Competitive Role Of Geothermal Energy Near Hydrocarbon Fields

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Australian Renewable Energy AgencyCompetitive Role ofGeothermal Energy nearHydrocarbon FieldsRevised Final Report20 June 2014

Table of ContentsExecutive Summary1Abbreviations and Definitions41Introduction61.1Terms of Reference for Report on the Competitive Role of Geothermal Energy61.2Cooper Basin Background723Commercial Uses of Geothermal Direct Heat Applications in the Cooper Basin –Present, in 2020 and in 2030102.1Test for Commercial Application of Geothermal Direct Heat112.2Viability of Geothermal Direct Heat Applications in 2020 and 203012Economic implications of a significant increase in gas development in theCooper Basin on geothermal energy163.1Selling price of gas163.2Cost of gas production183.3Cost of CO2 emissions193.4Cost of geothermal energy production193.5Comparison of energy costs244Regions with High Quality Geothermal Energy outside the Cooper Basin265Conclusions28Appendix AA1Existing Examples of Application of Geothermal Direct Heat31Geothermal Energy Use – International and Australia32A1.132Geothermal and Hydrocarbon CoproductionA1.2 Direct Heat Applications33Appendix B Supporting analysis of possible commercial uses of Geothermal directheat in the Cooper Basin35B1.1Support Hydrocarbon Production – Enhanced Oil/Gas Recovery36B1.2 Support Hydrocarbon Production – Processing Facilities38B1.3Support Hydrocarbon Production – Pipeline Export Power40B1.4Support Hydrocarbon Production – Utilities and Offsites40B1.5Support Manufacture of Downstream Hydrocarbon Products – Oil Refinery Products41B1.6Support Manufacture of Downstream Hydrocarbon Products – Compressed Natural Gas 42B1.7Support Manufacture of Downstream Hydrocarbon Products – Liquefied Natural GasCompetitive Role of Geothermal Energy near Hydrocarbon FieldsRevised Final Report42Page i

B1.8Support Manufacture of Downstream Hydrocarbon Products – Gas to Liquids via FischerTropsch43B1.9Support Manufacture of Downstream Hydrocarbon Products – Gas to Methanol43B1.10 Support Manufacture of Downstream Hydrocarbon Products – Gas to Gasoline via Methanol45B1.11 Support Manufacture of Downstream Hydrocarbon Products – Urea45B1.12 Support Manufacture of Downstream Hydrocarbon Products – Hydrogen Production46B1.13 Support Manufacture of Downstream Hydrocarbon Products – Oil Shale48B1.14 Support Manufacture of Downstream Hydrocarbon Products – Carbon Capture and Storage49B1.15 Mining – Minerals and Metals50B1.16 Mining – Underground Coal Gasification50B1.17 Other Heat Intensive Industries – Alumina Refining51B1.18 Other Heat Intensive Industries – Pulp and Paper52Competitive Role of Geothermal Energy near Hydrocarbon FieldsRevised Final ReportPage ii

Executive SummaryTerms of ReferenceEvans & Peck has been engaged by the Australian Renewable Energy Agency (ARENA) to provide a “desktop” assessment of the following questions: The possible commercial uses of geothermal direct heat applications in the Cooper Basin, Australia;now, in 2020 and in 2030, including a review of the likelihood of these commercial uses developing by2020 and 2030 and the underlying economic and regulatory assumptions (Refer section 2 of thereport); The economic implications of a significant increase in gas development in the Cooper Basin ongeothermal energy (Refer section 3 of the report); and Other areas in Australia that may have similar opportunities for combined geothermal energy andunconventional gas development as for the Cooper Basin (Refer section 4 of the report).Key findingsThe key findings from Evans & Peck’s assessment are presented below:1)The Cooper Basin has a very low resident population. Any large application of direct heat would be toserve industrial users.2)Geothermal heat is not portable. Users of direct heat will have to be located very close to the heatproduction area.3)Other than oil and gas pipelines there is no high capacity/low cost infrastructure servicing the CooperBasin. The remoteness of the Cooper Basin from existing major infrastructure makes constructing newinfrastructure expensive. There are high logistics costs for supply of feedstocks not locally available ata competitive price.4)Depending on the product format of potential goods (e.g. fertiliser, product gases etc.) productdistribution cost to domestic markets and export facilities can also be high.5)There are applications of geothermal heat in the hydrocarbon industry that have locally availablecompetitively priced feedstock and access to cost effective product distribution infrastructure. Theseapplications will be the first to become commercially viable and are described below:Competitive Role of Geothermal Energy near Hydrocarbon FieldsRevised Final ReportPage 1

