INDEPENDENT REPORT ON THE STATUS AND PROGRESS OF UNDERGROUND COAL GASIFICATION (UCG) TECHNOLOGY

Transcription

1 8 th December 2014 Marathon Resources Limited Unit 8, Glen Osmond Road Eastwood, South Australia, 5063 Attention: Dr J G (Shad) Linley, Chief Executive Officer INDEPENDENT REPORT ON THE STATUS AND PROGRESS OF UNDERGROUND COAL GASIFICATION (UCG) TECHNOLOGY 1

2 Contents Executive Summary... 3 Introduction... 5 Economic and Environmental Benefits of UCG... 8 Brief History of UCG... 9 Modern Advanced UCG Proponents Linc Energy Carbon Energy Capital Expenditure Requirements and Operational Cost of Production Compressors and/or Air Separation Units (ASU) Modular Infrastructure Other Key Equipment Environment & Regulatory Challenges Water Air Subsidence Geological Parameters Syngas Composition Applicability of UCG for Leigh Creek Energy Project (LCEP) PEL650 South Australia Conclusions Recommendations Reference About the Author

3 Executive Summary Underground Coal Gasification (UCG) has considerably advanced in the past 5 years from its inception in the 19 th century in the United Kingdom. The advancements have primarily been due to two proponents, Linc Energy and Carbon Energy, both located in Queensland Australia but with significantly different backgrounds and development pathways. Both have designed different ways in which to do UCG that does NOT involve the controversial issue of fracking used by the CBM/CSG industry, to convert and produce the maximum amount of syngas and energy. Both have proven that UCG is a viable process in which to utilise stranded resources in locations where the coal would have been left in the ground primarily due to economic considerations. Linc Energy s G4 and G5 designs and Carbon Energy s registered keyseam design UCG process are all potential candidate technologies for use for the Leigh Creek Energy Project (LCEP) PEL650 in which this report is written to consider. Determination of which process can be considered once all geological parameters are known. At this stage there is no limiting factor restricting further progress towards a commercial UCG operation at LCEP and subsequent total integrated energy project. The quantity, depth, quality, ash content and thickness of the coal are all favourable to pursuing a commercial UCG to downstream project. UCG now provides a mechanism in which to economically convert in situ coal by to a syngas composed of a selection of gases primarily consisting of Carbon Monoxide (CO), Hydrogen (H2), Methane (CH4) and Carbon Dioxide (CO2). Once the coal is converted to a syngas, it is able to be transported through pipeline to a nearby advanced processing plant for further conversion to one or a combination of the following high value products such as; electricity generation, ultra clean liquid fuels (diesel and jet fuel), fertiliser (urea and ammonia nitrate) synthetic natural gas (SNG) methanol Once syngas is produced it may be cleaned and then directly used for power production in Integrated Gas Combined Cycle (IGCC) gas turbines, piston generation or steam turbines once being burnt for heat production in a boiler depending on the level of sophistication chosen to employ. If the more advanced products are of consideration, the syngas will need to additionally go through a methanation process prior to then being converted to the high value, ultra clean final products. Determination on which UCG process to consider for the South Australian project will depend on further geological exploration of the LCEP resource. In addition, a more advanced and cost effective UCG process could be developed using the optimised systems 3

4 of both Carbon Energy and Linc Energy processes utilising the subsurface liner design and materials of Carbon Energy in combination with knowledge and capability of the Coil Tube Unit (CTU) of Linc Energy. The geological features, in particular, the overburden roof strength of the resource will also help to determine the most suitable UCG process to employ. If the roof strength is quite good and strong then a keyseam, G4 or G5 process may be suitable and the choices will be open. If the overburden strength is at the lower end of the permissible limit, the G5 design will provide the least risk of subsidence due to the smaller cavity cross section produced compared to the CRIP models further outlined in this report. This report provides guidelines, benefits, costs and challenges of performing UCG and outlines some other critical factors for consideration. The report also reflects on some history and outcomes of UCG trials over the past 100+ years including an outline of its developments and impediments. What is concluded from this report is that the proposed LCEP ISG project currently being considered has many favourable aspects including site characterisation features and location of infrastructure. Also to be regulated under the South Australian Petroleum Act for the project is a major advantage. 4

