Unocal’s Geothermal Projects Are Gaining Steam

Unocal Corp. has given a new meaning to the term steaming jungle.

Amid the rain forests of the Philippines, the company has tapped into a source of energy more primordial than oil or natural gas: the heat of the earth’s crust itself, manifested in super-hot water and billowing steam.

The resource, dubbed geothermal energy, can be drilled, extracted and piped to generators to produce electricity. On the Philippines’ main island, Luzon, Unocal’s geothermal division supplies steam to produce 660 megawatts of power, enough to fill 25% of the island’s electrical needs, said division President Stephen C. Lipman.

The decade-old project is Unocal’s largest foreign geothermal operation, but is only part of the company’s Pacific Basin operations. In that sense, Unocal--which calls itself the world’s largest producer of geothermal energy--seems to be pacing the industry.

As domestic geothermal markets dry up, the Pacific Basin is emerging as one of the best new markets for California geothermal companies, officials said.

“We feel (the potential overseas) is very strong because of the diversity of experience many companies have here,” said Claudia Barker, assistant director of the California Energy Commission. “There’s just not that range . . . in any other state.”

Geothermal energy occurs in the form of heat captured by fluids trapped in rock formations beneath the earth.

Companies such as Unocal explore such geothermal fields, drill wells and produce either superheated water or steam. The company can sell the steam to utilities to produce electricity in generating plants. Or the company can build its own generating plant and sell the resulting electricity directly to the utility.

The heat comes from molten rock, or magma, that has worked its way close to the earth’s surface. That happens in areas with faults, earthquakes or volcanic activity--such as the Pacific Basin, which also carries the nickname the Ring of Fire.

In addition to favorable geology, the Pacific Basin includes many developing nations eager for a relatively cheap, home-grown source of electrical power and a way to reduce their balance-of-trade deficits. All of which makes the region favorable for geothermal.

The 10 countries with the most geothermal development include six Pacific Basin countries, according to the Geothermal Resources Council, an industry information group in Davis, Calif.

Even Indonesia, with its membership in the Organization of Petroleum Exporting Countries and its oil reserves, wants to develop steam-powered electrical plants--and save the oil and gas for export, Lipman said.

Unocal is already active in the area. By 1992, Unocal plans to begin geothermal production for a 110-megawatt power plant in the Salak area of Indonesia, about 40 miles south of Jakarta on the island of Java.

The company is talking about geothermal projects with officials in Guatemala and even the Soviet Union, which has geothermal fields on the Kamchatka Peninsula, Lipman said. Unocal is also talking with officials in Kenya.

Other geothermal companies in the Pacific Rim include Chevron Corp. and Texaco.

Worldwide, geothermal development is growing at an annual rate of 15% to 17%, said David N. Anderson, executive director of the Geothermal Resources Council and the National Geothermal Assn., a trade group.

In the race for a piece of that business, U.S. companies may have an edge in technology, Lipman said. Unocal has perfected equipment that can withstand the high temperatures, hard rock and corrosive salinity of geothermal drilling, he said.

But American firms find themselves at a disadvantage when competing against government-subsidized foreign firms that can offer cut-rate financing to cash-strapped Third World utilities.

The main competitors are Japanese and Italian companies, Anderson said.

The state energy commission has taken on the role of broker to help state-based geothermal companies get together with foreign governments. Among other things, the state has sponsored “reverse trade missions” in which foreign utility officials fly to California, where state geothermal companies trot out their stuff. The missions have resulted in at least three agreements for further development, Barker said.

“Our concern is that these companies are struggling . . . and were having a hard time breaking in,” she said.

Anderson’s group, the National Geothermal Assn., was formed in 1987 to coordinate efforts of geothermal vendors. The association is also seeking federal permission for its members to form coalitions to bid on foreign projects, which would enable them to compete better with foreign companies.

The need to look overseas is spurred by a domestic market that is going up in smoke.

California easily overshadows other areas in the world in geothermal activity, with 2,609 megawatts of power generated at the end of last year, according to the Geothermal Resources Council. That is projected to grow to 2,889 megawatts for 1989.

Total worldwide production was 5,004 megawatts at the end of 1987, the latest year for which statistics were available, the council reported. By now, another 600 megawatts may have come on line, Anderson said.

But future domestic geothermal development isn’t attractive, in part because of the economics. Up to this point, steam prices have not remained strong enough to support further exploration, Anderson said.

Moreover, the state Public Utilities Commission is reviewing the standard contract between utilities and geothermal producers and could require geothermal to be competitive with other fuels, Barker said.

“It’s probably going to be a little difficult to compete with oil- or natural-gas-based technologies,” given relatively low fossil fuel prices, Barker said.

Besides, California probably won’t need more electric generation capacity until the mid-1990s, Barker said.

Meanwhile, the world’s biggest geothermal field, the Geysers in Northern California, may be overloaded with 26 plants now tapping steam and two more under construction. Production of steam has peaked and is in decline.

The drop in steam pressure has caught the attention of the Energy Commission, which is now studying the phenomenon to help manage the field better.

It’s a question of “how many straws should be stuck into the ground up there and how they should be sipping,” Barker said.

At Unocal, slipping domestic steam prices are partly to blame for sliding geothermal revenue and earnings. At the end of 1988, the geothermal division of Unocal reported net earnings of $25 million, down from $33 million in 1987. Revenue was $155 million, down from $165 million in 1987.

Last year, the company lowered its estimated reserves at both the Geysers field in California and the Tiwi field in the Philippines, which could affect revenue from both fields in the future.

But Lipman says earnings have turned the corner this year, partly because of higher overall production from the Philippines and revenue from a new 47.5-megawatt geothermal plant in the Imperial Valley.

Earnings should improve even more once the Indonesian field begins production and sales to the national utility, he said.

Improved financial performance would underline the company’s need for Pacific Rim development.

“In the past, we’ve tended to rely on our operations at the Geysers in Northern California . . . to provide the cash flow for the rest of our operations,” he said. “Now we’re at the point where we’ve got three significant profit centers in our operation (the Geysers, Imperial Valley and the Philippines), and when Indonesia comes on, the fourth one will be there.

“So we’ve got the stability and are able to take the ups and downs of any one area, and still maintain a very good level of earnings and cash flow.”