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Stumbling out of the UCG race

AUSTRALIA’S lead in underground coal gasification could be lost following the Queensland government’s decision to close down Cougar Energy’s Kingaroy underground plant.

James Hamilton
Stumbling out of the UCG race

Cougar managing director Len Walker told ILN’s sister publication EnergyNewsPremium this lead came about with the first UCG burn by Linc Energy, which he helped to found, which occurred between 1999 and 2002.

This, in turn, triggered off international interest over the next five or six years.

Walker said that as recently as 2008 it was clear from attending international conferences that Australia, and Queensland in particular, was leading the way in the advancement of UCG technology.

“In February 2009, when the government first put up the UCG policy for its own reasons, it made a clear statement there was not going to be a decision about whether UCG would be acceptable in Queensland until June 2012,” he said.

“So all the money participants in Queensland have been spending during that time has been at risk, there is still uncertainty, even now, for another 18 months.”

Walker added that there were projects run by the South African national power company which had been producing gas for at least three years and would produce electricity this year, while New Zealand state-owned coal miner Solid Energy was also proposing a UCG project.

Linc Energy managing director Peter Bond agreed Queensland had definitely lost its lead as the UCG state, despite the continued operation of its Chinchilla trial plant there.

He said that with its decision, Queensland was effectively saying it was more difficult to do business in that state if you were a UCG company.

“Does it mean Australia’s lead on UCG is lessened? I think what happens is Linc as an Australian company would be pushed to develop the commercial outcome of UCG in other countries,” Bond said.

“And once you go commercial, then development of the industry goes up on an exponential path. So if we are forced, which we are, to go to other states and countries around the world to develop commercially, then all that exponential growth would happen in that country.”

Cougar has alliances with two private companies in China while Linc has projects in the US, Vietnam and Uzbekistan, and is planning a UCG project in the Walloway Basin, South Australia where, in contrast to Queensland, the state has taken steps to remove roadblocks for UCG and other unconventional players.

South Australia’s Department of Primary Industries and Resources petroleum and geothermal director Barry Goldstein told ENP the state licensed UCG, CSG, conventional and unconventional oil and gas under the 2000 Petroleum and Geothermal Act.

“We’re not a closed door, we want to actually invite environmentally sustainable operations and, in particular, Australia imports about 50 per cent of its liquid transport fuels and so it’s in the national interest to develop sustainable technologies that can bolster our security of liquid transport fuels,” he said.

“Synfuel from gas or synfuel from syngas, which is in effect what underground coal gasification is, if these things can be done economically and safely, then Australia should have them.

“We would look forward to safely managed and appropriately risk-managed operations in our state for underground coal gasification, but it’s early days.

“We need to look at the details, the specifics of where there are aquifers, where there are other potential issues that need to be taken care of in regards to safe operations.”

Speaking on Cougar’s options now, Walker said the company had until February 28 to review the information available to it – a sore point for him – to determine whether it could put a case against the Queensland government’s decision.

He claimed the government had given a technical response to Cougar’s second environmental evaluation and that a summary report released to the public contained a number of inaccuracies.

“So we are short of information to review to determine why the government made its decision and our first requirement really is to understand that better.”

Failure to answer to the Queensland department’s decision would result in the company having to close down the trial at Kingaroy and carry out a full rehabilitation of the site.

This could also result in YA Global, which has already declared an event of default on the equity line of credit it has with Cougar, terminating the credit facility.

In the meantime, Cougar has mandated PricewaterhouseCoopers to start phase two of its corporate finance mandate.

Under phase two, PwC will approach a select number of companies to explore options including investment in Cougar as well as merger and acquisition opportunities in Australia and overseas.

Cougar engaged the firm in November last year as a strategic financial adviser to assess and advise on its growth plans in Australia and overseas.

Phase one involved the preparation of a strategic review report focused on maximising value for Cougar’s shareholders.

Bond said the issue with Cougar and Queensland was driven firstly by political and commercial motivations arising from the competition posed by coal seam gas and liquefied natural gas in the state.

“This is a unique outcome. It doesn’t affect anywhere else in the world and really only affects one part of Queensland, which is the Surat Basin,” he said.

The second reason was that the state government had clearly stated it did not believe Cougar was capable and competent enough to operate Kingaroy as the company did not have the personnel to really operate it nor their own technology.

Cougar’s loss of most of its staff when it was not really big enough to start with only compounded the problem, Bond observed.

“It has nothing to do with the UCG industry.”

That said, Bond noted the way the matter was being handled from a public relations perspective, arguing it had damaged the industry due to miscommunication and a misunderstanding of the main issues.

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