Carlos Arake (3:33)

Thank you. Good to be here.

Shael Khan (3:35)

All right, so I want to start by having you describe to me how traditional geothermal, like traditional hydrothermal geothermal works so that we can contrast that to the type of thing that you're going after, which is super deep, super hot. So if I'm, if I'm doing like a traditional hydrothermal geothermal system, the types of things that, you know, we were building in the 70s and 80s and are building some of now again today, how deep am I drilling and how hot is the rock that I'm looking

Carlos Arake (4:02)

for for traditional hydrothermal? Not, not very deep at all. You're going maybe a mile at most and, and you're getting as hot as what the water that's down there gets you. It's usually sub boiling. It's hard to get to boiling temperatures. You're talking about 200 degrees Fahrenheit, unless the hydrothermal requires that water to be in there. So that's a key characteristic we're going to be talking about today. The modern geothermal doesn't require that you'll bring your own water.

Shael Khan (4:28)

Okay. But so we're getting, we're getting temperatures in the low hundredths of degrees Fahrenheit and depths in the mid thousands of feet. Basically is kind of like where we've traditionally developed geothermal.

Carlos Arake (4:41)

Yeah, that is correct. Those are very near surface systems. They're even shallower than what oil and gas would require.

Shael Khan (4:48)

Okay. And so the whole point of this is that, like that those systems exist. And that's why we have geothermal power today. And we can probably develop a lot more geothermal power if we could just find where those systems exist more. But they are geographically limited. You do need that heat to be pretty close to the surface. And you need some additional characteristics like permeability as well. And that's what has kept geothermal limited geographically to specific areas kind of all over the world. Let's contrast that then. So when you think about the type of thing you're interested in, what type of depth and temperature should I be Thinking about.

Carlos Arake (5:23)

So the right way to think about this is to think about temperature. Temperature is the target. We pick roughly 800 degrees Fahrenheit for a very clear reason. It's physics. If you are going to use water to extract heat from the subsurface, that is the ideal temperature, 800 degrees Fahrenheit. Anything above that, diminishing returns, anything below that, you're leaving too much opportunity on the table. So we're going after that temperature that is the target. The question then is how deep is that? Well, well, it depends where you are. In some places, not very deep at all. You can go maybe three miles, which is consistent with oil and gas drilling depths, and you're there. But in other places you have to go three, maybe four times as deep as that to get to those temperatures. So that's the range, always looking for 800 Fahrenheit. And you'll find it anywhere between 3 miles to 12 miles deep, depending on where you are in the world.

Shael Khan (6:28)

Okay, so, and you just mentioned the right comparison here. So in traditional geothermal, we're going nowhere near that deep. In oil and gas, you can go to the kind of lower end of those depths. So talk to me about like how deep do we drill for oil and gas right now? And if you think about that as compared to the shallower version, the places where you get 800 degrees Fahrenheit at 3 mile depth or something like that, how does that compare to what we do in oil and gas?

Carlos Arake (6:58)

Yeah, so oil and gas systems are not depth limited, they are temperature limited. You will find people drilling with mechanical drilling systems all the way down to eight miles, nine miles, pushing really out there, but not hot. Right. So the gap is not depth. The gap is heat is how hot you can drill. And that's where you will start seeing fundamental differences. If I try to answer this, irrespective of temperature, I would tell you that oil and gas systems can already drill to the vast majority of depths that we're talking about here. Miles and miles, 3, 4, 5, 6, 7, 8 miles under the earth. But when you add the temperature, which is really the target we're going for, then you see a massive gap. The put it bluntly, oil and gas mostly happens at 2 to 3 miles deep. It's rare to find it below that because it starts to get too hot. And here we're talking about that being the beginning of the geothermal frontier we're unlocking. So, so the end of one is the beginning of the other one.

Shael Khan (8:01)

Geographically, you know, if you're going eight or nine miles deep or something like that, you kind of, I think, tell me you get that amount, you get that heat, that 800 degrees or something in that range kind of everywhere, but. But it'd be better to start where it's not quite that deep. So where geographically do you tend to get it? I mean, I'm sure this is different all over the world. But talk to me about like, what are the geologies and maybe within the U.S. where can you find 800 degrees at like 3 miles?

