Leigh Creek Energy on the NOSE, but not on the money

The controversial Leigh Creek Energy Project (ASX:LCK) has been given the thumbs down by market analysts watching the company in the wake of its ‘proof’ of reserves and unlicensed Underground Coal Gasification (UCG) play in the Northern Flinders Ranges.

How does a company manage to spend and attract so many millions for a project dubbed time and again as a lemon , an outrageous abuse of democratic process, posing a significant threat to the environment and regional population?

As they say the proof is in the pudding, and this morsel reinforces the ‘sharemarket cowboy’ case, a cluster flock of SA politicians and their business mates, money for nothing with the exception of public pain and millions wasted  from the public purse supporting the fiasco.

In the thick of the rubbish being reported and the scarcity of factual ABC Regional reporting, this well researched and timely article is presented courtesy of the Financial Review.

Angela Macdonald-SmithSenior Resources Writer
Apr 14, 2019 — 11.59pm
Independent confirmation of a large volume of gas reserves in South Australia that could help solve the east coast gas crisis is being largely dismissed by energy analysts and some buyers amid doubts about the economics and environmental credentials of a production process that has been banned in Queensland.
Leigh Creek Energy’s success last month in securing certification of 1153 petajoules of “2P” reserves for its underground coal gasification (UCG) project in an abandoned coal field has increased interest in the project, and has triggered “a lot of phone calls,” said managing director Phil Staveley. (2P reserves are those deemed “proven and probable”.)
Leigh Creek is the site of an abandoned coal mine. Howard Goldenberg
The junior, whose share price has more than trebled since early February, is describing the resource as the “east coast market’s largest uncontracted 2P gas reserve” and is running a tender process for the gas.

It is negotiating with potential joint venture partners that could help fund development of a $3 billion project, involving a 200-kilometre pipeline, gas plant and associated fertilisers plant, about 550 kilometres north of Adelaide, Mr Staveley said.

Production could start in 2024, he said, four years later than a target the company gave two years ago.

But UCG, which involves burning coal underground to create synthesis gas, or “syngas”, has a poor reputation in Australia because of environmental damage caused by proponents in Queensland, including former Rich Lister Peter Bond’s Linc Energy. The Queensland government prohibited it in 2017, saying risks from the process “outweighed any potential positives”.

Still, Mr Staveley said a demonstration project late last year proved Leigh Creek Energy could carry out the process environmentally, technically and safely and that the South Australian regulator remained “open minded”. The company now was starting the approvals process for a much larger commercial project, expected to take about two years, targeting coals lying between 500 and 800 metres underground, he said.
Environmental groups, including Conservation Council SA, have called for the SA government to rule out granting a commercial licence for the project. The state Department for Energy and Mining says the company would have to demonstrate compliance with all regulatory requirements to gain approval.
Mr Staveley said the costs of producing syngas, at “about a dollar” per gigajoule, easily undercut prices for methane, the basis for fertilisers, which can be made directly from syngas. Upgrading the syngas to pipeline gas for sale to manufacturers would take the cash cost of production to about $3/GJ, he said. The wholesale gas price was $11.05 a gigajoule in Adelaide on Tuesday, and manufacturers across the east coast have been calling out for cheaper prices to avoid plant closures.
But analysts are still questioning the costs of upgrading the syngas – a mix of carbon dioxide, hydrogen, carbon monoxide, methane, nitrogen steam and gaseous hydrocarbons – to sales quality, and of a pipeline to connect the site to the east-coast grid. The inclusion of a fertiliser plant also suggests a value-added product is needed to make the economics work.
When we go from 2C to 2P that’s when we go from spreadsheet gas to real gas.
— Phil Staveley, Leigh Creek Energy
“They have definitely taken the next step forward and proven they can make syngas, but there are still questions regarding the cost to bring it up to spec,” the analyst said, citing high levels of carbon monoxide and carbon dioxide in the mix.
Neither EnergyQuest nor Wood Mackenzie factor in the gas to their analysis of the east-coast market. The Australian Energy Market Operator didn’t include the reserves in its recent 2019 gas outlook report, which forecast shortfalls from the winter of 2024.”As this announcement is still in its early stages, it is unclear how these reserves will be utilised, however, AEMO will continue to work closely with stakeholders to monitor all new supply announcements, and will seek to include all the latest data in our upcoming publications,” a spokesman for the regulator said.

Leigh Creek Energy invited expressions of interest two months ago for 50PJ a year of pipeline gas supply, but Mr Staveley said several potential customers wanted to see a 2P reserve certified before going further. That came with the sign-off by Denver-based MHA Petroleum Consultants of the reserves, which rank in volume only behind the Gippsland Basin on the east coast, the company said, citing data from the competition regulator. Another 1469 PJ at the site in the Telford Basin is classified under the less certain 2C grade (the best estimate of contingent resources).

“This 2P [certification] is what we’re seeing as a defining moment,” he said. “When we go from 2C to 2P, that’s when we go from spreadsheet gas to real gas.”
Mr Staveley gave a possible capital cost of about $1 billion for the gas plant and pipeline, plus $2 billion for the fertiliser plant.

 

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Image source: Interesting article on Ponzi Schemes, white collar crime.