When the price of oil drops, there are winners and losers. People tend to think that all types of renewable energy lose out to cheap oil, but that is not the case. One renewable source that wins is geothermal.
Countries along Latin America’s Pacific Coast and in the Caribbean have significant geothermal resources; however, these have been underexploited. It is estimated that only 4-5% of geothermal energy’s potential has been developed in the region. As this graph shows, geothermal currently accounts for only a minimal portion of the energy matrix in Latin America and the Caribbean.
This situation is changing. Many countries—with support from the IDB—are working to develop new geothermal plants, to make this technology a reality for the region. We have seen more and more activity, whether direct (exploration or project construction) or indirect (policies conducive to investment).
The drop in the price of crude oil in the last few months could boost these efforts. It’s a simple question of supply and demand.
The geothermal industry and the oil industry use all the same drilling services, which can amount to as much as 50% of a project’s total budget.
When the price per barrel is high, the oil industry reinvests part of its profits in exploring new fields, so the costs of drilling services tend to increase due to high demand. This upward pressure on prices affects geothermal projects as well.
The reverse occurs when the price per barrel drops: The oil industry focuses on exploiting its reserves instead of exploring new areas. Drilling services and equipment become more widely available, opening up an opportunity to contract them at lower prices.
In this case, a setback for the oil industry means an advantage for geothermal. In other words, this is geothermal’s time. Now it is up to governments to encourage investment, and up to business to seize this opportunity.
Click here for more information on geothermal and its inroads in the region.
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Data Like It´s Never Been Seen Before.
Anthony Beckett says
I agree with the observation that during times of low oil price that the oil industry cuts drilling. However, the chart in your article shows total rig count, of which offshore comprises a significant percentage. Geothermal drilling uses only land rigs, and the Baker Hughes numbers do not show such a dramatic drop in the land rig count. Since June of 2014, when the oil price drop commenced, the BH world-wide land rig count has been as follows: June 3065, July 3213, August 3260, Sept 3261, Oct 3277 and Nov 3275. December numbers will appear shortly, and these will likely show a drop. It takes a significant time before land based energy services fall in price following a drop in oil price, particularly when buffered by the US shale oil boom. The geothermal industry should begin to have opportunities to reap benefits staring this quarter.
Sandro Bruni says
Anthony makes a good point! Although oil prices dropped by more than 50% since June, rig counts had remained fairly constant in the second half of 2014. This situation is going to change very soon. Indeed, as reported by a recent New York Times article (January, 7th), financial analysts and drilling companies are indicating that “already, day rates that oil companies are willing to pay for rigs have dropped 10% (Helmerich & Payne)”; “demand for rigs is falling off the cliff (Joseph Triepke)”; and that “in just a few weeks, shale drilling activity will be reduced by about 20%(Helmerich & Payne)”.
Andrés Pérez Martínez says
Hola Sandro, excelente artículo. Aprovecho para preguntarte si han estudiado la capacidad del Estado de Chiapas (Frontera con Guatemala) en México, con respecto al Volcán Tacaná u otras áreas geográficas del Estado. Pude ver en el reporte anexo que no hay información del mismo.
Saludos y gracias!
Sandro Bruni says
Andres, lo siento mucho pero no puedo ver el reporte anexo…. sin embargo, te comparto un estudio sobre las oportunidades geotérmicas en México. El estudio, que es público y que fue preparado por Gerardo Hiriart Le Bert para la CRE y el BID, identifica el Volcán Tacaná como una zona de interés geotérmico y describe las actividades realizadas hasta ahora y la posible potencialidad del área. ATENCIÓN: las potencialidades en MW son basadas sobre modelos (interpretaciones y estimaciones) que a veces no corresponden a la realidad.
saludos y hasta pronto