Carlos Arake (8:30)

Yeah, it's usually the ring of fire. So anywhere in the Pacific side of the country and all of the Pacific of South America as well. So the ring of fire wrapping from America to North America to Alaska to Japan to Indonesia to Philippines, all the way down to New Zealand. That's a typical place where you'll find those. And that's billions of people. So it's not a small market by any means. You can also find it in the Atlantic Ridge. So Iceland, for example, you don't need to go anywhere close to those steps to get to those temperatures. Kenya, in short, in short, everywhere where you have geothermal today is very likely one of those places where you'll find the 800 degrees Fahrenheit at 3 miles, closer to 3 miles than closer to 12 miles.

Shael Khan (9:17)

I guess we should maybe be explicit about why getting to 800 degrees Fahrenheit is beneficial. Can you just do a quick comparison to like how much power you could extract from a well? If it is an 800° well versus a 200° well?

Carlos Arake (9:33)

Yeah, we're talking about 10 times the power. So the Icelandics were the first ones to talk about these at length. It has to do with physics. It has to do with the thermophysical properties of water, basically higher densities, lower viscosities. It has to do with the thermodynamic conversion efficiencies between the heat and electricity. At the end of the day, the same wellbore, let's call it 8 inch in diameter, very typical size, it will transfer maybe 1 to 10 megawatts electric equivalent if it's flowing at 200 degrees Fahrenheit and we'll transfer 10 times that if it's flowing at 800 degrees Fahrenheit. So in Fahrenheit terms, 2 times the temperature, 3, 4 times the temperature, but 10 times the power. So that's the calculus we're trying to unlock. And if you go harder than that, it actually doesn't help you. So if you go to 1,000 Fahrenheit, 2,000 Fahrenheit. It actually works against yourself. 800 really is the Goldilocks zone for that supercritical property of water. And you're talking about a 10x.

Shael Khan (10:37)

So the trade is basically you're going to spend more to drill a well. Unquestionably you're going deeper. And as we're going to talk about, you need different materials and a different kind of system if you're going to go really, really deep because of the. Because dealing with the temperature. Exactly. So apples to apples, you're going to have a more expensive well, but you're going to get 10x more power out of that well. And so your budget is basically to a 1st order 10x higher drilling costs that you can afford and order for that to be a worthwhile trade. You also get the benefit of this different geography. Right. Like there's places where you can get 800 degrees at 5 miles but you're not going to be able to do traditional hydrothermal anyway just because you don't have enough heat near the surface. So that's kind of the interesting trade here. I guess the other thing we should talk about though is permeability. Right. Like if you're doing traditional geothermal exploration, you're trying to find a place that does have heat near the surface and also has sufficient permeability. And how does that look at these greater depths?

Carlos Arake (11:36)

Yeah. So in general, permeability decreases as you go deeper. You have more lithostatic pressures and that's going to work against you. However, the crust of the earth is critically fractured. This has been shown. What that means is that there's already an inherent fracture crust at large. When you start putting cold fluids in an injector well, the density of those colder fluids versus the lower density of the pore pressure fluids will actually open that up. I did a very early in my days in quays and coming from oil and gas, I did a little bit of a literature search on something called loss circulation events in oil and gas. It basically means you're losing your drilling muds and you see it in the literature when you exceed a certain depth of temperature threshold when you're going into the a little bit too deep, a little bit too hot well bore. In oil and gas you have low circulation events. In other words, you fracture, you activate the permeability in the rock that's already there. So we believe that in the geothermal we're going for this hotter, deeper kind, activating that permeability. It's going to be favored by physics, by differential density of fluids. But this is an EGS system. We're not talking about having permeability in there. If it there, it's there, it's closed. We're talking about activating that permeability through fluid flow. But this is a drastically different process than what you would see in fracturing for oil and gas that requires very high pressure surface pumping for very long time frames.

Shael Khan (13:14)

So if I can try to repeat that to make sure I understand it, expectation is in the places you're going to be drilling, there will be low permeability. So you will need to fracture. We don't currently frack at those depths because we don't drill to those depths really in oil and gas. But you believe that because of the fundamental physics, it will actually be easier to frack, essentially because you're basically going to inject drilling muds and those are going to open up a fracture network just because of how the rock works. Has anyone done that at that time depth ever?