5 Introduction Marathon Resources Limited has engaged DAME Consulting Pty Ltd to provide an independent report on the status and progress of Underground Coal Gasification (UCG) Technology and wherever possible its reference back to Leigh Creek Energy Project (LCEP) coal resources in which are under consideration for the production of clean reliable syngas for multiple downstream opportunities including power generation. UCG is typically considered for stranded resources that are any one or a combination of the following Too deep to mine, Lower quality or energy content Not economical to mine Transport to and end user or to port for export is not economical. The UCG process involves the conversion of in situ coal and water to form syngas using heat derived from the partial combustion of some of the coal. The dwell time and pressure also contribute to the reactions. The pressure is recommended to be less than the hydrostatic pressure for optimal performance. The primary reactions involved in UCG are as follows; C + O2 CO2 C + H2O CO + H2 C + CO2 2CO CO + H2O CO2 + H2 H2 + ½O2 H2O CO + ½O2 CO2 Oxidation of Char Steam Gasification of Char Boudouard Reaction Water-Gas Shift Reaction Oxidation of Hydrogen Gas Oxidation of Carbon Dioxide The syngas derived is typically used or consumed by a downstream process that will be located within close proximity of the UCG field to reduce transport costs of syngas. The downstream process will convert the syngas to a higher value product that is economically viable to take to market. It is believed that the value generated by UCG is based on the fact that the stranded coal has no value unmined. The only way to monetize the asset is to utilise UCG for the conversion of the coal to syngas. Once converted to syngas the coal may be economically moved at the lowest possible cost from one location to another in a gaseous form for further conversion to high value product. Syngas itself does not currently have a market or a value of its own and can only be valued within an integrated project involving both upstream UCG and downstream conversion process to the higher value product. 5

6 In 1985, Golder Associates reported on the viability of UCG at the Leigh Creek coal resources for the purposes of power generation. In addition, Australian Mineral Consultants (AMC) in 2014, reported on PEL 650 Draft Review Report for ARP TriEnergy Leigh Creek Energy Project (LCEP) which concluded that In-situ Gasification (ISG) is feasible and a significant stranded resource is present that could be utilised for syngas production. AMC recommended to commence planning and the approval process for an In-Situ Gasification (ISG) stage 1 operation (single generator) at Leigh Creek. The geological characteristics and properties were considered in the AMC report however this report does not consider the geological properties of that particular resource, rather it focuses on the status of the UCG technology development to date. However the AMC report does take into consideration the Queensland Government Independent Scientific Panel (ISP) report on the two trials that were under consideration (Linc Energy and Carbon Energy) for further development and commercialisation. This report can be accessed from Australia has been at the forefront of UCG technology since 1999 when Linc Energy developed its first UCG gasifier, G1, using technology that was developed in the former USSR decades earlier. Arguably Linc Energy has remained the leader over time, growing its knowledge and expertise base and through the implementation of advanced equipment that allowed Linc Energy to deviate from the original UCG technology and develop its own advanced UCG technology integrating oil and gas techniques such as horizontal drilling. Subsequently Linc Energy developed two main methods of operation of UCG. The G4 and G5 methods of performing UCG provide flexibility to geological and other conditions that are discussed in more detail throughout this report. Linc Energy had success at a trial level primarily focusing on the production of ultra clean diesel from the syngas produced which was fed through Australia s largest Gas to Liquids (GTL) Fischer Tropsch (FT) conversion facility ultimately going a step further than anybody else by producing a final valuable product from the syngas other than for power generation. The diesel produced from UCG syngas was later used to drive a vehicle from one side of Australia to the other. Soon after the jet fuel produced from the UCG syngas was used to fly a small jet aircraft in a return flight back to the starting location of the drive. To date, it is believed that no other organisation has achieved this level of capability. Carbon Energy had its early development within the Australian Government funded Commonwealth Scientific and Industrial Research Organisation (CSIRO). It developed its trademark UCG technology keyseam and markets that throughout the world. The technology is based on the Controlled Retraction Injection Point (CRIP) style of UCG process and has been trialled for the past six years primarily on two pilots based at their Bloodwood Creek site in Queensland, Australia. Carbon Energy utilised horizontal drilling in its design and planned to produce significant quality and quantity of syngas to produce fertiliser for the domestic and export markets in partnership with one of its shareholders IncitecPivot. 6

7 Carbon Energy s UCG process produces good quality syngas which was used to produce power generation for a short period of time. There was a third UCG Technology company in Queensland, Australia who trialled UCG. Cougar Energy operated for a short period of time before being shut down by the Queensland Government. It is believed that Cougar Energy utilised a third party partner to provide the UCG technology. This technology is very similar to that developed in the former USSR and was provided by a Canadian company Ergo Exergy. Ergo Exergy also implemented UCG trials using its trademarked technology εucg in South Africa with the state based power producer Eskom and in New Zealand with state owned Solid Energy New Zealand Ltd. Both state owned projects, if still operating, remain as trials and have no known path to commercial production of syngas. China has had the most known UCG trials. One of the largest companies who attempted UCG in China was ENN Energy Holdings Limited however it is believed that the decision to progress UCG any further than their trial is questionable. The Chinese Government provided a significant grant to ENN to develop UCG to reduce the nation s dependency on foreign imported natural gas and to become the preferred supplier of UCG technology for China. Their goal was to produce natural gas (CH4) from syngas and then convert the natural gas to LNG. The LNG would then be transported to locations where no network pipelines exist or convert to CNG for the utilisation in large transport vehicles such as trucks. Unfortunately in the case of ENN, it was unlikely that the technology was the limiting factor but rather the site in which was provided or available for their trial which has had challenges. It is believed that complexity of the site and combination of methods used may have limited the trials and ability to progress to commercialisation. This echoes the importance and criticality of site selection for UCG. Site selection and operational management are the difference between success and failure of UCG and considered equally if not more important than the choice of UCG technology. Site selection not only considers geological and environmental aspects but also economic and infrastructure considerations as well. The geographic advantages of the Leigh Creek site, including the access to rail/road/airport and only 130 km s to the Moomba pipeline and 143 km s to a potential large customer at Olympic Dam and 123km s to Carrapatenna are all favourable aspects to the LCEP ISG Project. See attached maps showing Location of Mines and Pipeline route Options to the trunk Moomba pipeline. There have been multiple other trials all over the world as can be viewed on the UCG Association website with particular note of successes and failures in the United States of America that occurred in the 1970 s and 1980 s by notable distinguished groups such as Lawrence Livermore National Laboratories that are constantly referred to depending on whether you support the industry development or are seeking to restrict any further progress for a UCG 7

