Enhanced Geothermal? Harder Than They Thought

The investigation into a drilling mishap last spring at one of the world’s leading efforts to commercialize enhanced geothermal energy is now complete, and the news is not good.

Geodynamics (ASX:GDY) had an explosive blowout of their 4,200 meter Habanero 3 well in the Australian Outback on April 24, which had to be plugged with concrete a 28 days later.

The company revealed last week that steel drill pipes had been weakened due to the “hydrogen embrittlement” caused by dissolved gases in the reservoir fluid and extreme conditions at the enormous depths they were drilling. As a result, two other drill holes completed so far are also being sealed until a technical fix can be found.

Geodynamics stock was down 18% to $0.900 on the news. However, the company said the incident does not have a “material impact on its long term strategy for large scale geothermal power generation in the Cooper Basin undermine the fundamentals of novel project.”

They have also filed insurance claims and hope to have the incident and re-drilling costs covered by their existing policy. A one-megawatt powerhouse for the pilot project is already built and was scheduled to come on-line the same week as the accident.

Like other enhanced geothermal projects, Geodynamics seeks to create an artificial circulation system kilometers below their South Australia site to exploit a hot granite formation. They hope to fracture hot rock at depth and force surface water through these deep fractures to produce continuous superheated steam at surface to drive their turbine.

The company is now developing new work plan that “will take at least eight weeks, and may lead to a revision of the previously indicated delay of six to nine months in the commissioning of the 1MW Pilot Plant. The revised work program and project delivery timelines will be communicated as they are finalized.”

While the project may yet be a go, the company will have to re-drill Habanero 3, and ensure that that the drill pipe degradation does not occur again. Geodynamics described the implications for well design and drilling materials as “complex”.

This setback illustrates the enormous challenges facing companies seeking to commercialize this promising technology. Leading researchers believe enhanced geothermal might be able to potentially provide an almost unlimited amount of energy anywhere in the world - at prices below coal generation. However, drilling towards the center of the Earth is not without its challenges.

While a growing number of companies are seeking to bring this on-line, no one yet has been able to tame to fiery conditions several kilometers down using existing drilling and metallurgical technology. Time will tell if EGS can become a reality and compete economically will other energy sources.

Other companies in the global EGS race include US based AltaRock Energy, which plans a pilot project north of San Francisco. They have raised $36 million in grants and venture capital but may be facing local resistance due to fears of accidentally inducing earthquakes.

Pertratherm Ltd. (ASX:PTR) is another company seeking to commercialize enhanced geothermal, with several projects and prospects on the go in Australia, Spain and China. However, an update last week from their flagship project in South Australia revealed it may be two months behind schedule due to slower than expected drilling.

Enhanced geothermal is a high-risk, capital intensive gamble, but if any of these pioneers can make it work, the payoffs for the world and their investors will be enormous.