Leigh Creek Energy (LCK) is an ASX-listed energy company that is making rapid progress towards realising a goal it set almost a decade ago. That goal is to successfully deliver its Leigh Creek Energy Project, located within a former coal mine 550 km North of Adelaide in the state of South Australia. The project is based on a process called in situ gasification (ISG), which converts deep and difficult to obtain coal from its solid state into synthesis gas (syngas) – a lower carbon-emitting form of energy compared to thermal coal.
In the first quarter of the year, Leigh Creek achieved first commercial production-grade syngas from its demonstration plant and had its resource at the site independently certified as the largest uncontracted 2P gas reserve serving the East Coast market. These present two major milestones for the company in terms of proving the commercial viability of the project and underlining its importance to the starved domestic energy market. RGN’s editor finds out more on the continued progress made by Leigh Creek this year in a discussion with managing director Phil Staveley.
Jacob Ambrose Willson: Leigh Creek achieved first commercial syngas production from the demonstration plant in February 2019. What were the key achievements from the trial and how important was its success to the future success of the project?
Phil Staveley: The company’s plan to run a Pre-Commercial Demonstration (PCD) was to demonstrate to the regulator and the wider community that we could utilise ISG for commercial use in an operationally and environmentally safe way, but also produce targeted commercial quality and quantities of gas to have a portion of its sizeable resource upgraded to reserve status.
The objectives (below) were all achieved, and LCK subsequently received third-party validation of a PRMS certification of 1,153 petajoule (PJ) 2P reserve [2P is the sum of proved and probable reserves – ed].
JAW: A month later the company was able to upgrade the resource making it the largest undeveloped 2P gas reserve available to the East Coast markets. How important is the scale of this resource, given the current critical energy situation in the region?
PS: Australian natural gas demands have increased around 300% since 2014, and an undersupply in the domestic market means there is an urgent need for large-scale pipeline gas supplies.
There are also limitations for significant exploration and extraction within regulatory framework in other states.
LCK’s 2P reserves of 1,153 PJ (1.1 Tcf) is a significant number, capable of producing and maintaining a commercial project for at least 30 years.
Furthermore, LCK’s PRMS Reserve certification will increase over time as more information about the petroleum accumulation at Leigh Creek are established. This additional information will be derived from a variety of sources, such as further drilling, seismic work, and production testing.
JAW: At the end of June, the company was able to successfully decommission the PCD project. How vital was it to sign off the project with no significant environmental or safety incidents?
PS: The company’s successful PCD justifies commercial suitability and provides evidence of how a commercial ISG project can operate safely in accordance with environmental and regulatory guidelines.
We have a track record beginning in April 2018 when the regulator looked at the science and backed our expert staff with an environmental approval. The reserve certification now justifies their decision and shuts the door on any argument suggesting ISG can’t operate in a commercial application safely and within environmental standards.
JAW: How symbolic is this move in terms of Leigh Creek transitioning towards commercial negotiations, particularly as you’ve already had discussions in Hong Kong and Beijing?
PS: The reserve certification has allowed commercial negotiations with bankable partners, mainly due to the booking of LCK’s maiden reserve. A reserve means the gas has been independently qualified, assessed or judged to be of a commercial grade, suitable for a commercial project.
Partners wanted to see that the gas could be commercial before they would formally and seriously negotiate.
JAW: What are the company’s targets for the second half of the year and then into 2020?
PS: 2019 will see Leigh Creek Energy complete its options analysis, which will determine its preferred commercial pathway between pipeline gas, urea fertiliser, or both. All these options show significant economic perspectivity.
The remainder of 2019 will see our technical team engage in more geotechnical investigation, and progress towards applying for appropriate permits from the state government regulator to move forwards towards commercial operations.
Our executives continue to progress with commercial negotiations.
In 2020, the company will complete its pre-feasibility studies, have submitted appropriate applications to government and announced relevant commercial partnerships.
JAW: How prepared is Leigh Creek for any form of speedbump that may slow down the pathway to commercial production?
PS: LCK is writing the blueprint for commercial success using this technology in Australia, and as is the case with new and unconventional developments, we have to often face and solve issues subsequent developers don’t have to deal with.
This is why the PCD was so important – not only to demonstrate to the regulator and the wider community that we could utilise the technology for commercial use in an operationally and environmentally safe and sustainable manner, but to understand and react to any issues that could potentially arise on a larger scale.
To successfully operate the PCD and get this far is a huge achievement and speaks volumes of the quality of staff and technical knowledge under the LCK roof.
They’ve proven to be fully equipped to react accordingly to any unexpected hurdles that any company may face when pioneering a relatively little-known and innovative technology.
JAW: You earlier identified two potential commercial pathways for your syngas product – fertiliser (urea) and natural gas. Which market do you think your product is best suited to?
PS: The most financially attractive commercial direction for LCK is to maximise the value of the company’s vast gas resource at Leigh Creek and to turn this asset into fertiliser products on site. Factors influential in this decision include existing transport infrastructure which enables LCK to access markets for the product mix, demand for the product with stable pricing, and LCK’s natural advantage in having a large feedstock resource that can be used in production at a very low price.
However, our recent reserve certification cements LCK’s project status firmly in the gas market in Australia too. The company is working through negotiations with gas purchasers who are seeking a material amount of gas supply, while we progress the dual path and scoping aspects of a compelling fertiliser strategy.
JAW: When RGN last spoke to Leigh Creek in 2018, another possible commercial route discussed was that of hydrogen production. Is this still an option being considered by the company?
PS: As we’ve mentioned previously, the volume of hydrogen potentially produced at Leigh Creek is generating excitement from potential end markets. Couple that with the fact we can produce it cheaper than anyone else in the industry certainly means the option must be considered and carefully analysed.
However, our greatest potential for value creation means our preferred commercial pathway will be along the pipeline gas and/or urea fertiliser production sectors. Ultimately, our remote location and the infancy of technology solving hydrogen transportation issues means hydrogen may not be as viable an option for LCK right now.
JAW: Finally, can you summarise how excited everyone at Leigh Creek is following the recent progress made towards the commercial project?
PS: LCK’s past financial year has featured our greatest achievements to date and our most significant steps forward towards realising a goal set almost a decade ago. Those of us at LCK who were here at the beginning understood the enormity of the challenge they faced trying to commercialise an ISG project in Australia.
But seeing the growth of the company, the high calibre of experts working towards the common goal and everyone knowing we’re closer than ever to achieving something significant certainly makes us excited.
Our position also makes us more determined than ever to make the most of the huge opportunity we’ve created for ourselves, the Australian resource sector and the global ISG industry.