8 industry. Also of note on the same website are the purported other UCG projects occurring around the world Economic and Environmental Benefits of UCG The Gasification Technologies Council claim that there are numerous economic and environmental benefits that UCG can deliver that include: Increase in safety as the coal no longer is required to be mined Clean environment as there is no need for coal handling Air improvements as there is less dust particles in atmosphere through no need to transport the coal Direct injection of syngas to downstream process requiring no need to prepare raw coal before entering a reactor Minimal ash or slag significantly reducing disposing needs No requirement for significant infrastructure such as an above ground gasification plant of high capital intensity Surface land able to be utilised while gasification occurs underground Minimal use of groundwater Environmental impacts traditionally associated with coal mining and handling are no longer an issue All or a substantial portion of the sulphur, mercury, arsenic, tar, ash and particulates found in coal remain underground. All of the above indicate that for stranded resources, UCG is a viable alternative to be considered for converting and utilising coal to energy in a cost effective and environmentally friendly manner. Arguably, it is one of the cleanest ways to utilise coal in the world. 8

9 Brief History of UCG It is believed that the first person to propose UCG was Sir William Siemens in 1868 in his address to the Chemical Society of London. Russian chemist Dmitri Mendeleyev further developed Siemens' idea over the next couple of decades. The first experimental work on UCG was planned to start in 1912 in Durham in the United Kingdom (UK), under the leadership of Nobel Prize winner Sir William Ramsay. The work that Ramsay did led to the product we know as Towngas and is ironically the name of the largest gas provider in Hong Kong reflecting the coal mining activity in the United Kingdom at that time and the leasing, habitation and provision of energy in the Hong Kong region. However, it was in 1913 when Russian, Vladimir Lenin, after being exiled to Siberia and then later whilst in Zurich and before his 1917 revolution, noticed Ramsay s work and identified the great benefits it could bring to his Russian nation and people. He could avoid sending people down dangerous mines while also improving their livelihoods by producing a syngas that could be utilised to generate electricity using boiler steam turbine power generation. Lenin proceeded to order the development of UCG technology which continued well after his death in Stalin himself championed the UCG development and established the state owned organisation Podzemgas to carry out multiple experiments and proceeded to develop commercial operations throughout the former USSR. At its peak, there was believed to be up to 12 Podzemgas stations throughout the former USSR including throughout Ukraine, Poland, Russia, Kazakhstan and Uzbekistan. Unfortunately though, with the discovery of abundant cheap oil and natural gas throughout Russia in the 1970 s and 1980 s, the Podzemgas stations were considered unnecessary and uneconomic in all but a couple of locations and were subsequently closed one by one. Only Kemerovo, Kuzbass region of Russia and the Yerostigaz station in Angren Uzbekistan continued to operate, each producing up to 4 billion cubic metres of syngas per annum. When the USSR collapsed in 1989, the Kemerovo operation continued for a short time later only to close in 1996 due to unreasonable and harsh economic conditions and they subsequently the region continued on with conventional coal mining. This left only one commercial operational station, Yerostigaz, located in Angren in Eastern Uzbekistan which had commenced its operations in 1961 ( Yerostigaz is located on the side of a mountain and is adjacent to an open cut mine (currently operating since 1930 s producing 3mtpa) and an underground mine (currently not operating and closed in the 1990 s). Yerostigaz supplies syngas to a nearby 600MW power station (5km away) via a huge 2m diameter pipeline. The power station is co-fed with syngas and coal to 3 of the 12 boilers. The energy content of the coal that Yerostigaz uses is in the range kcal/kg. Approximately 1 million cubic metres of kcal/m 3 syngas are supplied every day to the power station. 9

