Marin Katusa and Marc Bustin, Editors of Casey’s Energy Report, bring their analysis for the future of this hot alternative energy resource.

Marin Katusa and Marc Bustin (Casey’s Energy Report):

Co-Written by Marin Katusa & Marc Bustin, Editors of Casey’s Energy Report

Capturing energy from the earth’s heat is pretty easy pickin’s for geologically-active areas of the world like Iceland, Indonesia, and Chile. In some locations, hot fluids are so near the earth’s surface that heat from naturally-occurring hot fluids can be directly circulated through buildings for heating. Iceland, in particular, takes advantage of this low-hanging energy fruit.

However, in most areas of the world where geothermal energy is captured, the heat is used to generate electricity.

Conventional Geothermal Energy

Unlike some of the more common alternative energies — hydro, solar, and wind — geothermal is impervious to weather conditions. This independence means it provides excellent base load electricity.

Currently all commercial geothermal electricity is generated by so-called conventional systems, whereby naturally- occurring hot water or steam is accessed at comparatively shallow depths in areas of very high geothermal gradient. Wells are commonly drilled to depths on the order of 2 km. The water or steam they produce is used to spin turbines that in turn generate electricity.

The success and sustainability of a geothermal reservoir in large part depends on managing the reservoir. For a reservoir to be sustained, the natural and induced recharge of fluids must balance the produced fluids. Almost all reservoirs require the produced water to be re-injected in order to maintain reservoir pressure. Because naturally-occurring water and steam are necessary, potential development is generally restricted to areas near volcanic activity.

But the geographic limitations of geothermal energy may be about to change — and create a much rosier picture for the future of geothermal energy.

Enhanced Geothermal Systems (EGS)

Conventional geothermal systems are possible only in relatively limited geographic areas. The real prize in accessing geothermal energy – and at a much larger scale – is through enhanced (or engineered) geothermal systems.

In EGS, hot rocks are artificially fractured, commonly at great depths. Water is injected to contact the hot rocks and then produced back to the surface; the energy captured is used to generate electricity. These are very expensive ventures, with costs in excess of $10 million dollars as a starting point — ten times the cost of a geothermal well. Current EGS projects are still experimental, and most have substantial government backing.

A relatively advanced EGS experimental system is currently underway in Australia. Here, granites producing high heat due to radioactive decay at depths greater than 3 km are seen as viable geothermal reservoirs. In South Australia alone, some 23 companies have filled licenses covering 110,000 sq km where suitable hot granite is believed to exist at accessible depths.

Once such a plant is built, it will be tapped into a virtually limitless supply of energy that’s available without cost, 24/7. Successful implementation of EGS plants will be the break-out technology for geothermal energy.

Is Geothermal Economically Viable?

A workable technology is one thing, and economic viability is something entirely different. As you can see from the chart below, not all energy sources are created equal when it comes to cost per kilowatt-hour.

In terms of production cost, geothermal certainly holds its own at 6.5 cents per kilowatt-hour — about the same as wind. Coal and nuclear power are still powering the way ahead with their 4-5 cent/kWh generation costs, but with natural gas at 7 cents and petroleum topping 10, geothermal has already proven itself to be a viable alternative, not only on the economic front but on the environmental front as well.

In terms of current worldwide energy production, geothermal — along with solar — is a drop in the bucket:

Given the fact that geothermal energy is only a minor player in the worldwide picture for energy, why are we still bothering with it?

Because in terms of economics, geothermal energy trounces solar and wind.

Here’s what we mean:

1.  Geothermal energy does not depend on weather. The sun doesn’t shine around the clock or even every day; neither does the wind blow all the time. In contrast, hot rocks are there 24 hours of the day, seven days a week. The predictable amount of electricity makes it easy for geothermal companies to sign long-term energy contracts without worrying as much about underproduction or “wasted” production.

