Oil Majors Seek Power Of The Sun

on July 28, 2011 at 10:45 AM


Using solar-powered facilities in enhanced oil recovery has attracted widespread attention in the industry, and now the sector’s largest firms are moving the technology out of the lab and into the market.

GlassPoint Solar’s successful start-up of the first commercial solar thermal enhanced oil recovery (EOR) system in California has raised questions about the technology’s prospects for widespread use, both in the US and internationally.

GlassPoint made news earlier this year with the start-up of the facility, which uses concentrating solar power to generate steam for injection into oil wells at independent producer Berry Petroleum’s 21Z property in Kern County, California. Another concentrating solar power-EOR facility, at Chevron’s Coalinga oil field in Fresno Country, California, is scheduled to begin operating later this year.

For more coverage of GlassPoint Solar’s technology, see: The Solar Powered Oil Rig.

Privately-owned solar thermal power firm Brightsource is building and helping to engineer the Coalinga facility, which will be owned and operated by oil giant Chevron. “Based on what is learned from this demonstration, Chevron may implement the technology into other operations on a commercial scale,” the company said.

No More “Easy Oil”

Industry spokespeople and observers continue to stress that “easy oil” is a thing of the past, and sustaining production growth will require increasingly sophisticated technologies, such as those used for ultra deepwater and unconventional drilling, as well as enhanced oil recovery.

Enhanced oil recovery (EOR) involves the injection of a range of possible substances — such as steam or carbon dioxide — into oil fields to increase the amount of oil that can be extracted.

Many EOR projects use natural gas to produce steam. Finding a substitute feedstock would free up natural gas, which could otherwise be used to generate profits for producers and electricity for consumers. In some cases, operators burn petroleum products to generate steam for EOR.

“Burning the product you’re trying to produce is not that efficient, to say the least,” GlassPoint chief executive Rod MacGregor told Breaking Energy.

Using concentrating solar power (CSP) to generate steam for EOR may also confer cost advantages for oil producers. “Fuel is by far the biggest cost in operating a heavy oil field, it’s like 60% of the opex (operating expenditures),” said MacGregor. The actual generation fuel – sunlight – is free, so while up-front outlays may be substantial, operating costs remain relatively stable and predictable.

GlassPoint estimates its costs per million btu of energy produced, absent incentives, are between three and four dollars. This compares favorably to a US prompt-month natural gas price of around $4-4.50/million Btu, even more so if natural gas prices average $5.25/million Btu over the long term, as bank Barclays forecasts. For importers or exporters of liquefied natural gas (LNG), currently trading at a premium to the price of natural gas, the cost advantage of using solar power for EOR is even more pronounced.

Solar is less competitive on a price basis with natural gas in the US than in regions with higher natural gas prices, but federal government programs offer incentives to solar project developers that other countries do not. “On a net present value basis, the [US] government will essentially pay for half of the system,” said GlassPoint’s Rod MacGregor, noting benefits such as a 30% tax credit and accelerated depreciation.

MacGregor also highlighted the potential impact of an increasingly aggressive regulatory environment for emissions in California. “Everybody in the industry believes that some form of carbon tax is going to come into play in California…migrating over to solar removes that uncertainty,” he said.

All About The Project

Additional challenges may hinder rapid widespread adoption of solar thermal EOR. Systems are relatively new and largely untested. In the US, any reliance on government incentives to ensure these projects are profitable leaves companies exposed to regulatory risk.

For more on regulatory risk stemming from government policy uncertainty, see: Beyond Incentives – Oil Majors And Renewable Fuel.

Technology advisor Syham Bentouati of Petroleum Development Oman noted obstacles arising from variability in seasonal power supply, as the sun provides less energy in winter. And “cost is quite an inhibitive factor”, she said. The power sector benefits from advantages like feed-in tariffs or tax rebates, but “we don’t have that luxury in the oil business for this kind of application”, she said.

“We will probably not be able to completely get rid of natural gas, at least not in the near future,” she said. But “with the right conditions…steam from sun is definitely a viable alternative to natural gas when it’s applied properly.”

Read more on where solar enhanced oil recovery can be best used tomorrow, when Breaking Energy discusses the developing technology again.