Tony Gilby is a founding member of onshore gas exploration and power generation company Tlou Energy, which was established after his previous firm Sunshine Gas was taken over by BG Group in 2008. In the wake of the Sunshine Gas deal, Gilby and his team began searching for new opportunities in the gas business around the world, and soon become interested in Botswana. Now CEO and MD of Tlou, Gilby says that diamond rich Botswana ticked all the boxes for an appropriate investment jurisdiction. “Botswana had the right geology, the right regulatory regime and was generally a good place to invest. That’s why we chose Botswana many years ago.” Since then, Tlou has embarked on a mission to become an independent producer of sustainable power, thereby easing energy supply concerns in Botswana and the Southern Africa region.
In 2009, Tlou commenced exploration activity in Botswana and began pre-feasibility drilling at its Lesedi coalbed methane (CBM) project in 2011, before listing on the ASX in 2013. Two years later, Tlou dual listed on the AIM, with Gilby citing a greater understanding of African markets amongst the London investor as the chief reason.
Tlou then made a third listing on an international exchange in 2017, this time turning to the domestic market in Botswana. “We listed on the BSE because we wanted to allow Botswana-based funds to invest in the company,” says Gilby.
Independently certified gas
Another significant milestone was achieved in 2016 when Tlou achieved the first independently certified gas reserves from CBM in Botswana, which have since been estimated at up to 3.2 trillion cubic feet (tcf).
CBM is a form of natural gas extracted from underground coal seams. The gas freely flows to the surface once the naturally occurring water pressure from within the coal is reduced by pumping. Tlou’s aim is to turn its extensive gas reserves at Lesedi into a source of reliable, clean power for a region which is struggling to meet increasing energy demand.
The Southern African Development Community (SADC) unites approximately 342 million people from 16 countries into one intergovernmental body and also provides a common power grid for much of the region, which is maintained by the Southern African Power Pool (SAPP) – a cooperation of national electricity companies from SADC.
However, the majority of SAPP’s energy is supplied by South Africa’s struggling utility Eskom, which puts the entire region in a position of energy insecurity, including Botswana.
“Botswana relies very heavily on energy imports, with more than 50% of its power coming from Eskom over the border. That puts them in a very exposed position, as any Eskom wobbles will affect the country’s power supply.”
Recognising this threat to regional energy security, along with a significant local power shortage, Tlou offers Botswana an alternative source of electricity from its Lesedi project, which will incorporate a gas-to-power station that connects with the national grid and the SAPP.
The Australian company believes the market for its CBM product in Botswana could potentially be huge, particularly as it can replace high carbon energy sources such as diesel and coal, with the former being imported at a high cost.
Cleaner, cheaper electricity
“CBM produces less CO2 and less particulate matter compared to diesel and coal, making it a much cleaner option,” Gilby states. “It would replace imported diesel and domestic coal, which is often poor quality thermal coal that struggles to produce efficient electrical energy.”
After producing first power from the site adjacent to the Lesedi gas reserves in 2017, Tlou received a request for the supply of up to 100MW of CBM from the government of Botswana, in a clear indication that the project is a central part of plans to expand and diversify the country’s energy mix.
Prior to this government tender, Tlou became the first company in Botswana to be granted a mining licence for a CBM project and was also the first to be awarded with an environmental impact statement for a project of this type in the country.
“Environmental regulations in Botswana are very strict and very comprehensive. It took over two years to get our environmental impact statement approved,” Gilby reveals. “We closely followed their guidelines and utilised our international experience in drilling for hydrocarbons in an environmentally sustainable and safe way.”
Tlou’s extraction method centres on the use of dual lateral pods, each comprising one vertical and two horizontal wells to pull gas from Lesedi’s Lower Morupule coalbed resting between 450-500 metres below surface.
Having already produced power from gas wells at Lesedi in 2017, the company recently completed another well drilling programme located in an area that has been identified for initial project development.
“These wells are located in a very favourable geological environment for gas. Secondly, its located next to our central gas processing and power generation facility. Now, the objective is to move to a power generation mix.”
The company has proposed a staged development starting with up to 10MW of generation that targets first revenue while minimising initial capex requirement and connection to the grid via a power generation facility. The recently drilled wells are expected to be sufficient for the first 2MW of generation.
Combining gas and solar
In addition, Tlou has also planned for the integration of a solar facility at the Lesedi project. “The concept is that an additional solar plant could be bolted on at little additional capex, and it would become an interesting demonstration plant for gas and solar combined facilities.
“We’re very exciting about the possibility of producing solar energy combined with the base load/peaking potential of our gas,” adds the CEO and MD.
At the time of writing, Tlou is in the process of having the dual lateral pods dewatered at Lesedi, after which the wells will reach gas flow point in the coming months. Once they are up and running, Tlou hopes to achieve full environmental approval for the downstream facilities, with landholder approval also required in that process. All of this is anticipated in Q2 19.
“The next step is to finalise our PPA/tender with the Botswana government. We are looking at joining the SAPP as an independent producer in any event, and one of those two needs to come to fruition in order for us to join the grid, providing power to Botswana and exporting it to the SAPP.”
Tlou is also exploring other potential workstreams for its CBM product, which is a highly versatile gas that can be used across many industries, including in petrochemicals and fertiliser and ammonia production.
“With enough gas reserves, ammonia and fertiliser are real possibilities, further down the track, along with petrochemicals,” Gilby suggests.
“However, our near term and primary objective is still to convert our gas to electricity, join to the power grid approximately 100 km away at a town by the name of Serowe, and then be able to supply electricity to Botswana and the SAPP.”
Spreading the benefits
Tlou chose to invest in Botswana over a decade ago because its stable government and growing economy provided a compelling business and investment case. But, the benefits of its Lesedi CBM project will not be confined to the company’s shareholders, instead they will be spread around Botswana and the SADC region.
“The real benefit for Botswana can be summarised in two broad categories: Energy security and job creation,” Gilby proclaims.
Despite the completion of the 600MW Morupule B Power Station, Botswana is still vulnerable to rolling blackouts and over-reliant on electricity from a faltering Eskom, which means that energy security remains a primary concern across the nation.
Gilby believes that Tlou’s CBM gas can contribute to greater energy security, while also playing a major role in the government’s plans to diversify its energy mix and eventually become a net exporter of energy in the coming years.
“In relation to jobs, a stable, clean source of energy encourages a healthy business environment and attracts broader investment in a country. A positive business and investment community creates much needed jobs.”
This is the crux of Tlou’s promise through its Lesedi CBM project – clean, reliable power and job creation for Botswana and the wider region of Southern Africa.