10 Figure 1. Photograph of Yerostigaz operations In 2007, Linc Energy identified that most of the UCG knowledge and intellectual property and capabilities of the former USSR resided in this operation and its employees and that it had become the basis upon which most UCG technology companies would be developed. Subsequently, in order to maintain control of this technology and limit the ability for any other potential competitor to understand or get experience of operations, Linc Energy took control of the shares in Yerostigaz on the Uzbekistan stock exchange. Today Linc Energy owns approximately 92.3%. The remaining shares are predominantly owned by ENN of China (2.1%) with the remainder belonging to current and former employees and other individuals. The Yerostigaz operations has considerably decreased its production of syngas due to the natural decline of industry in the region. Subsequently the gas scrubbing and other facilities at the site have also diminished. Yet despite this, Linc has invested in new compressors, training, drilling equipment, consumables and safety at the UCG Station. Yerostigaz has sufficient coal to operate for another 50 years at current operating levels however significant investment would be required at both upstream and downstream ends to continue much beyond this decade. The Yerostigaz site is mostly Kaolin geology above the coal. The coal is up to 20m thick and approximately 200+ metres deep. The natural properties of the site geology and location make it very attractive to do UCG in the former USSR style. This process is not necessarily replicable at other sites around the world and use would need to carefully considered if it was to become an option for others. At the Yerostigaz site, each well is located 20-40m apart and drilled down to the coal in a vertical or sub-horizontal manner. High pressure air is then pumped into the coal to crack it to make a connection and provide a path between the wells so that air and syngas is able to flow through. The drilling is done well in advance of the expanding UCG gasifier front to draw the UCG gasifier in a particular direction. The wells can be changed from injection to production depending on how the operators would like to grow the UCG gasifier(s) and to maximise the amount of coal in which is gasified. Careful operation, geological knowledge and regular monitoring consistently occurs 10

11 to ensure that the quality of syngas and conditions are maintained in a reasonable manner. The syngas is regularly collected in the field in small glass tubes and taken to the laboratory where wet analysis is carried out to determine the composition of the syngas and to determine if any operating parameters are required to be changed such as pressure, temperature and oxidant flow rate. 11

12 Modern Advanced UCG Proponents In the past decade, there has been only two dominant proponents of UCG, Linc Energy and Carbon Energy. Both of these proponents are based in Queensland, Australia with trial sites within 100km of one another and both trialled on the Macalister coal seam of the Surat Basin. There have been other hopefuls that have appeared around the world but very few with the capital or the capability to actually perform UCG on a credible site as Linc Energy and Carbon Energy. Others that have performed trials include Swan Hills Synfuels in Canada, ENN in China, Cougar Energy in Australia and Ergo Exergy in South Africa and New Zealand. The most notable of the trials outside of Carbon Energy and Linc Energy was the Swan Hills Synfuels project trial which was carried out in Alberta Canada. The Swan Hills trial was at a greater depth (1400m) than any other trial using a system setup similar to the Linc Energy G5 arrangement. This trial proved that doing UCG in deep coal (1400m deep) will produce a syngas rich in methane (CH4) and carbon dioxide (CO2). While the syngas produced was very encouraging for UCG, the challenge for replicating this in a commercial environment will be very difficult as coal is not typically explored for at depths below 1000m. Therefore reliance of oil and gas drilling logs would be required to determine if there was such a resource present below 1000m however oil and gas drilling logs do not typically identify coal because they are not looking for it. For the purposes of this report we will concentrate on Carbon Energy and Linc Energy UCG technology as they are recognised and have arguably been operating the longest with the most advanced technologies and historically the largest teams. Linc Energy Linc Energy started its first UCG gasifier in 1999 using the traditional former USSR conventional UCG method. Arguable it was a very successful trial. It was 8 years later that UCG Gasifier 2 (G2) was performed using a similar process in 2007 however this trial only operated for short period of time (months). There are considerable limitations to conventional former USSR conventional UCG process including: Oxidant injection is difficult to control leading to a lower resource recovery, poor efficiency and lower syngas quality Multiple wells are required to be drilled due to the relative short distance between wellheads to make available the volumes of coal required. This leads to a large number of wellheads required and significant drilling costs, especially for deep coal seams. Wells are more prone to failure due to the temperature gradient change when changing from injection to production and vice versa. 12

13 Potential tar blockages and challenges of a nearby high temperature gasification zone Arguably this UCG process is only suitable for power generation as the process is not conducive to oxygen injection which is required for the syngas compositions of other downstream processes such as liquid fuels, synthetic natural gas and fertiliser. The vertical wells are required to be linked using hydraulic fracturing rather than modern day horizontal directional drilling and hence less control of the UCG gasifier direction of growth The utilization of reverse combustion can be unreliable Feasible primarily for lower quality coals of lignite and sub-bituminous consistency and depths less than 500m. The shallower depth limits the ability to produce a higher quality syngas of higher energy content Is more susceptible to the possibility of subsidence Figure 2. Diagram of the conventional former USSR UCG process showing link established and combustion. As a consequence, Linc Energy developed the G3 UCG gasifier which was ignited in The G3 UCG gasifier was one of the first to utilise horizontal directional drilling. This gasifier operated into 2009 and established the significant benefits of reduced drilling, more control and higher quality of syngas. 13