Application201420202030Enhanced oil/gasrecoveryNot CommerciallyViablePossiblyCommercially ViableProbablyCommercially ViableGas ProcessingFacilitiesNot CommerciallyViablePossiblyCommercially ViableProbablyCommercially ViableUtilities and OffsiteNot CommerciallyViablePossiblyCommercially ViableProbablyCommercially ViableUrea ProductionNot CommerciallyViablePossiblyCommercially ViablePossiblyCommercially ViableCarbon Captureand StorageNot CommerciallyViablePossiblyCommercially ViableProbablyCommercially ViableTable 1 Potential for Commercial Application of Geothermal Heat6)The applications in item 5) are shown to have an increased likelihood of commercial viability overtime. This is because of improving competitiveness of geothermal resources.Figure 1 Geothermal Commercial CompetitivenessThe figure above shows that gas production cost and selling prices are increasing over time asgeothermal energy cost remains stable. Geothermal energy costs are shown as high flow case and lowflow case. These two cases reflect the uncertainty range of the productivity of the wells. For each flowCompetitive Role of Geothermal Energy near Hydrocarbon FieldsRevised Final ReportPage 2

case shown, the cost range reflects uncertainty of the well construction cost. In actuality there is a costcontinuum ranging from high flow and low well cost to low flow and high well cost.The following observations can be made for each time frame: 2014: The cost of geothermal energy is not less than the selling price of gas in 2014. There is nocommercial driver to pursue geothermal energy. 2020: The cost of geothermal energy starts to become competitive with gas fired heat.Assuming the long range forecast is still accurate by 2020, there is an opportunity to considerdesigning in fuel flexibility to include geothermal energy as a hedge against changingregulations with respect to potential CO 2 emissions costs and to take advantage of forecastfavourable price competitiveness of geothermal energy. 2030: Geothermal energy will become increasingly competitive towards 2030. Under somescenarios the cost of geothermal energy is below the production price of gas. If this eventuates,there is added incentive for monetising low cost geothermal heat in more highly transformedhydrocarbon products. In general: Gas production costs at the Cooper Basin are expected to increase over time as alarger proportion of the gas produced is from more expensive unconventional resources.Increasing production cost creates headroom for geothermal energy which is expected to haverelatively stable cost over time.7)There are several indicators that suggest 2020 will be a turning point in the Cooper Basin. A largeportion of the existing facilities are coming to end of life. If production is to be sustained reinvestmentwill be required around 2020. Unconventional gas resources are currently being actively explored andhave attracted significant international interest. If deemed economically viable these resources maycome on stream around 2020 or soon thereafter.8)Hydrocarbons that have high impurities content (carbon dioxide, nitrogen and water) have greaterdemand for gas purification and thus greater potential to use geothermal heat in the purificationprocesses. Details on processing requirements for the Canning and Amadeus fields which are also neargeothermal energy sources will not be available until investigation of raw gas composition is furtheradvanced. The Bowen and Surat Basin gas processing facilities have low CO 2 content but significantdehydration and water treatment facilities which could make use of geothermal heat.Competitive Role of Geothermal Energy near Hydrocarbon FieldsRevised Final ReportPage 3

Abbreviations and DefinitionsTerm/ AbbreviationDefinition2C reservesDefined by the internationally recognised Petroleum ResourcesManagement System as the best estimate of contingent resources.2P reservesDefined by the internationally recognised Petroleum ResourcesManagement System as 1P (proven reserves) plus probablereserves.3P reservesDefined by the internationally-recognised Petroleum ResourcesManagement System as 2P plus possible reserves.3P/2C reserves and resourcesRefers to possible reserves (i.e. total 3P reserves less 2P reserves)plus 2C resources.ARENAAustralian Renewable Energy AgencyConventional GasConventional gas is obtained from reservoirs that largely consist ofporous sandstone formations capped by impermeable rock, withthe gas trapped by buoyancy.The gas can move to the surface through the gas wells without theneed to pump.EGSEnhanced Geothermal SystemEndothermicReaction or process accompanied by or requiring the absorption ofheatExothermicReaction or process accompanied by the release of heat.GasUnless explicitly stated otherwise gas is intended to mean naturalgas of acceptable quality to be distributed to consumers.GJGigajoule (109 Joules)HSAHot Sedimentary AquiferIGEGInternational Geothermal Expert GroupLNGLiquefied Natural GasParasitic loadThe amount of energy required to run the energy productionfacility. For a gas treatment plant it is the amount of gas consumedby the gas processing facility.PJPetajoule (1015 Joules)Raw gasHydrocarbon gas as produced at the well head.Shale GasNatural gas trapped within shale formations.Competitive Role of Geothermal Energy near Hydrocarbon FieldsRevised Final ReportPage 4

