could be applied nearly ubiquitously around the globe. Within this report, we examine the current state of geothermal energy generation, investigate new technologies being developed, profile economic and technical factors impacting geothermal developments, and highlight the potential opportunity for energy companies and investors alike, including rig demand and market size.

Geothermal May Become a Sizable Market for Energy Services Companies
Geothermal energy development leverages the billions of dollars invested in upstream energy R&D over recent decades to develop advanced well designs and drilling techniques. In our view, the energy sector’s involvement in geothermal represents 1) a significant catalyst to increase the pace of geothermal innovation, providing both capital and expertise, and 2) offers a sizable opportunity for energy services companies to benefit from the growth in geothermal activity over time. Depending on the level of innovation, we estimate the upstream market for geothermal well development could grow to roughly $5bn-$32bn per year globally (excluding facilities and infrastructure) over the 2031-2050 period, representing demand for roughly 70-250 rigs globally. The upper end of this scale represents step-change innovations where geothermal capacity grows to just 1.0% of global capacity by 2050. While we believe a build-out of geothermal capacity would have wide ranging benefits across the energy service industry, we highlight AKT.A-T, BKR-N, HAL-N, HP-N, LBRT-N, NBR-N, PHX-T, PD-T, and SLB-N as companies in our coverage with known direct and/or equity exposure to emerging geothermal companies and projects. 

Innovations Could Release a Renewable Energy Monster Trapped in the Earth’s Crust
We highlight numerous innovations that have the potential to drive a step-change in geothermal economics. Specifically, deep drilling advancements, closed-loop geothermal technologies, and other Enhanced Geothermal Systems (EGS) offer promising improvements in geothermal economics and viability. Throughout this report, we include case studies on proposed geothermal companies, projects, and innovations.

Tim Monachello, CFA 403.539.8633