14 Linc Energy then developed the G4 UCG gasifier which was a Continuous Retraction Injection Point (CRIP) style UCG process where the injection well and production well are drilled parallel over a predetermined distance usually dependent on geological factors. This design was similar to Carbon Energy differing in the fact that it did not have any liner in either the injection or the production wells, rather, it relied on and was the first to utilise a coil tube unit (CTU) for the injection of oxidant. The improvement of design to include liners were later implemented in Linc Energy G5 UCG gasifier. It was in G4 operations that it was realised that continuous re-ignition could occur using the CTU and if required, the CTU could unclog tars and any other anomalous material that may have restricted the flow of syngas. The CTU gave an element of flexibility for operations and to maintain a consistency of syngas quality. The G4 design was considered very useful where coal was thinner in thickness and for other more challenging geology where a G5 design would not be optimum. The CRIP model essentially operates by consuming and converting the coal between the injection and the production wells accessing large amounts of coal at a time. Because of the time, temperature and pressure achievable in this design, typically a better quality of syngas is able to be achieved. The Linc Energy Gas to Liquid (GTL) plant operated and produced ultra clean paraffin wax which was later refined to diesel and jet fuel from the syngas produced from the G4 UCG gasifier. G4 was later operated simultaneously for months with the G5 UCG gasifier, which is believed to be the only time two trial UCG gasifiers have operated together at the same time. Figure 3. CRIP style UCG gasifier similar to Carbon Energy showing liners in both the injection and production wells ) 14

15 Figure 4. Estimated growth pattern of a CRIP style UCG gasifier over time Figure 5. Cross section of an estimated growth pattern in a CRIP style UCG gasifier The Linc Energy G5 gasifier was the last gasifier at their Chinchilla demonstration site. Ingnited in 2011, it operated for over 2 years. It was arguably the largest most significant UCG gasifier outside of Yerostigaz to date. The design was essentially an elongated CRIP model and was lined similar to the diagrams above. The G5 design had the following benefits over the former USSR UCG gasifier design. The wells were horizontally directionally drilled which exposed large volumes of coal to the gasification process and required fewer wells to achieve the same quantity but better quality syngas and with minimal surface impacts The horizontal drilling provided a pathway that syngas could flow thereby reducing any environmental risk and provided greater control for operators By having the flexibility to maneuver the oxidant injection point using the CTU allows precision control of the UCG gasifier and the quantum of resource recovery Special designed high temperature production wells able to expand with increased temperature significantly reduces the risk of interference with groundwater aquifers 15

16 The use of specially designed casing concrete around the subsurface well casing which is able to expand with the increased temperatures significantly reducing the risk of any syngas migration and potential for catastrophic failure of casing pipe The development of proprietary oxidant injection methods and nozzles allowing reliable operation of oxidant injection A range of safe ignition options to ignite the UCG process Process can be utilized on a range of coals from lignite to bituminous rank Process suitable for coal at depths ideally from 200m and as deep as 2000m Surface infrastructure is modular and reusable Capable of online real time analysis of syngas allowing to alter operating parameters if required to maintain consistency of syngas If required, the G5 design allows a pillar to be left between UCG gasifiers thereby reducing the likelihood of any subsidence Does NOT involve the controversial issue of fracking used by the CBM/CSG industry 1000m Figure 6. Indicative Diagram of Linc Energy s G5 UCG process A video of the G5 design and operation can be viewed at Linc Energy s primary focus had been on producing ultraclean diesel and jet fuel from a combined UCG and GTL operation based on the economics and demand of these two products. It was touted that Linc Energy could convert coal valued at less than $0.01/tonne 16

