Electricity and Gas Marketing
Reliable Energy for South Australia
In January 2016, LCK announced a 2C SPE-PRMS ISG gas resource of 2,963.9 PJs at its Leigh Creek Energy Project, reported in accordance with the Society of Petroleum Engineers. Electricity and gas marketing is being conducted to assist in commercialising this large gas resource.
The focus of LCK was initially power generation to meet its own internal needs, ahead of pipeline gas sales and potential for other value add products such as ammonia and urea. Since early 2016 the focus has been augmented to include power generation for external sales as this approach:
- is profitable and less technically complicated in the initial stages;
- has received strong interest from major customers in the region for reliable long term base load electricity supply given the changing local electricity market fundamentals; and
- provides a relatively low capital start-up cost with significant cash flows providing increased flexibility for longer term capital requirements for production of pipeline quality methane.
SA manufacturing and mining industries desperately require reliable long-term power supply. LCK is advancing discussions with major power users and expect to enter agreements which will allow both parties to co-ordinate planning ahead of signing electricity supply agreements.
In April 2016 the Company signed a Heads of Agreement (HOA) with Shanghai Electric Power Generation Group (SEC), to discuss the formation of a joint venture company to build, own and operate a gas fired power station in SA. This was followed by SEC sending a large delegation of senior managers and engineers to Adelaide and Leigh Creek to meet with LCK and the Government. We look forward to progressing this project with SEC to generate base load power.
LCK is now in a position and advancing discussions to provide long term reliable electricity supply contracts to a range of large customers. Larger electricity users in SA include:
- Mines to the west of the LCEP – being Olympic Dam (BHP) and Prominent Hill (OZL) who need to secure long-term reliable electricity supply to support expanding their operations;
- Retail energy entities such as AGL and Origin; and
Our marketing efforts have confirmed strong interest in new gas supply which will increase as LCK successfully completes pre-commercial gas demonstration in mid-2017.
In anticipation of this, LCK has progressed discussions with several local projects and have signed:
- A non-binding HOA signed with APT Pipelines, a subsidiary of APA Group (ASX:APA), which will allow the development of conceptual plans for the interconnection of the LCEP via a new pipeline with the east coast gas markets; and
- A HOA with Archer Exploration Limited (AXE) which is establishing a magnesia plant adjacent to the LCEP (within 20km of the Leigh Creek Coal Mine) which could use gas, electricity and waste heat generated by the LCEP. The LCEP can provide electricity, gas and heat at a price that makes the magnesite project viable.
LCK has also been granted an initial five-year Gas Storage Exploration Licence (overlapping the Leigh Creek PEL 650) that provides LCK optionality between storing gas, or delivering gas to east coast customers.
We are in active discussions with potential customers and partners with regard to the future development of the LCEP.
Resource Compliance Statement
The information in this announcement that relates to the estimate and reporting of the Inferred Coal Resource for the LCEP was detailed in an announcement lodged with ASX on 8 December 2015 and is available to view at www.lcke.com.au. The Company confirms that it is not aware of any new information or data that materially affects the information included in that announcement and that all material assumptions and technical parameters underpinning the estimates continue to apply and have not materially changed.
The information in this announcement that relates to the 2C Contingent Syngas Resource was detailed in an announcement lodged with ASX on 8 January 2016 and is available to view at www.lcke.com.au. The Company confirms that it is not aware of any new information or data that materially affects the information included in that announcement and that all material assumptions and technical parameters underpinning the estimates continue to apply and have not materially changed. All estimates are based on the deterministic method for estimation of petroleum resources.