Term/ AbbreviationDefinitionTight gasNatural gas held in sandstone or limestone with very lowpermeability.TJTerajoule (1012 Joules)Unconventional GasUnconventional gas is generally produced from complex geologicalsystems that prevent or significantly limit the migration of gas andrequire innovative technological solutions for extraction.The difference between conventional and unconventional gas isthe geology of the reservoirs from which they are produced.Competitive Role of Geothermal Energy near Hydrocarbon FieldsRevised Final ReportPage 5

1IntroductionThe Australian Government has contributed and continues to contribute funds towards developinggeothermal energy projects.There has been significant progress in developing knowledge of Australian geothermal potential andgovernment co-funded projects are in varying stages of completion. Experience to date has revealed thatbaseline level of resource knowledge, technology to access the resources and commercial issues getting tomarket has resulted in slower implementation than what might have been previously anticipated.Outside of Australia, there is significant geothermal energy being developed on a commercial scale althoughthese plants are predominantly located close to active volcanic systems, which are not present in Australia.Proponents of geothermal energy have been seeking ongoing financial support for Australian projects. InSeptember 2013 the Australian Renewable Energy Agency (ARENA) established the InternationalGeothermal Expert Group (IGEG) to determine whether, over the periods to 2020 and 2030, there areplausible commercialisation pathways for either Enhanced Geothermal Systems (EGS) or Hot SedimentaryAquifer (HSA) geothermal energy to deliver cost competitive utility scale energy to Australia without longterm subsidy.The IGEG’s work will inform the ARENA Board’s consideration of how to allocate and prioritise funding forgeothermal energy as part of its portfolio approach to supporting renewable energy in Australia.Preliminary findings were made available to the public in February 2014. These preliminary findingsrevealed a number of barriers and options for advancements geothermal energy. Amongst those barriers arethe pathways to market for geothermal energy.This report, prepared by Evans & Peck, focusses on how geothermal energy in the form of direct heat mightbe deployed in regions where there is also hydrocarbon production. The specific terms of reference for thisstudy are provided below.1.1Terms of Reference for Report on the Competitive Role ofGeothermal EnergyThe Board of the ARENA is seeking advice on the barriers to, and opportunities for, the development anddeployment of geothermal energy in Australia.To this end, ARENA has established an (IGEG) to assess Australia’s geothermal prospects and present itsfindings in the form of a written report and briefing to the ARENA Board and a report for publicdissemination.To assist the IGEG in consideration of the full range of applications of geothermal energy, advice is sought onthe possible uses of direct heat from geothermal energy in the Cooper Basin, Australia.The advice would be in the form of a desktop study that identifies and synthesises existing data andinformation about:1)The possible commercial uses of geothermal direct heat applications in the Cooper Basin, Australia atpresent, in 2020 and in 2030, including a review of the likelihood of these commercial uses developingby 2020 and 2030 and the underlying economic and regulatory assumptions;2)The economic implications of a significant increase in gas development in the Cooper Basin ongeothermal energy; and3)Other areas in Australia that may have similar opportunities for combined geothermal energy andunconventional gas development as for the Cooper Basin.Competitive Role of Geothermal Energy near Hydrocarbon FieldsRevised Final ReportPage 6

1.2Cooper Basin BackgroundThe Cooper Basin is a sedimentary geological basin located in the South-West corner of Queensland and theNorth-West corner of South Australia, approximately 1,300km West of Brisbane and 1,000km North ofAdelaide (see Figure 2). It is 130,000 km2 in area and has a population of less than 2,000 people. Its surfaceis mostly covered by desert.BalleraMoombaFigure 2 Map of Australian showing location of Cooper Basin (Source: Geoscience Australia)[Gas pipelines are shown in red]Oil and gas production started in the Cooper Basin in the late 1960’s, peaked in the late 1990’s and is lookingto start expanding again through production of new conventional fields and unconventional fields. Currentproduction is primarily sales quality natural gas, but also includes LPG, condensate, crude oil and ethane.A key driver of increased gas production in the Cooper Basin is to utilise liquefaction facilities in Gladstonethat serve export markets.Santos is the largest operator in the basin. However several of the world’s largest energy companies haverecently formed joint ventures (JV) with local firms in search of exploration and development opportunities.Current JV parties in and around the Cooper Basin include: Santos/Beach/Origin Energy (This JV includes Santos’ activities at Moomba and Ballera); Beach/Chevron (This JV covers Beach’s activities around Innamincka);Competitive Role of Geothermal Energy near Hydrocarbon FieldsRevised Final ReportPage 7