17 in situ into 1.5 barrels of diesel valued at $100/barrel (a greater than x10,000 increase in value). Often overlooked in the consideration of the UCG technologies is the operational experience of which Linc Energy has the most given the length of operational time at their Chinchilla operations and Yerostigaz. It is the operational experience that is as valuable as the technology itself. Currently Linc Energy has shut down all UCG gasifiers and are in the process of decommissioning as required by the Queensland Government and as recommended by the ISP report. This may take up to 5 years to complete. The limitation of the Linc Energy UCG technologies is that they have only been applied and trialled at one site where it is flat and has unique favourable geological features. However, through their knowledge and experience of the Yerostigaz location and people, Linc Energy is able to relate and adapt to other sites. Carbon Energy Carbon energy was born out of the Commonwealth Scientific and Industrial Research Organisation (CSIRO) after 10 years of proof of concept around UCG. The UCG technology developed known as keyseam is the technology that has been tested at their trial site at Bloodwood Creek in Queensland, Australia. The technology is of a CRIP design is similar to that of G4 for Linc Energy which does NOT involve the controversial issue of fracking used by the CBM/CSG industry but rather horizontal drilling. The Carbon Energy design has the enhancements of special patented liners in both the injection and production wells made from composites that provide significant control of the UCG process. The operation of their design does not require the use of a CTU, instead the liners become consumables themselves while maintaining control of the process. Again the design allows for maximum recovery of resource. The design has a lot of control and is able to convert blocks of coal at a time into syngas much like the diagrams above of the CRIP process. The quantum of coal able to be exposed and gasified at a time also allows for a high quality of syngas. The quality of the syngas however may vary slightly as the gasifier grows affecting the dwell time and potentially the temperature. Carbon Energy has promoted that from keyseam gasification of 1 tonne of their Bloodwood Creek the following could theoretically be produced from a self-contained parasitic load power production standalone industrial complex 14.1 GJ/mmbtu of syngas 9.2 GJ/mmbtu of Synthetic Natural Gas (SNG) 440Litres or 0.3t of Ammonia 375Litres or 0.3t of Methanol 17

18 1,550kW of Electricity Figure 7. Diagram of the keyseam CRIP UCG process The keyseam design is a leader in the UCG industry although it appears that it is a process where one size needs to fit all geologies with little variation or flexibility in design according to the site characteristics in which it is to be applied. This may be limiting to its applicability to multiple sites but a good process where site characterisation determines that this process is suitable. The keyseam UCG technology has still only been applied and trialled at the Bloodwood Creek site which has unique favourable geological conditions not readily available at many other locations. That said, Carbon Energy has assessed many other sites and formed many relationships in which the intention is to apply their technology at various locations around the world. Carbon Energy are ahead of the decommissioning of their site at Bloodwood Creek having completed the decommissioning in 2014 including drilling into and taking samples from one of their UCG gasifiers. This knowledge is a considerable advantage when considering how to manage the site at the completion of operations. It is believed that from the wall of the cavity, the coal lining the surface of the gasifier has formed a glass like surface and is impermeable suggesting that the final cavity is a secure and safe void and potential holding site. These cavities may be of use in the future for storage of natural gas or other substance. For more information on this matter, contact Carbon Energy. 18

19 Capital Expenditure Requirements and Operational Cost of Production To perform UCG there are considerable infrastructure requirements to consider and subsequently capital costs. The UCG gasifiers themselves have a relatively low capital cost in consideration of a complete project. The UCG gasifiers themselves are only minimal cost as a comparison to other items that will be required in order to produce the final high valued products. An estimate for the costs involved to produce Synthetic Natural Gas (SNG) are demonstrated in the estimated Capex diagram below. The reason why the UCG gasifiers are often focused upon as that they are the least known or understood items from previous project development experience. The other areas of the project have been done before and can be referenced to previous projects. Infrastructure UCG Gasifiers 9% 7% 34% Syngas Cleaning & Conversion to SNG Air Separation & Power 26% 8% 16% Utilities Project Management & Systems Figure 8. Estimate of capital costs for total project One of the challenges of new locations is the request to do a trial at a site. Whilst this may be necessary for regulatory approvals, it is a poor use of capital given the knowledge of choosing a suitable commercial UCG site that has been developed from experience over time. To do a trial still requires many of the same infrastructure as a commercial project only smaller. Unfortunately though, the equipment used for the trial is not scalable and 19

20 therefore not able to be utilised for commercial operations leaving that equipment and investment redundant. You may spend up to half of the capital for a trial as you would for a commercial UCG operation depending on what the requirements are of the regulator. If at possible a trial can be avoided or bypassed based on proper investigation and consideration of the relevant technologies and site characterisation, then the capital that would be lost to a trial could be invested into the commercial facility to bring product to market, royalties to government and return to shareholders in the quickest possible time. The capital required for an integrated UCG to downstream total integrated project will depend on the scale in which the proponent wishes to proceed and the quality of the syngas produced, however, it is likely that for a commercial total integrated high value end product project will be greater than AUD$250m for a gas turbine 100MW power station generating electricity. Capital costs are estimated as ⅓ for the UCG component and ⅔ for the power generation excluding substations and transmission. For exportable end products to be produced commercially such as Synthetic Natural Gas (SNG), diesel/jet fuel or fertiliser, total project expenditure will exceed AUD$1 billion. Lower project costs may be achievable if you are supplying to a local consumer for a gas turbine or piston style generation facility. Some of the larger more significant equipment required for the UCG process includes; Compressors and/or Air Separation Units (ASU) Depending on which oxidant is utilised to produce the quality of syngas suitable to feed the relevant downstream process will depend on whether an ASU or compressors are required. Compressors will supply air but produce syngas quality half of that of an ASU and most likely only suitable for power generation. An ASU will supply near pure oxygen to produce a significantly greater quality of syngas. The ASU is considerably more expensive than compressors due to the use of cryogenics for the separation of the air into the various gases with particular emphasis on the separation of Nitrogen and oxygen. The use of oxygen injection is a very critical matter and should only be done by experienced operators as many factors need to be taken into consideration. The type of oxidant utilised will affect many operating parameters such as syngas composition, burn rate, amount of condensate produced and quantity of syngas per tonne of coal. These are all very important factors when considering the lifecycle, operations planning, size of resource and size of the downstream process. These are also important pieces of equipment for controlling the pressure of the UCG gasifiers and ensuring that the pressure is always maintained below hydrostatic head so that the UCG gasifier may form a natural chamber and syngas remains within the cavity in which it is produced, only to exit through the production well. 20