2.  Lower capital costs. Even though solar panels have gotten much cheaper to make, the construction costs of a large solar farm are still extremely high. Recent estimates place the cost of solar energy to be upwards of US$10,000 per kilowatt-hour (kW) whereas wind is around $1,700-$3,000/kW. Geothermal is similar to wind at US$1,600-$2,800/kW depending on location, though due to reasons 1 and 3, geothermal is economically superior to solar and wind. In fact, these numbers put geothermal on par with building a coal plant under the new requirements for carbon capture.

Geothermal capital costs are relatively low for two reasons. First, there’s no need to sequester, or capture and stash, any carbon emissions. This requirement alone can add 40-60% to fossil fuel projects. Second, geothermal power plants enjoy the best of both worlds: they require less land than wind and solar projects, and fewer permits than coal and nuclear because they’re less hazardous.

3.  Higher load factor. Utility companies, and anybody buying power from them, have to consider load factor: the difference between nameplate capacity (how much the generator is designed to produce) and actual production. The smaller the difference, the higher the load factor, and the more money the utility will make. For a wind farm, the load factor is generally 30-40%, and even lower for solar farms. In contrast, geothermal power plants can generally operate near 90%, since, as we said before, hot rocks are always available.

On an economic basis, geothermal has a virtually unique advantage among the “green” energies. Its power plants can compete with those fired by coal or natural gas even before any government subsidies. For geothermal operating companies in the United States, the government subsidies that Obama is showering upon the alternative energy sector are pure icing on the cake.

And best of all, geothermal companies are virtually off the radar of most investors. For those keeping an eye on geothermal technology and geothermal companies, a window of great opportunity will open.

This kind of research is typical of Casey’s Energy Report and its research team, led by Marin Katusa. And with a stock pick record of 19 winners in a row — a 100% success rate over 11 months — Marin’s insightful research has made a great deal of money for his subscribers.

As a special year-end offer, we have drastically lowered the price of Casey’s Energy Report – but only until December 18. Sign up for a 3-month trial today and receive 40% off the subscription price PLUS a free holiday gift! Click here to learn more.

Original source for this article: Contrarian Profits

Contrarian Profits brings you the following report from our colleagues at Casey Research:

Marc Bustin Ph.D., F RSC, is the senior researcher for unconventional oil and gas for Casey Research.

Considered to be one of the top authorities in the world, Marc is the go-to expert for multinational oil and gas conglomerates, and is brought in to help evaluate finds around the world. Marc has reviewed more projects on his own than some exploration teams put together.

Recently, at the Casey Research Energy Summit – a two-day event showcasing the top minds in the energy industry – a small group of investors became privy to Marc’s take on the future of natural gas… his prediction for where prices are heading next year… and some of the companies he believes will profit when natural gas takes off.

For an excerpt of Marc’s presentation, read on… Marc Bustin (Casey Research):

What You Need to Know About Natural Gas

Natural gas prices have plummeted. Natural gas storage is at a maximum. Producible gas reserves are up 35% in the United States. Demand for natural gas is down because of the economy.

Then suddenly a new-found U.S. natural gas producible reserve is suggesting that the U.S. in fact will be self-sufficient or close to it as soon as 2030.

Why are all of these things happening?

A bit of it, of course, is due to the drop in the overall economy, but it has a lot to do with the concept of gas shale, and that’s really what we are going to focus on today.

Where does all this gas come from?

The gas comes from organic matter that is within the rocks. It evolves, bacteria work on it, it generates gas, and most of that gas and oil end up in reservoir rocks, such as the sandstone.

But the rocks with which the organic matter is in the first place, are fine-grained rocks that we use the loose word “shale” for. These are the rocks that have the organic matter that’s cooked, that generates the gas. The gas is generated from the fine-grained rocks and it migrates out into our reservoir rocks, which is our conventional gas production.

If we were to look at the shales in more detail with an electron microscope, you would see that it’s very fine grained and the pores are small. If we look at sandstone, the porosity and permeability (the ability of gas to flow through the rock) is great, and that’s why we can produce it at commercial rates. Traditionally we haven’t been able to produce any gas from shales because there are no pathways for the gas to go out at a very fast rate. Until recently we’ve pretty much ignored these rocks.