Carlos Arake (13:53)

So we don't access these depths at these temperatures. Right. Any, any hole that's deep in the world is not hot. So this effect doesn't quite manifest. Like COLA in Russia, the KTB in Germany. They're, they're cold, they're, they're barely. They're half the temperature that we needed to be. So the answer is no. Nobody's ever done it. The closest we've done to that is in the lab. EPFL has been publishing a very interesting work, the Japanese as well, showing this effect. But that's correct. The physics tells you and the lab experiments tell you that the density of the colder fluids play a disproportionate role in fracture initiation and propagation at these temperature depth combinations. Now, the first project, the one we're doing in Oregon, will be the beginning of showing those effects. I think we're going to be the first people in the world that actually show and start pointing the way to that following from lab results. Yeah.

Shael Khan (14:51)

So I guess if you think about at the high level, there's an obvious reason to do this, right? If you can successfully drill to these depths and these temperatures, the resources enormous and ubiquitous, depending on how deep you get. And so it's super attractive. Why hasn't it been done? There are a bunch of technical challenges. So if we think about the kind of big technical challenges, I think I'm picking up two right now. And I want you to tell me if there are others that I'm not thinking of. One is how do you drill this right as you pointed out, the oil and gas drilling systems that we've developed are not designed to go to these temperatures, even if they are designed to go to these depths. And then two is what we're talking about right now, which is. Okay, now you have to kind of, I don't want to overstate it, but like invent a new form of fracking essentially that you can do at these great depths and these great temperatures and then ensure that that delivers sufficient permeability and that your decline curve is acceptable and so on. Do I have those two technical risks right at the high level? And then are the other major challenges that I'm not thinking of?

Carlos Arake (16:02)

Yeah, I think those two encapsulated core of what are the gates that you need to go through to prove that this can be done at scale? The drilling by far outweighs the fracturing. The fracturing does happen in nature. We see these in nature every time a hydrothermal vent or a mine forms. This is the process by which it does. So there's evidence in the geological record that the fracturing part has precedent. There's no evidence whatsoever in the geological record, of course, that you can actually drill these things mechanically from the surface. That's a unique thing. I would say that if you can access these temperatures regardless of depth, you've initiated a journey for human creativity and industry to actually conquer that, that frontier, that geological frontier. And as you correctly pointed out, I think the price that we gain by doing so is enormous. It's unlike any other energy source out there. It dwarves everything else combined. So that's right. There's a lot of engineering between here and there. But engineering is not physics or fundamental science are things that can can get unlocked one step at a time, starting with those shallower systems and progressing sequentially to the deeper systems. We're not going to develop a deep system on day one because that's unnecessarily hard. We're going to develop the shallow systems on day one and progress from there.

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Shael Khan (19:30)

Apart from just the drilling, I guess this is part of the drilling challenge. But all the equipment and the materials that we put down whole all the stuff that is built for the oil and gas industry, like how much of that stuff? The casing, the wireline, logging equipment, like all these things that we built up over years, decades in oil and gas. How much of that has to be replaced when you're getting to those kinds of temperatures? Is it a wholesale replacement of the full system or is it just a small set of things that are not tolerant to that kind of heat?

Carlos Arake (19:59)

I think they are. They are incremental evolution. So. So the big gaps have already been solved for these shallower systems, you know, and I think that's important. If we talk about shallower super hot rock systems versus deep super hot rock systems. The gap.

Shael Khan (20:15)

When you say shallower you mean the like three mile depth?