21 Modular Infrastructure There is a lot of modular infrastructure that can be reused in UCG including but not limited to; Knockout pots Piping Wellheads Controls Regulators This is a very good feature of UCG as once you have invested into a critical number of items, they can be reused over and over again and if they need replacement they are of a relatively low complexity that is easily reproducible. Other Key Equipment To list all of the equipment is beyond the scope of this report however some of the other items include Coil Tube Unit (CTU) required for Linc Energy technology and preferably available for Carbon Energy technology Controls and Automation essential for the operations for the UCG facilities Boilers if steam feed is required or for the associated downstream process Online Syngas Analyser Available with Linc Energy technology Water monitoring Ignition - Igniting an underground coal seam in an underground coal gasification process, ucg WO A1, this patent from Linc Energy inventors describes many of the ways in which UCG can commence including electrical (coil), chemical (TEB), gas (methane) and others but all in combination with an oxidant flow. The operational cost of production will depend on a range of factors however will be mainly be determined by four primary factors, thickness of coal, oxidant used, drilling and compression but are all balanced by the quality output of the syngas. Generally speaking, the deeper the coal gasified, the higher the calorific value of the syngas due to the quantity of methane directly produced during the gasification process. However deeper coal equates with longer drilling times and greater energy consumed for compression both to hold the operating pressure and to flow the oxidant to the UCG gasifier. The thickness of the coal may offset some of this as the greater the thickness the longer a UCG gasifier is able to operate before further drilling is required for future UCG gasifiers. If you are measuring the cost of operating production per unit of energy, then the quality of the coal and type of oxidant used will also need to be considered. 21

22 There are also setup arrangements that can significantly reduce the cost of surface infrastructure and reduce the time of development that can be outlined in a future planning document if requested. These include how the oxidant is delivered to the UCG gasifiers and how the syngas is collected and transported to the downstream process. At Yerostigaz, where the UCG gasifier operates just over 200m deep and has a coal seam up to 20m thick, the cost of production of raw syngas is less than US$2/GJ. Linc Energy has previously quoted that with their modern processes, they can maintain a similar price per volume of syngas produced. Carbon Energy, in the past have suggested less than US$1/GJ however this has not known to have been publicly or independently tested and may be a hypothetical based on a range of factors. 22

23 Environment & Regulatory Challenges There are 3 primary environmental questions that most people ask of UCG, they are: Groundwater protection Air emissions and wastes (above ground) Subsidence Considering regulation, it is noted that around the world and even state by state, the regulation of UCG varies. Sometimes it is driven or determined through politics, convenience or necessity of whether projects are to be regulated under minerals (coal or coal mining), petroleum (gas) or a complete new category made up all together specifically for UCG (for example Queensland Government Mineral F ). Many governments regulate UCG under a minerals regime as the process is removing coal like a mining process. However, for the South Australian LCEP project, UCG would be regulated under the Petroleum Act which is seen as the preferred regulation authority and a major advantage for developing a UCG project in the future. Water One area of regulation that clearly needs attention is the environment and in particular water. The monitoring of underground water for the possibility of contamination from the syngas is critical and should be regularly carried out so that adjustments to operations can occur if required. Historically in Queensland, this area has been contentious and responsible for the greatest friction between regulator and UCG proponent trialling the technology leading to a lack of trust between parties. Ultimately the contamination of underground water is the greatest concern for the UCG process and why the correct and proper operation is the most critical factor, more so than the science of the process itself. The points below address many of these concerns if the UCG process is operated correctly and that a suitable site was chosen for the operations; UCG by-products are contained within the gasifiers Hydraulic isolation of the target UCG coal seam Choice of low value groundwater quality in the coal seam and overburden units Overburden (roof rocks) of very low permeability and high strength required as high rock strength prevents subsidence Avoidance of major faults or structural displacement (as they provide preferential flow paths) Comprehensive groundwater monitoring schedule and procedures for in coal seam and overburden at various depths around the operations 23