Drill Search/ BG; and Senex/ Origin Energy.The nature of the gas resources tapped in the Cooper Basin is changing. The natural gas found in the CooperBasin originates from the Shale Gas deposits in the basin. Most of the production to date is from gas that hasmigrated into conventional sandstone structures. These reservoirs have associated liquids including butanesand propanes which are exported through a dedicated pipeline to Port Bonython for processing. The highvalue liquids add some processing complexity but also offset gas production costs.With the advent of commercially proven techniques for extracting tight gas and shale gas, and depletion ofthe conventional sandstone reservoirs, the future of the Cooper Basin is likely to include increasingextraction of unconventional gas resources which do not have the same liquids content and are classified asdry gas.Impurities, most notably CO2 content, varies across the basin, tending to be higher around Innamincka(Beach/Chevron). CO2 content varies from 40% down to around 5%. Santos’ average CO 2 content over theyears of production has averaged around 15%. The CO2 dilutes the hydrocarbons stream, reducing wellproductivity. Removal of CO2 adds processing cost. Production of CO2 can become a significant riskconsideration for firms concerned about changes to imposts on CO 2 emissions.Figure 3 presents a schematic representation of hydrocarbon deposits in the Cooper Basin 1.Figure 3 Schematic representation of hydrocarbon deposits in the Cooper Basin.Petroleum and Geothermal Resources in South Australia, Government of South Australia, Department ofManufacturing, Innovation, Trade Resources and Energyhttp://www.pir.sa.gov.au/ data/assets/pdf file/0003/33663/prospectivity cooper.pdf, accessed May 2014.1Competitive Role of Geothermal Energy near Hydrocarbon FieldsRevised Final ReportPage 8

Table 2 presents an overview of the gas reserves by reservoir type. The data indicates current provenresources are largely conventional but that the long term outlook is increasingly likely to include a highproportion of unconventional gas production.Cooper and Eromanga Basins reservoir typeConventional Gas2P reserves(PJ)23P/2C Reserves andResources(PJ)1,9432,006Unconventional gas including shale gas and tight gas54,945Coal seam gas--1,9486,951TotalTable 2 Gas reserved at the Cooper and Eromanga Basins (Source: Current and Projected Gas Reservesand Resources for Eastern and South Eastern Australia, Core Energy Group, August 2013)Total gas production from 1970 to June 2012 is 5,363 PJ3.The Cooper Basin has significant geothermal resources. It has unusually hot granite within 5km of the earthsurface. In its November 2010 presentation to the Australian Geothermal Energy Association, Geodynamicsclaimed within its tenements alone, there was the potential to establish 6,500 MW of base power generationto run for over 50 years4. Although this has not been further substantiated it gives a flavour for the order ofmagnitude of the potential resource.Refer to definitions and abbreviation section for explanation of these terms.Cooper Basin Fact Sheet, South Australia Government Department for Manufacturing, Innovation, Trade, Resourcesand Energy (DMITRE), http://www.pir.sa.gov.au/ data/assets/pdf file/0018/26901/cooper fs.pdf4 ralian-Geothermal-Energy-Confe.aspx accessed 9 May 201423Competitive Role of Geothermal Energy near Hydrocarbon FieldsRevised Final ReportPage 9

2Commercial Uses of Geothermal Direct HeatApplications in the Cooper Basin – Present, in 2020 andin 2030This section of the report reviews the potential commercial uses of geothermal direct heat in the CooperBasin in the near term, in 2020 and in 2030. An overview of the applications considered is presented inFigure 4.HydrocarbonLiquidsRefinedliquidproductsRefined product pipelinesCrude PipelinesMinimalProcessing tomeetpipelinespecificationGas and OilExtractionEthane PipelineNatural Gas PipelineUtilities and OfffsitesCompressed Natural GasNatural GasHydrogen ProductionDownstreamprocessingLiquefied Natural GasGas to LiquidsFischer TropschGas to MethanolGas to Gasoline via MethanolGas to Ammonia and UreaOtherIndustriesAlumina RefiningPulp and PaperFigure 4 Overview of applications of direct heat consideredCompetitive Role of Geothermal Energy near Hydrocarbon FieldsRevised Final ReportPage 10

2.1Test for Commercial Application of Geothermal Direct HeatEach potential application of geothermal

B1.2 Support Hydrocarbon Production – Processing Facilities 38 B1.3 Support Hydrocarbon Production – Pipeline Export Power 40 B1.4 Support Hydrocarbon Production – Utilities and Offsites 40 B1.5 Support Manufacture of Downstream Hydrocarbon Products – Oil Refinery Products 41 . (ARENA) to provide a “desk-top” assessment of the .

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