As reported in MINING DAILY earlier this week, emerging coal-based energy company MetroCoal has successfully over-subscribed its Initial Pubic Offer (IPO) and is poised to list on the Australian Securities Exchange on 4 December.
In a MINING DAILY exclusive, Michael Mills spoke with MetroCoal chief executive Mike O’Brien about the company’s plans and the future of Underground Coal Gasification (UCG) as an alternative fuel source.
Mills: What are the main goals for the company following the listing?
O’Brien: Drill, drill, drill.
The IPO will fund our activities up until the end of 2011 and will allow us prove up our exploration targets of between 2.5 and 3.5 billion tonnes of coal.
We have a two-pronged strategy over the next five years.
We will firstly identify and confirm enough resources to establish a five million tonne per year underground mine and, secondly, identify enough resources to warrant UCG technology.
We expect there to be a fairly substantial resource base for UCG, which will probably be in excess of 200 million tonnes.
This could support a plant producing 20,000 barrels a day, subject to the technology being available.
We are in discussions for joint ventures to operate the coal mine to add some strength to the balance sheet.
Ultimately we would like to have production up and running in around five years.
Mills: What exactly is the difference between Coal Seam Gas (CSG), Liquefied Natural Gas (LNG) and UCG?
O’Brien: Essentially, CSG involves extracting the methane that already exists in the coal, piping it to the surface and compressing it into an LNG product.
Whenever water is extracted from a coal seem, the gas follows it out through the pipes.
UCG involves drilling into the seam and burning off some of the coal underground.
This sets off a reaction within the coal that actually converts it into gas, comprising predominantly of hydrogen and carbon monoxide.
This gas, known as Syngas, can be converted into methane or LNG or burned directly at a power station.
The gas can be used to generate electricity or produce fertiliser, but the big demand will be for liquid fuel.
Mills: What expectations do you hold for the Surat Basin?
O’Brien: There are currently a number of players in the Surat Basin with UCG plans, including Linc Energy and Cougar Energy.
Linc is on record as stating they hope to establish a 20,000 barrel per day plant within the next few of years.
We have a similar ambition because I think we have a similar resource, but we would be about two to three years behind them.
We do not see it is a race because UCG is still an emerging process and we are very comfortable to have other players out there in front of us.
Mills: How much revenue are you hoping that this process will bring in?
O’Brien: It is only early days, but typically with a coal mine that produces five million tonnes a year at a price of $80 per tonne, you are looking at around $500 million of annual revenue.
We would expect to roughly double the revenue with a liquid conversion process, but the costs will be higher.
Mills: How successful do you think UCG will be in Australia and around the world?
O’Brien: I think that it will probably be the next significant source of liquid fuels, because the actual process is relatively straightforward.
According to research from ABARE, APPEA and Geoscience, in five years time there will be a shortfall in domestic fuel supply of roughly 600,000 barrels per day.
We do not believe we will build refineries in Australia, so we will have to join the queue and import oil as a refined product.
This will cost Australia $20 billion a year if the oil price hits $100 a barrel.
We need to do something and UCG is there to fill the gap.
That is why I said it is not a race.
Even if Linc opened several 20,000 barrel per day plants, it would barely scratch the surface of the demand.