24 Prior to commencing any UCG operations, the following strategies should be considered and performed so that any adverse readings of water anomalies can be detected Provide a background groundwater base scenario and determine if there are any natural trends. Acknowledge limits that would trigger ground water quality and investigation requirements Fortunately, the proposed LCEP ISG (UCG) Project will occur at depths >300m, which is well below the local water table and hence significantly lower risk. The other advantage of the LCEP Project is that it is not in the area covered by the Great Artesian Basin (GAB). Air In regards to air quality, the following can be offered All gases are brought to surface via the production well and therefore there are no emissions other than if a flare is required The use of syngas for various downstream products such as SNG, power generation, GTL and fertiliser may produce emissions for consideration as per any traditional manufacturing or generation products CO2 is a by-product that needs to be considered. One solution is its use in Enhanced Oil Recovery (EOR) at selected sites. Coal condensate does have an odour however this product, if produced at commercial scale, will be stored in large tanks for further refinement to high value product 24

25 Subsidence Site selection and correct design and operations of UCG will significantly lessen the potential of surface subsidence. Sites should have parameters as given below in the preferred site selection guide. Linc Energy G5 design is the least likely to cause any subsidence particularly if the UCG process is carried out at depth and with a pillar left between adjacent UCG gasifiers. However good site characterization and choice will reduce the likelihood of subsidence from either Carbon Energy or Linc Energy processes. Figure 9. Diagram of Linc Energy indicating the benefits of G5 design to minimise the likelihood of subsidence 25

26 Geological Parameters Below is a list of parameters that are preferable for a UCG project to be able to supply sufficient quantities and quality of syngas in the most environmental manner for a commercial downstream process. Note that these parameters are only a guide and give and take for the various characteristics needs to be considered to balance the features of the resource. Hence evaluation based on the guidance below can only be a suggestion of whether the particular coal will be suitable or not and an actual assessment be carried out by experienced engineers and scientists who are familiar with operations, environment and geological and hydrogeological features required for a successful UCG field based on the technology being considered for that particular resource. 26

27 Characteristic Description Size of Resource The resource for commercial consideration should be greater than 70 million tonnes and has no upper limit. Below this quantity of coal may be possible for shorter life projects however the Return on Investment (ROI) may not be positive with any smaller resource Depth of Coal The depth of coal is ideally greater than m (Linc Energy). The fact is that the resource needs to be deep to utilise the natural pressures but not too deep that drilling and compression costs limit the ROI of the project based on the quality of coal available. Thickness The thickness of the coal would ideally be greater than 3m but again it is a combination of what depth and the quality of the coal considered. As thin as 0.5m could be considered if other specific conditions (economic, physical and environmental) were achievable. Generally it is agreed that 3-30m is the most suitable target coal thickness at depth. Beyond 30m would be considered on a case by case basis. Ash Less than 60% ash is preferred. There needs to be sufficient quantity of volatile matter in the coal that contributes to the energy content and the gas composition. Ash remains underground so has a greater variance than above ground gasification. Aquifers It is preferable to be as far removed from aquifers as possible however if they are present, then the aquifers are preferably not potable and the water is not utilised for any other purpose. Rank The coal is preferably as high a quality as possible and low swelling as possible. However UCG is possible to be utilised on lignite of 3000kCal through to bituminous 7500kCal. Below or above these limits presents other challenges that may make the coal unsuitable but may be considered on a case by case basis. Overburden The overburden needs to be of a solid state, stable, strong preferably to 1 MPa/40m of depth. This may vary from site to site. Seam dip Ideally the coal seam would be as flat as possible however if the UCG gasifiers are able to be orientated across the seam then coals with steep slope (up to 70⁰) may also be considered. UCG Design engineers will prefer less than 20⁰ slope. Separation Ideally the coal seams would be separated sufficiently so that one between coal coal seam does not ignite the other and having a coal seam gasifying seams without the ability to collect the syngas or to control its progress direction. If coal seams are sufficiently close to one another (thin interburden) then two coal seams may be able to be considered as Structural Complexity of Resource one. Generally a separation greater than 40m is preferred. Preferably there will be minimal faulting however, with accurate drilling and consideration of the faults, UCG fields can be designed to work away and around these limiting features. Table 1. Indicative parameters required for a suitable UCG process site 27

28 Syngas Composition Below is a table of the gas composition of various trials. The analysis of each cannot be directly compared as each site has its unique parameters depending depth of coal, quality of coal (energy content and composition), thickness of coal, type of oxidant used and process employed. However for the purpose of showing what compositions are able to be achieved, a table has been prepared below from data able to be collected. Syngas Composition MJ/Kg MJ/m3 Company Oxidant H2 % CH4 % CO % CO2 % N2 % H2S % Coal Syngas Yerostigaz Air < Carbon Steam Energy + O2 Linc Energy Steam Swan Hills + O2 Steam + O Typical Composition Steam + O Table 2. Indicative syngas compositions from various sources showing the range of gas compositions achievable Note that the analysis above may have varied during the trial projects and that this is only meant to demonstrate different parameters producing different outcomes using slightly different techniques. 28