May 3 (Bloomberg) -- (Corrects to show natural gas is priced per thousand cubic feet, not per million cubic feet.)
When Rod MacGregor launched GlassPoint Solar in Fremont, California, in 2009, he tried to sell its solar technology to domestic oil companies. His pitch: By harnessing the sun to power their pumping equipment, they wouldn’t have to pay for the natural gas they typically used to extract heavy crude. Few deals resulted, but MacGregor persisted.
Now with natural gas prices at less than $2 per thousand cubic feet, a 10-year low in the U.S., the Scottish-born serial entrepreneur is packing on the frequent flier miles, focusing on Middle Eastern countries with abundant sunlight and hard-to-reach heavy crude, where many oil companies pay $10 or more per thousand cubic feet for the liquid natural gas that powers their extraction machinery.
The alternative MacGregor is selling is a massive greenhouse packed with 20-foot-tall rectangular mirrors that direct magnified sunlight at water-filled pipes to create steam. The idea is to pipe the 600-degree steam deep into the ground to heat rock where thick, gunky heavy crude sits in holes and crevices. As the hot rock liquefies the oil, the high-pressure steam creates a bubble that forces the oil up. "Imagine you're blowing in a straw and there's a bubble forming underground," says MacGregor, 51.
This technology, known as solar thermal generation, is new in the oil industry, with a handful of companies trying to sell the technology. Over the past few years, BrightSource Energy in Oakland, California, Paris-based Areva, and Lotus Solar Technologies in Cairo have all added oil extraction capabilities to the solar equipment they sell that drives steam-powered turbines. With increasingly cheap solar panel technology available as well, the road is shaky. BrightSource withdrew its planned initial public offering in early April, citing too much volatility in the green energy market.
Besides those challenges, there are two big hurdles to oil companies' adoption of solar thermal plants: They can only produce steam during the day, switching to natural gas at night, and they have to be massive to generate enough steam to pump heavy oil from an average-size field. MacGregor says for GlassPoint to generate enough steam, a customer would have to install more than 100 of its 13-acre greenhouses. He won’t say what he charges.
For now, GlassPoint is hoping its two pilot projects will convince would-be customers to invest. It opened the nascent industry’s first commercial facility in the Mojave Desert in early 2011 as a proof-of-concept test for Berry Petroleum. In February, Petroleum Development Oman began construction of a GlassPoint test facility near Oman’s capital, which produces 27 times more steam and is scheduled to be completed in December.
The state oil company accounted for most of GlassPoint's $6 million in revenue last year. This year, MacGregor expects $30 million to $50 million, through two or three deals of "substantial scale." Despite rock-bottom natural gas prices in the U.S., MacGregor also believes California will be a strong market because of tightening regulations to reduce carbon dioxide produced from burning fossil fuels.
By 2014 natural gas prices in the U.S. are expected to reach $4 per thousand cubic feet, making solar thermal technology a competitive option, says Pavel Molchanov, an analyst for financial services firm Raymond James & Associates in St. Petersburg, Florida. That year, oil companies will spend just more than $16 billion globally on so-called enhanced oil recovery technologies like GlassPoint used to extract heavy crude, according to Wellesley (Massachusetts)-based market analysts BCC Research.
GlassPoint and its competitors won't have full-size operations in oil fields until 2015, Molchanov predicts. Even then, solar thermal's share of the enhanced oil recovery market will be very small. So over the next three years, GlassPoint and its rivals won't be fighting over market share. Instead, they will be proving return on investment. "This is classic market-seeding mode right now," Molchanov says. "There is clearly tremendous opportunity for adoption of solar [enhanced oil recovery] in the long run.”
MacGregor says GlassPoint holds a “significant” number of patents on the design of its greenhouses, which contain curved mirrors made of anodized aluminum to magnify sunlight, along with the pipes, valves, solar receivers, and pumps used to make and move the steam. The enclosure makes GlassPoint's design different from its rivals, which construct fields of sunlight-directing mirrors. GlassPoint claims its greenhouses take up less space and cut maintenance costs by protecting mirrors from dust- and sand-carrying winds that can reach as high as 85 mph in desert oil fields.
Without a full-scale operation, GlassPoint has yet to prove its design is better. MacGregor has stumbled once before with the technology. His original idea was to sell the greenhouses to Sheetrock factories as a cheaper, eco-friendly alternative to the natural gas used to heat ovens. When it became clear his product was too expensive for the market, he switched gears and aimed his sales efforts at the oil industry.
This time around, MacGregor isn't touting the environmental benefits of solar energy. Instead, he's focused on reducing customers' costs. "Oil companies are not out there to save the planet, they're out there to hit economic objectives," he says.
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