Elixir Energy well positioned to benefit from Mongolia and China’s decarbonization policies as it prepares to set up Mongolia’s first gas-fired power plant
Elixir Energy Ltd (ASX:EXR) is very well positioned to benefit from Mongolia and China’s decarbonization policies as it accelerates its plans to set up Mongolia’s first gas-fired power plant in the southern region of Gobi using natural gas, and at the same time developing the region’s first green hydrogen project.
The gas exploration and development company has already made progress on several fronts for its green hydrogen project – Gobi H2 – including the recent signing of a Memorandum of Understanding (MoU) to support project financing with the Mongolia Green Finance Corporate, a public joint venture. private sector organization.
It has also submitted a detailed analysis of the legal issues surrounding a potential green hydrogen project in Mongolia to the Ministry of Energy, which concludes that no major new legislation is needed for the development of green hydrogen projects in Mongolia. .
Elixir also confirms the bankability of renewable energy inputs for green hydrogen production and has procured expert water advisory services, with potential water sources for the H2 pilot project already identified.
The company recently filed plans for its long-term coalbed methane (CBM) production test pilot project with the Mongolian petroleum regulator as part of the mandatory annual budget approval process.
Elixir Energy is currently primarily focused on an exploration and evaluation program in Mongolia targeting natural gas in the form of CBM, also known as coal seam gas (CSG) in Australia. More recently, it developed the green hydrogen project Gobi H2, in the same field of activity as its CBM activity.
Elixir Energy has named the green hydrogen project the “Gobi H2” project and is requesting a Mongolian trademark for the name.
Elixir’s Managing Director, Neil Young, said: “All the work we are doing on our Gobi H2 project serves to reinforce our original original concept: the country is a potential prime location for hydrogen exports to large scale.
“Elixir’s advantages as a frontrunner are gradually being realized and it is fantastic to see the growing interest in this forward-looking industry from multiple local and international stakeholders.”
Investor of the Year for the second consecutive year
Elixir Energy has won the “Investor of the Year 2021” award from the Mongolian Minister of Mines and Heavy Industry, making it the second year in a row that the company has been recognized for its efforts.
Elixir’s Young said: “It is a great tribute to our local staff and contractors that we have once again been officially recognized as ‘Investor of the Year’ by the Minister of Mines.
“It recognizes their great resilience in not only maintaining, but in fact dramatically increasing, our exploration and evaluation efforts, despite all that COVID has thrown at them.
“We look forward to even greater growth in 2022 as we undertake the first sustained production pilot program in Mongolia and continue our ‘rinse and repeat’ model of adding new coal sub-basins to our inventory.”
End of the 2021 drilling program
The Company’s 2021 drilling program is complete, with the following results:
➢ The Nomgon-7S well has been successfully drilled and suspended as a pressure monitoring well for next year’s pilot production project in the Nomgon sub-basin;
➢ The Richcairn-4 appraisal well reached a total depth of 560 meters and encountered 20 meters of coal and 6 meters of silty coal. Further assessment work will be undertaken in the Richcairn sub-basin in 2022; and
➢ The Bag-1S exploration well reached a total depth of 779 meters but did not intersect any coal.
Elixir’s final drill program for 2021 included 17 wells of which 65% successfully intersected coals within the CBM window.
Seismic acquisition program
Elixir’s 2021 2D seismic acquisition program in the South Gobi was completed on schedule.
A total of 528 kilometers were acquired in a two-stage program that required 123 days of field operations – a record scale program for the region.
The data is being processed and interpreted and is feeding into the generation of leads for the 2022 drill program.
Nomgon CBM Project
Elixir Energy is primarily focused on its 100% owned Nomgon IX CBM Production Sharing Contract (PSC) project in the South Gobi region of Mongolia.
The Nomgon project license area covers approximately 30,000 square kilometers and is on the Chinese Mongolian border, with excellent infrastructure, mines and planned pipelines. It is about 400 kilometers north of China’s main gas transmission network.
This very large area has been independently certified to contain a giant potential recoverable resource at CBM risk of 7.6 Tcf (best case).
provisional program 2022
After nearly 300 days of non-stop drilling undertaken in 2021, there will be a short break in the field, while the mandatory annual regulatory processes for the 2022 program are underway.
➢ The company’s exploration drilling bidding process has been completed and a number of bids are currently being evaluated.
➢ The tender for the pilot drilling is still open and to date a number of companies have expressed interest informally. The contract award, which will involve the regulator, is expected to be announced next month.
➢ The company’s currently open seismic tender has also generated multiple informal expressions of interest. The tender will close shortly and should be awarded next month.
➢ Standard discussions are ongoing with the oil regulator on the formal 2022 budget.
➢ Major long-lead items for the pilot production program have recently been ordered.
Approvals from the petroleum regulator are expected in February, followed by annual approvals from the Department of the Environment.
Final approval, depending on the evolution of the COVID-19 front, should come in the first half of March.
Chinese gas markets
The company noted that decarbonization efforts in China are real and realistic, with security of supply arguably even more important than price, as evidenced by the currently exceptionally high Asian gas prices paid by China.
China has already been actively reducing the carbon intensity of its economy, with neighboring Inner Mongolia province changing its coal-heavy energy mix.
China is accelerating its own hydrogen developments and, in the long term, should turn to imports.
In addition, Russia’s increased gas supply leverage over Europe has not gone “unnoticed” by China, Elixir noted.
About two-thirds of the cost of producing green hydrogen is the cost of renewable energy.
Shipping hydrogen by ship costs multiples of shipping the same energy as methane.
The cost of hydrogen delivery is therefore “a matter of renewable energy quality and delivery cost”.
Access to markets by pipeline is massively advantaged over maritime supplies and Mongolia can supply hydrogen to Chinese markets in this way.
New business opportunities
Like many other oil and gas companies, Elixir has carefully considered what new business opportunities the energy transition could present that leverages its existing skills and does not present a value-destroying distraction.
As the first player in this field, the company has signed a memorandum of understanding with the Mongolian Ministry of Energy to work with it in exploring hydrogen opportunities and other stakeholders are also gradually committed.
In the meantime, it is collecting bankable quality data on renewable resources in the region from its SODAR equipment.
Its desk analysis concluded that the combination of wind and solar resources in the Gobi region is exceptional – and the location advantages this region brings in terms of close proximity to Chinese steel mills, for example, should place green hydrogen product in the lowest delivery level in the world. cost category.
Water Expert Advisory Services
Elixir has been working with Mongolian drilling company ErdeneDrilling LLC for several years on the CBM drilling front.
Although water does not represent a significant part of the cost structures of green hydrogen production, it is a vital input and the social issues surrounding it are a key priority.
Elixir’s CBM business, where water production is a necessary part of gas production from coal seams, provides complementary areas of expertise and even potential H2O feedstock for the Gobi H2 project. .
Elixir and Mongolian drilling company ErdeneDrilling LLC recently formalized their relationship on water supply for hydrogen through an agreement for the provision of water consulting services.
The parties are currently planning field water exploration and assessment activities for later this year.
Besides water, the other key input for a green hydrogen project is high-quality renewable energy sources, which according to a literature review are of very high quality globally in the region of Gobi.
On this front, Elixir is currently:
➢ Measure wind and solar resources at a bankable level through its Australian-sourced SODAR unit imported into the country last year and deployed in the South Gobi region; and
➢ Importing a solar-focused metering tool (from the same Australian company that provided the SODAR – Fulcrum3D) to deploy at its recently acquired Solar Ilch solar farm.