Carlos Arake (20:18)

Yeah, the three mile, four mile, maybe even five mile. And we call those tier one. We've created our own language around that just to differentiate that the deep ones are the 12 miles, the 11 miles. Those are drastically different problems and engineering challenges. So talking about the shallow ones, it's incremental improvements. There's a lot of precedence already in oil and Gas. There's something in oil and gas stock called sagd, Steam Assisted Gravity drainage which injects steam at temperatures up to 600 degrees Fahrenheit to mobilize very heavy oils and produce them. There's a whole array of techniques, materials, tools that have been developed for that market in oil and gas that provide evolutionary pathways for doing these super hot rock geothermal cements. You need cements that cure at higher temperatures. There's providers that provide that. You need to rely on non elastomeric solutions so no rubber in that hole because everything's going to flow. Those already exist. And steels are quite resistant even at these temperatures. We make power plants that operate at much higher temperatures. These issues do not intimidate or prevent us from doing these things. Now as you start going into deeper systems, then other gaps open up. But that's why you need to create an industrial momentum and a market for the providers of the world to innovate in that space. With electronics, it's usually your hard imitation. Electronics don't survive to much higher temperatures than 200 degrees Celsius or 400 Fahrenheit. But you can circulate muds or liquids through the system to keep them cold while they do their job. So again, a lot of things that you can do to make these things actionable, doable today for the shallow systems, not for the deep systems.

Shael Khan (22:05)

Even at what you're calling the shallow systems. I guess one question I have, one challenge I imagine that you face as a startup going after this is that iteration is very expensive, right? Like a single well is going to be tens of millions. To get to that depth is going to be tens of millions of dollars. That's sort of normal if you're an oil and gas and you're doing offshore or whatever. You know you could spend $50 million on a single well. That's part of your capital budget. But it's obviously tricky as a, as a startup. So I presume your solution to that is a combination of we're just going to need a lot of money, but also do as much learning as you can before you have to drill all the way down to a three or four mile depth. How much can you learn and prove without going to that depth versus how much you're just going to have to drill that deep to get there.

Carlos Arake (22:54)

The these things are already drilled, right? So the place we picked for our first project already has holes drilled to the right temperature depth combinations. So that is the key. The key is your first project, your first attempt cannot represent technical gaps because you're going to run out of money and you're not going to be able to raise the tens of millions of dollars that you need. So we've already done that. We've picked a location with enough precedent and we've picked a team with enough understanding of that location to convince enough take of power that we can build under those conditions. So we're already getting into market in that location with a real take or pay PPA because we know that we can point to all of the solutions with precedent.

Shael Khan (23:44)

How has it, I mean who drilled a previous well to that temperature depth

Carlos Arake (23:48)

combination and why in that particular location? Neighbors. Neighbors is our drilling partner. Right. So another reason why we're working with them this, these temperature depths. So this shallow super hard rock wells are have precedent going all the way back to the 70s. Humans have actually pushed tools to these extremes successfully. What nobody has ever done is to actually build a full commercial grade enhanced geothermal system out of them. We're basically picking precedent from everywhere to build their first commercial EGS system. That's super hot rock. Now that wouldn't work in a deeper system, but that works in a shallow system. To make it work in a deeper system, you need to close those gaps. That's where our drilling technology and many of the other things we're doing in the background come into play. Play. But you start, you get into your first commercial success with as much precedent as possible so that you can actually navigate those 10 million to $100 million gaps that is going to take you to do so.

Shael Khan (24:56)

So, but wait, so neighbors in this case, which is, you know the company doing the drilling, they drilled in this place in Oregon where you guys are starting, they drilled a well to this depth and temperature combination in the, in the interest of doing geothermal and but did never, never completed a power plant with it because presumably it didn't work in some way or another. Like what, what stopped them?

Carlos Arake (25:21)

Yeah, so back then whoever was in charge of the development and it wasn't Nabors. Nabors is a drilling provider. So the developer back then and, and going back to the 80s and 90s at this particular location in Oregon, they were looking for hydrothermal systems. So they didn't find them and therefore they didn't proceed by shifting from hydrothermal to egs. You open up the pathway now. So again I see.

Shael Khan (25:48)

So they didn't find the permeability they wanted. They, they abandoned it. But your, your hope is that you'll be able to open up that permeability Correct.

Carlos Arake (25:55)

And just like that location, I can point to more than 50 wells drilling the world by people looking for super hot hydrothermal systems that are going to be in the 3 to 4 mile RA and are going to be in the 600 to 800 degrees Fahrenheit. Some of them are actually getting very close to 1000 Fahrenheit. So again, precedent all over the place. It's the only way for a startup to grab those precedents, learn from them, pull the right people and build our first commercial project, get itself into business and keep expanding from there.

