UCG Projects to Come Online in South Africa

BRISBANE, Australia - June 30, 2013 - PRLog -- Johannesburg-listed Exxaro Resources said it expected it would generate 600MW of power and 30,000 barrels per day from three underground coal gasification (UCG) sites it had identified in terms of a recently signed joint venture with Australia’s Linc Energy.

“We have identified three potential coal resource areas which we have which will be amenable for UCG,” said Ernst Venter, Executive Head: Growth, Technology and Services. “The resources at each of these sites are sufficient to sustain a minimum of 200MW of power and 10,000 barrels per day (gas-to-liquid) fuel for at least 20 years,” he said.

In a separate announcement, petrochemicals giant Sasol said it had established a joint venture with Eskom to share knowledge on the development of UCG technology through mutual partner Ergo Exergy Technologies. Ergo Exergy Technologies is a Canadian company that has developed three UCG projects in New Zealand and Australia. The third project is a pilot plant at Eskom’s Majuba, a venture the state-owned energy company has been running for five years.

On May 30, Exxaro Resources announced it has signed an agreement to look for UCG throughout sub-Saharan Africa with Linc Energy. In terms of the agreement, Exxaro said it would pay Linc a total of A$27M (R255M) allowing for the non-exclusive use of its technology and for delivery of the first project in which Linc would also have a 15% stake.

Linc Energy also had the right to take a non-controlling 49% stake in projects identified by Exxaro Resources while it would take royalties from gas produced and sold by Exxaro Resources’ projects.

“Reaching this milestone opens the door for the teams to commence with the detailed project work to monetise the inherent value we believe is contained in this clean coal technology,” said Sipho Nkosi, CEO of Exxaro Resources.

It’s not the first time Linc Energy has invested in a South African UCG project.

In 2011, Linc Energy bought 9.6% of JSE-listed Firestone Energy which has coal resources possibly exploitable for UCG in the Limpopo province in South Africa – a transaction described by Peter Bond, CEO of Linc Energy, as a “classic investment” by the company.

Commenting on the transaction with Exxaro Resources, Bond said: “This is a substantial strategic move by Linc Energy to add Africa to its global portfolio to roll out UCG as an alternative and complementary energy solution”.

Venter declined to say where the coal resources were located. Yet the UCG joint venture with Linc was part of Exxaro’s clean coal strategy and would complement the coal base load independent power producer (IPP) project that was linked to the development of the group’s Thabametsi mine, adjacent to the massive Grootegeluk in South Africa’s Limpopo province, Venter said.

“Our first objective will be to demonstrate the technical and commercial viability of this technology on our UCG resources,” said Venter.

“After that, and depending on the quality of Syngas produced, we will decide whether we produce power and/or liquids from this,” he said. “We have already identified and ranked possible proejct areas, but unfortunately it’s too early days to tell you where it is,” he said.

The timing of the UCG project is to demonstrate viability by 2016 and thereafter progress the initiative, Venter said.

Eskom said its pilot project had shown that its technology worked, and that it was able to efficiently extract energy from complex and poor quality coal resources. The next step was to improve and then prove the quality of the gas.

However, Eskom Group Executive of Sustainability, Steve Lennon, said: “This is not a project we can execute alone and partnerships such as the one announced will help us maximise the benefits to South Africa”.

In November in 2011, Sasol signed a joint venture agreement with Australia’s Origin Energy to explore for coal-bed methane in Botswana. The Kubu joint venture has prospecting rights covering about 3,000km2 in Botswana. The partners planned to explore for UCG for a two-year period.

Although both UCG and coal-bed methane make use of low grade coal, the technological processes are quite different and involve the burning of the gas in-situ in the case of coal-bed methane whereas UCG is extracted from the earth.

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