If we blew up the pore in a sandstone to the size of the Eiffel Tower – by comparison, the pores in shales are about the size of an eyelet on the compound eye of a bee. In other words, they’re really, really small. There’s a tremendous size/scale difference and that’s why the gas tends to be retained.

The reason that gas migrates out of the rocks is that they’re surrounded by water. All the other pores are filled with water, and because gas or oil is lighter than water, there is a buoyancy effect. It migrates until it’s trapped.

But shales are so fine grained, you don’t need a conventional trapping mechanism. The gas does not move out of these shales because of capillary pressures, and also because the gas is actually absorbed into the mineral and organic surfaces.

That means when we find these shales and these types of deposits, they are not localized. They are very, very laterally extensive, so you don’t really have any exploration risk in terms of finding the shale. The exploration risk is really in whether or not you can develop it.

The economically recoverable gas from the shale is now possible due to development and success of horizontal drilling technology – the development of fracking technology. Higher gas prices in the past gave us the confidence and allowed us to develop the technology. A huge factor is confidence. We know we can do it economically, so we are willing to spend the big dollars that are required to drill and frack one of these wells.

Technology has now made it possible to produce gas from rocks that we couldn’t produce gas economically 10 years ago.

In the past we were drilling more and more wells that produced less and less gas. All of a sudden, things have changed with these shale wells. We are drilling fewer wells, and each well is producing more and more gas – because of the frack technology and the wells being horizontal. Things have changed completely.

Finding and development cost

How much it costs to produce the gas, of course, is going to be equivalent to the resource size – the producible resource size. The bottom line is, there’s lots of gas that could be produced at relatively low prices. For example, EnCana’s projection of producible natural gas is absolutely enormous.

What’s happening in the rest of the world?

The rocks are a little bit different in North America than everywhere else, but there certainly are similar shales in Europe. North Africa has wonderful-looking shales, and so do a few other places – Eastern Australia, for example. There is no reason to suspect they won’t be equally successful producing gas from tight rocks in those areas, as we have been in North America.

There are certainly lots of gas shale potentials in Europe and many companies like Conoco, Exxon, Shell are there – Shell is drilling some gas shale wells in Sweden, for example. Other companies are working in England.

So all of a sudden we are looking at a world where natural gas is perhaps not in a shortage anymore.

Part of the problem is, we have been a little bit too successful – if you’re a service company, a drilling company, or a producer in North America. We’ve been so successful in finding gas,  we’ve driven the price way down. The price, in fact, has been too low to sustain drilling and, in some cases, production.

We’ve got a market, we’ve got demand, and we have supply. U.S. natural gas storage is at a maximum. We’re filled up; no more natural gas, please… for the time being at least.

So what does it mean for the price of natural gas?

Since gas prices have taken a major dive, so has the rig count. The rig count is how many rigs are actually drilling. Currently in North America, we’re probably at a 35% to 40% usage of the rigs. This is way down, and the implication is important for the gas price.

Low gas prices means, suddenly we’re drilling a lot fewer gas wells. No one wants to drill anymore.

Currently, in order to maintain U.S. production, we have to add between 17, 18, 19 Bcf (billion cubic feet) additional gas per day. At the current rate of drilling, we’re adding 9 Bcf a day production, so there’s obviously a shortfall.

And a shortfall means eventually the price of gas has to start going up.

Right now, there are a huge number of drillable wells – prospects all ready to be drilled. As soon as the natural gas price gets up above a certain level, these wells will suddenly become economic, and people will start developing them.

So it’s not like we are going to find new “stuff,” we’re just going to start producing the “stuff” we already know exists.

Which companies are going to lose and which are going to win with the new metrics of natural gas?

Losers:

• Gas-weighted companies are in trouble today.
• Small companies with debt, I think are finished – if they’re gas producers.
• Companies only operating in North America are going to have a tough time. If you’re offshore, you’re probably in a lot better shape.
• Companies with no technical expertise – producing gas from shale requires a team of people who actually understand what they’re doing.

