It's often referred to as the "forgotten renewable," but if the U.S. Department of Energy is correct, then geothermal energy could be poised for an epic come-from-behind victory in the race for top renewable energy source.

According to the government's analysis, next-generation technology known as enhanced geothermal systems (EGS) being developed right now could open up between 100,000 megawatts and 500,000 megawatts of geothermal power potential across the United States. That's a lot of power. In fact, it's roughly equivalent to the country's total installed capacity of nuclear power at the lower end of the range and all of the nation's coal- and natural gas-fired power plants combined at the upper end. And it even could be a gross underestimation of what's actually available, since little time has been spent discovering potential sites. 

The bad news is the first commercial deployments may not occur until 2030. The good news is the oil and gas industry has already developed a good chunk of the technologies and supply chains required to tap into the inexhaustible renewable energy source. One energy stock is uniquely positioned to diversify its existing business.

A geothermal power plant.

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Enhanced geothermal systems, explained

The United States is already the world's largest producer of geothermal energy. In fact, America generates more electricity from hot rocks underground than all but six countries generate from solar power. With the country having just 3,800 megawatts of installed geothermal capacity today, though, the bar isn't very high. 

There's a reason geothermal energy has been slow to catch on. Three of them, actually. An economical geothermal power plant requires an underground heat source, a fluid that can carry heat, and rocks with fractures in them allowing the fluid carrying heat to travel to the surface and spin turbines, creating electricity. While there's plenty of natural underground heat across the United States, not many locations have the other two characteristics.

That's where EGS comes in. In short, the idea is to develop drilling and fracking technologies that can make geothermal energy available almost anywhere. If that sounds awfully familiar to what led to the overnight rise of shale oil and gas, that's because, well, it's almost the same thing.

Three people sitting at a table reviewing financial documents.

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Is this the top geothermal stock?

Many of the problems facing EGS today are the same ones shale energy dealt with years ago: drilling wells, stimulating wells (keeping the fractures opened and the fluid flowing), characterizing underground reservoirs to optimize drilling and extraction techniques, and so on. That makes one oil and gas stock uniquely positioned to cash in on the opportunity of EGS: Core Laboratories (NYSE:CLB).

The analytics company specializes in modeling and characterizing oil and gas reservoirs, the fractures involved, and how fluid will flow through the fractures and back to the surface. These services are designed to optimize production (fluids flowing to the surface), extend the life of an asset, and boost the economics of extraction -- all of which are priorities for the Geothermal Technology Office at the DOE.

It might not be on the radar of investors today, but that could soon change. The DOE has outlined steps to build a pilot EGS power plant of 5 megawatts by 2020, recently announced up to $14.5 million in funding available for new technology development, and wants to bring the cost of EGS down to about $0.06 per kilowatt-hour by 2030. That would make it one of the cheapest power sources available -- and the cheapest baseload power source, besting nuclear and coal -- and should enable widespread adoption.  

A shale oil and gas well.

Image source: Getty Images.

Core Laboratories isn't overlooking the long-term opportunity. The company has quietly started an EGS segment developing the services future power plant developers will need, such as modeling fluid flows through fractures, characterizing well stability, and offering optimal extraction strategies. It might not be long before investors begin to see the company announce government grants or even industry partnerships looking to spread risk while getting a next-generation geothermal market off the ground.

The good news is the business has ample cash flow and time to make small investments (or even acquisitions) that accumulate over the next decade to cash in on the opportunity represented by EGS. With American tight oil and gas production expected to grow sustainably over the next decade or two, especially as export volumes increase, Core Laboratories' financial strength might be increasing at just the right time.

Consider that oil and gas drillers are now focused on returns on invested capital, not production volumes. That makes the company's unique services even more in demand. In the first quarter of 2018, total revenue jumped 9% from the year-ago period, although its production enhancement segment saw a year-over-year increase of 34%. Management has a healthy outlook for the business for the foreseeable future, which bodes well for freeing up cash to invest in diverse new growth opportunities such as EGS.

A geothermal power plant.

Image source: Getty Images.

Fracking might be key to a renewable future

Is EGS just a renewable pipe dream? Well, put it this way: Less than two decades ago, the United States had no way of economically extracting all of the oil and gas trapped within underground shale formations. It was barely on the radar of investors. But the emergence of innovative drilling, fracking, and other technologies changed that virtually overnight -- and disrupted global energy flows in the process.

While there are differences when it comes to developing economical EGS power plants, the emerging technology ecosystem has the benefit of piggybacking off innovations from the oil and gas industry. That includes critical reservoir description and production enhancement services developed by Core Laboratories, which isn't writing off the potential of next-generation geothermal. Whether the technology as a whole is on the path to commercial viability may be known in the next several years or so. If it does, then this oil and gas stock's long-term future will be a lot brighter.

Maxx Chatsko has no position in any of the stocks mentioned. The Motley Fool recommends Core Laboratories. The Motley Fool has a disclosure policy.