Shael Khan (26:27)

Well, it's interesting because you before described among the two key technical challenges, drilling to that depth and temperature and fracking. Essentially different version of fracking, but nonetheless you described the harder challenge as the drilling one. But it actually sounds like in these shallow super hot systems the drilling is not the problem. That has been proven. People have done it 50 times as you said. And that means the remaining technical challenge is getting the fracture network built.

Carlos Arake (26:54)

That is correct. For those shallow locations, absolutely right, yes. So you're one step away from commercial success and we're actually well underway in overcoming that commercial, that technical challenge to get that commercial success. You're right.

Shael Khan (27:08)

Can you walk me through? You know, I realize there's a long term version of the economics here where you can get remarkably cheap power in theory, again, like the bulk of your cost or maybe, what is it, 50% of your cost in a traditional hydrothermal system is just the drilling costs, something like that. Because you have all this above ground infrastructure too, but you're cutting that cost effectively by, by 10x at least relative to the denominator of power produced.

Carlos Arake (27:34)

That's right.

Shael Khan (27:37)

So what does it look like in your context with the new materials you need, with the type of drilling that you're doing and the speed of that drilling with the fracture network, you're going to have to open up. Yeah, walk me through how to think about the unit economics.

Carlos Arake (27:51)

Yeah, so you're correct. So normally in regular geothermal you think of the unit economics as 50 50. Very roughly speaking, it's about 50% drilling costs, 50% power plant surface costs. With the super hot rock kind that changes significantly because your lcoe, talking about lcoe, you're not working on the cost side of the equation, you're working on the revenue side of side of the equation. Preferentially by accessing hotter temperatures, access getting more power output per well or per power plant, you're actually working on the revenue side of the equation to lower the LCOE. So for us the drilling cost will be in the 20 to 30% of the LCOE. The higher outputs will be a big part of bringing those LCOEs down. And we see $100 per megawatt hour at the meter, no matter where you are in the world. Now that includes the shallow and the deep systems. If you look specifically at the shallow systems, you're Talking about sub $50 per megawatt hours because they're not quite as expensive to build. You're not drilling as much, you're not putting as much piping in the ground, they're shallower, but yet they still produce just as much energy as an oil and gas well. So the energy output between the deep and the shallow ones doesn't change the cost to change. But the LCOs will range in the 50 to $100 per megawatt hour. So that's what we're talking about. To me it's important to match the output of oil and gas to entice oil and gas to participate at scale. If you don't do that, it's always going to be a compromise.

Shael Khan (29:30)

Drilling speed is a big portion of drilling cost for anything where there's drilling really, including geothermal. And you're going deeper. So I would presume that your to you, drilling speed actually ends up being among the or the most important metric probably. What do we know? You're introducing a novel sort of drilling process, millimeter wave drilling, which you can explain what that is. What do we know about speed and how do you compare that to what we typically see?

Carlos Arake (29:58)

Yeah, so the important thing with speed is the total average speed. So it's like the tortoise and the hare. A lot of people overemphasize instantaneous speed. Like oh, we can drill 100 meters per hour instantaneously. But that matters less than your consistency. Non productive time in drilling is what starts to take over your drilling economics. You start spending a lot of time not drilling but replacing the drill bit and running the piping out of the hole. For us, we're not really trying to have ungodly drilling speeds instantaneously. We're trying to have a very low non productive time independent of temperature and depth. What do we talk about? We talk about three to five meters per hour. All things consider, what does that translate to? It means you can get to 10 kilometers at six miles within 100 days. You're in the money there. To give you a sense, the Chinese recently did an 11 kilometer haul and I'm switching units because it's been reporting those units about 8 miles deep. The first 10 kilometers took a year to drill and the last 1 kilometer took another year to drill. So there is a massive exponential in there and that's what we're going after. We don't care about the instantaneous speed, we care about the non productive time and the consistent speed. We want to get down there regardless of depth in weeks, not years. And we don't need to get there in days because that's a small part of the economic output really the power output per well is what drives LCO is at that point.

