RESEARCH ABSTRACT

Stochastic Modeling of drilling costs: A case study of Menengai Geothermal Field

Joseph Muyundo Wanyonyi, Joel Rutto Sutter
Geothermal Development Company

Abstract

The cost of drilling geothermal wells is estimated to be between 40-50% of the total cost of investment for a new high temperature geothermal power plant. This makes the CAPEX for geothermal plants more expensive as compared to fuel fired power plants. As a result, accurate cost models are required while determining the economic viability of any given geothermal field. In addition to that, it is important to come up with ways of minimizing the drilling cost of geothermal wells so as to reduce the CAPEX and hence the payback period of geothermal plants.
In this study, 38 geothermal wells (drilled from 2011 to 2016) were randomly selected from the Menengai Geothermal Field in Kenya. An EXCEL spreadsheet model was then developed to determine the cost of each well. The model took into account inputs such as the labor cost, cost of diesel and lubricants, cost of casing and casing accessories, cost of drilling fluid, the cost of rental, service charges, cost of cement and cement additives, cost of rock bits, the cost of catering services and the depreciation of the rig. Understanding of drilling cost uncertainty of geothermal well can help GDC to secure low-interest financing by reducing the infrastructure risks. Therefore, uncertainty analysis was conducted by fitting probability distributions to key variables controlling the cost of the well. The study revealed that there are statistically significant correlations between the key variables. These probability distributions were simulated using the Monte Carlo method so as to determine the overall well cost probability distributions for geothermal wells of depths of between 2400 feet and 10,500 feet. It was found out that the average cost of drilling a geothermal well was $3,090,361. In addition to that, the study revealed that the most expensive well at Menengai (MW17A) is $5,684,871 while the cost of the cheapest well (MW05) is $1,961,737. A Pareto analysis revealed that the most important cost elements are the cost of diesel and lubricants (14%), labor cost (14%), service charge (20%) and depreciation cost (22%). The analysis showed that the relationship between the cost of drilling geothermal wells and the depth of the well at Menengai Geothermal Field can best be modeled with an exponential equation. However, the correlation coefficient for this model was only 85% as compared to 79.57% for third order polynomials. It was also found out that the total cost of geothermal wells follows a lognormal distribution. The correlation results presented in this study can be used to determine the economic feasibility of future geothermal energy systems at Menengai Geothermal Field, assess the project risks and make optimal investment decisions.

Key words: Drilling cost, CAPEX, Pareto analysis, correlation analysis, probability distributions, Monte Carlo simulations

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