Most small companies just can’t play in that sandbox. When things go bad, they go bad. You have to be able to drill a number of wells successfully to be successful. If you can only drill one well and you have no operational experience, you should just take your wagon and go home. That leads me to the winners.

Winners:

• Big companies with some capital to play with.
• Companies with operational experience, or companies that have the depth to develop that operational experience.
• Companies with early land position and low finding and development costs or finding and exploration costs.
• Technically competent companies.
• Small companies who have decent land and have big-company partners.

Some small companies got an early land position, opening the door for big companies to farm in on them. These are perfect situations. The big company is paying the load, and the small company will still get the advantage.

My prediction for gas prices

In my opinion,  gas will be $6 or $7 next year. Prices will then soften down to $4 or $5 at the end of next year. Ultimately, the best buys for investors will be small-caps that are farmed out or big companies that have long-term positions.

As mentioned before, Dr. Bustin’s expertise in unconventional gas and oil is unmatched in the industry. If you’re interested in receiving Marc’s entire presentation from the Casey Research Energy Summit… learning from his considerable acumen in natural gas… and getting the scoop on which stocks he believes are poised to profit from the inevitable increase in gas prices, here’s your opportunity.

What’s more, you’ll also get the inside perspective of every energy expert at the summit – on subjects ranging from alternative energy to oil and natural gas, to lithium.

The information revealed at the Casey Research Energy Summit has been, up until now, only available to the small group of investors in attendance.

Now you, too, have the opportunity to arm yourself with the knowledge you need to prosper in the challenging years ahead. Click here for details.

Original source for this article: Contrarian Profits

Chuck Butler, President of  EverBank® World Markets and author of The Daily Pfenning newsletter, offers his analysis of this week’s currency trends – and their implications for the global economic recovery – at The Daily Reckoning.

Chuck Butler (The Daily Reckoning):

Japanese Canaries in a U.S. Economic Coal Mine

Yesterday I told you how the overnight markets were selling dollars, and the NY traders were buying them, causing these swings in the currencies. The trading ranges aren’t huge in any sense of the imagination, but, they do cross significant levels each time… For instance, the euro (EUR) has crossed back and forth through the 1.51 level four times this week, and the Swiss franc (CHF) has crossed back and forth through parity a few times this week.

Yesterday was no different than the trading theme we’ve seen this week… When I signed off yesterday morning, it was a “full on” risk day… But the NY traders saw differently, and took profits. In the overnight markets, the commodity currencies have rebounded.

The main event today is the Jobs Jamboree… The forecasters are pretty adamant that the job losses will show that they are dwindling… And the media will be all over that like a cheap suit… But what they will fail to see is the fact that there probably aren’t that many jobs left that can be cut! Not without the US having soup lines… So, it won’t be as if things are getting better as the media will try to shove down our throats… Instead it will be simply a rearranging of the deck chairs on the Titanic. We’ve gone from 600,000 job loss months to 125,000 job loss months… When did 125,000 job loss months bring about parades and confetti? Expect the jobless rate to remain at 10.2%, and that should tell you all you need to know.

If the trading theme remains in place that has sent the dollar to the woodshed whenever there is good data, because it tells traders and investors that the global recovery is on better terra firma, and that the paltry yields in the US should be thrown to the side of the road, and higher yields found in countries like Australia, Brazil, New Zealand, Norway, etc.

Wait, I started a thought there, and went off on a tangent… If the trading theme remains in place, and the Jobs Jamboree prints as expected, and the media begins throwing confetti, the dollar will end the week getting sold… But that all remains to be seen.

I told you yesterday that the markets were waiting for European Central Bank (ECB) President Trichet’s, statement following the rate announcement. It was thought that Trichet would keep rates unchanged and then announce that stimulus was being removed from the economy, Which, in essence is about the same as a rate hike, for it will slow the economy, just the same…

Click here for the rest of Mr. Butler’s article at The Daily Reckoning.

Original source for this article: Contrarian Profits