Shael Khan (31:35)

All right, just to I guess drive us home here, what should we expect in the coming years? You know, you're among the pretty small number of companies who are going after super hot rock geothermal. What are the milestones that we should be looking out for? What are the indications that this is going to become ultimately there will be a commercial project generating power and selling it to the grid. That's the end state or maybe that, maybe that's the end state part one, because somebody will do that in what you call shallow systems and then it's going to take a while for somebody else to do it at 10 mile depth or something like that. But you know, in the lead up to like there being the world's first super hot rock geothermal power plant, what are the milestones we should watch out for?

Carlos Arake (32:17)

Yeah, the flow test. The flow test is the moment of truth, is the equivalent of heating oil and the oil gushing out. So the flow test is the ability to drill down two wells, usually connect them through a fracture network and produce steam at a given temperature and pressure and flow rate. If you can see that, if you can point to that and you can say, look, it's durable, it hasn't lost temperature, it hasn't lost flow rate. The rest is relatively straightforward. You build a power plant on the surface to convert that steam to electricity. So the flow test is the thing we all should be watching for. I want to, and I and I want to see flow tests that are super hot and they can be subcritical or supercritical, it doesn't really matter. But hovering in the 400 degrees Celsius or 800 Fahrenheit and I want to see them in a variety of depths. In the three milers, in the four milers, in the five milers. And that's the roadmap for us in particular, the project in Oregon gets that flow test by the end of this year. By the end of 2026, Quais has a commercial grade injector producer per EGS system producing 25 to 30 megawatt equivalent electric output from a flow test that

Shael Khan (33:45)

is like three mile depth plus or minus.

Carlos Arake (33:47)

At a three mile depth, plus or minus. Correct. From there in 2028. So two years later we'll do another version of that that is not at 3 miles but a little bit deeper and above the 400 degrees Celsius or so, we're basically walking up the temperatures at that site to unlock those output, those multiples in output. So in 28 we'll have the first ever supercritical. The first one is subcritical flow test and then you continue from there. Now Quais has a parallel path on technology development. The drill itself is doing its own thing, running ahead of the project's requirements. And by 27 we drill 5 kilometers, so 3 miles at 500 degrees Celsius or more in that location. And by 28 we do twice that, 10 kilometers or 6 miles at 500 degrees Celsius or more at another location. So what the drill is doing is establishing that the rock can be access and that's the technology development roadmap. What the project is doing is showing the project economics and line of side to those LCOEs. When you do the hotter version of

Shael Khan (34:54)

geothermal, maybe you're going to do both. But if you succeed in a flow test end of 26 or whenever it happens at 3 mile depth and just a little under 400 degrees C or 400 degrees F. Sorry, that's probably, I mean depending on your drilling cost, I suppose that's probably good enough to be a commercial system. Why then make the next step go to four mile depth, walk your way up the temperature gradient. Why not produce and sell power at three miles?

Carlos Arake (35:27)

We will, we will just. We don't call it Topco. So Quai's Topco is not the company that does that. It becomes a project code that's capitalized with project level financing, with debt vehicles, with vendors. So you spin out the those projects and they become their own thing. But that's no longer the mission of the tubco. The top co enables those playbooks for the project codes to actually execute and scale them. But yeah, that's exactly what happens. The minute you do this, many people, many players will want to do that. And that is what we call success. It means people will go for this harder version of EGS that are actionable, doable, they'll see the economics and scale them through the increasing lower cost of capital and larger supply chains. So yes, that's what happens all right,

Shael Khan (36:13)

Carlos, this was a lot of fun. I think I've. I've. I. I've made it the entire conversation without using let's go deeper as a metaphor. So I'm pretty proud of myself, to be honest. Um, but that was just as deep as I wanted to go, so thank you.

Carlos Arake (36:29)

Excellent. Thank you. Ciao.

Shael Khan (36:32)

Carlos Arake is the CEO and co founder of Quaise Energy. This show is a production of Latitude Media. You can head over to latitudemedia.com for links to today's topics. Latitude is supported by Prelude Ventures. This episode was produced by Max Savage Levinson. Mixing and theme song by Sean Marquan. Stephen Lacy is our executive editor. I'm Shayl Khan and this is Catalyst.