Coal makes way for gas as Leigh Creek Energy eyes $1b project
ASX-listed Leigh Creek Energy is aiming to build a $1 billion project supplying gas to the eastern states using the same large coal deposit which TPG-owned Alinta Energy is about to abandon in northern South Australia.
Leigh Creek Energy managing director David Shearwood said the company first began talks with Alinta two years ago and had been working closely with the private equity-owned group. It was stepping up its own plans to use an in-situ gasification process to extract gas from the coal field, 550 kilometres north of Adelaide.
China’s largest state-owned investment and trading conglomerate Citic holds a 7.5 per cent stake in Leigh Creek Energy, which is developing the unconventional gas project where coal is heated up to very high temperatures and then breaks up under pressure, releasing methane.
Leigh Creek Energy undertook a back-door listing on the ASX earlier this year using the shell of the former Marathon Resources, and holds petroleum licences over the large coal deposit which stretches almost seven kilometres at Leigh Creek.
The deposit has been mined for coal by Alinta Energy and its various predecessors for the past 70 years, with the coal transported by rail 250 kilometres south to two coal-fired power stations at Port Augusta.
But Alinta announced last week it was bringing forward the closure of the coal mine to next month and the coal-fired power stations shutdown to March, 2016 because they were losing money in an electricity market hit by over-supply and weak wholesale power prices. The coal deposit is owned by the South Australian government, which is backing Leigh Creek Energy’s plans and has a legislative framework in place which allows development of unconventional gas projects.
Mr Shearwood said the company aimed to be producing gas within three years and had a major leg up because it would be taking over much of the existing infrastructure to be left behind by Alinta. There was already an airport, rail link and electricity supply.
“We’re aiming for the back end of 2018,” Mr Shearwood said.
“Yes, it is ambitious, but all the boxes have been ticked,” he said. Appraisal drilling will begin in November to more accurately quantify the coal and gas volumes.
Capital spending is earmarked to be $500 million over the first three years, with three options under consideration for a pipeline to link up to an existing Moomba pipeline centred on the Cooper Basin in the north of South Australia, which is ultimately connected to the eastern states gas network.
Mr Shearwood, a mining engineer by trade who worked for 30 years as an investment banker and funds manager at firms including Macquarie, Westpac and QBE Insurance, said the group was talking to several international players about the best way to finance the project.
“We’re looking at all the options,” he said. Mr Shearwood said later the firm planned to build an ammonium nitrate plant to supply the fertiliser and industrial explosives industries, and the entire project could be worth up to $1 billion.
He said even though the economics of the large LNG plants on Curtis Island in Queensland including the GLNG plant operated by Santos had been hit hard by the slump in oil prices because they operated on oil-linked pricing, there was a shortage of gas looming in the eastern states.
Mr Shearwood said in-situ gasification had been used in Uzbekistan for the past 60 years, while there was a demonstration facility operating at Swan Hills in Canada.
Leigh Creek Energy’s share price has been largely trading in a band between 16¢ and 24¢ for the past six months and sits at 18¢.