Environmental concerns nullified in massive SA gas find

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RYK VAN NIEKERK: The Australian company Kinetiko Energy last week announced that it had found a significant gas reserve close to Secunda in Mpumalanga. Nick de Blocq is on the line. He is Kinetiko’s CEO. Nick, thank you so much for joining me. Tell us about this gas reserve you found.

NICK DE BLOCQ: Firstly, it’s not an overnight discovery. This is more than a decade coming, Ryk. We’ve been working on exploration across three [exploration rights] block structures, being ER270 in the south near Newcastle, ER271 kind of between Volksrust to the north of Amersfoort, and ER272, which borders on Secunda.  

It’s only more recently that I guided the company into exploring the newer areas of ER270 and ER272 – and the results have been absolutely spectacular. The geology [geophysics] of the block in the north near Secunda is very superior, and we have uncovered a treasure trove of gas right on the doorstep of Sasol up in that part of the world which has caught the world’s attention.

RYK VAN NIEKERK: You call it a treasure trove. Is there any sense – or do you have any indication – of how much gas there is?

NICK DE BLOCQ: This week we put an announcement on the ASX – we are floated on the Australian Stock Exchange – and it includes a very recent report by Sproule Energy out of Denver, Colorado, who have done a reassessment of our resource, the multi-block resource.

They’ve indicated a midpoint contingent resource of about 6tcf [trillion cubic feet], which in effect is about six times bigger than Mossgas has managed to produce over 20 years of profitability, and more than twice the size of the Pande-Temane gas fields from which Sasol has derived basically all of the gas we have in South Africa. 

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So it is very substantial, apart from the contingent resource certification. ‘Contingent’ just means contingent on development and marketability.

Outside of the areas we’ve actually got holes in, they’ve had to classify that resource as prospective, and it’s very close to another 6tcf sitting just outside the areas within our rights areas, but outside of where we’ve built. So as we put holes in the ground, those turn into contingent resources. In fact, that number six is already obsolete, because we’ve put some more holes in the ground since they cut off the time for those calculations. 

RYK VAN NIEKERK: I just want to confirm – you said twice the size of the Temane gas field in Mozambique?

NICK DE BLOCQ: Yes, sir. More than twice the size. That multi-decade production plan was set in motion on the basis of about 2tcf and 2.5tcf. We’ve just been proved to be sitting with 6tcf-plus. So it is multiples of that and, as I said, Mossgas has only produced about one tcf over their first 20 years of production.

RYK VAN NIEKERK: And how quickly could it be commercialised?

NICK DE BLOCQ: [That’s] literally the million-dollar question. Just to manage expectations here, Ryk, we are still a rank exploration company. We have production aspirations and we have just started our journey towards a production-right application across one of our blocks, to be followed by the other two pretty shortly.

It can be anything up to a year’s process in order to convert an exploration right into a production.

So until the production right is in hand it’s unlikely we are going to actually get the levels of investment in our hands, literally in the bank account, in order to start drilling out the fields that we require to produce the gas. 

But it is definitely coming. We cannot ignore the treasure that we’ve got under our feet – it’s just an issue of managing expectations in terms of time. Probably about a year from now we should be able to begin the massive drilling process.

RYK VAN NIEKERK: Okay. So the timeline would be several years – if not longer – before it could be really, really commercially developed?

NICK DE BLOCQ: Yes and no. It’s obviously a staged process.

Every 10 holes we put in the ground can supply [up] to a 5 000 tonne per annum LNG CryoBox in the field, and multiples of that naturally as you drill sort of 10 well clusters, building up to the bigger 60 000 tonnes-per annum LNG units.

That kind of describes what we announced into the market just yesterday morning – our partnership with the IDC [Industrial Development Corporation] that conceives of multiples of these 60 000 tonnes per annum units, which equate to the approximately 50 megawatts of energy equivalent.

RYK VAN NIEKERK: And you would be able to sell that or provide the gas to Sasol, for example, which is already importing gas from Mozambique. I think the pipeline they have is close to 700 kilometres long and, as you said, this is on the doorstep of Sasol. Would there be other commercial takers of the gas?

NICK DE BLOCQ: Well, absolutely. Firstly our blocks are geographically disparate. We have over 6 000 square kilometres under rights on application right now.

The obvious offtaker for our gas in the northern block [ER]272 would be Sasol, naturally. If you chipped a golf ball over the southern fence recently, it would’ve probably hit our rig.

We drilled some core holes there of great strategic importance and remarkable results. 

Further down there are naturally offtakers in that Lilly [pipe]line that is fed by the tailings of the coal-to-liquids process in Secunda.

So the methane-rich gas fed down the Lilly line is currently supporting numerous thermal industries in KwaZulu-Natal, starting with ArcelorMittal in Newcastle and down to Richards Bay and Durban. 

They’re kind of facing a gas cliff. The gas fields in Mozambique have been producing for a long time. They’ve done very well indeed, but the natural progression is one of depletion.

So those are expected to decline over the next few years, and those offtakers are obviously facing a double whammy because, apart from the declining rates, Sasol is committed to, we say, ‘clean up its act’.

They’re emitting a lot of carbon and pollution from converting coal to liquids. They know it. They would like to be doing the same kind of process with gas. 

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So increasingly using their own gas from a depleting source means less coal being used and therefore less MRG [methane-rich gas] for the Lilly line.

This is where we can step in, because that pipeline comes through all three of our rights areas, fortunately. We are already talking to multiple offtakers on that line about how we can help them survive into the future.

RYK VAN NIEKERK: How deep is this reserve, and is it easily mineable or extractable?

NICK DE BLOCQ: It is actually relatively easy. The geology that we have is remarkably simple. We get through a layer of dolerite which covered the area about 200 million years ago, cooking the organics in the sediments into gas and trapping it at the same time. So sub-igneous we get into sediments and in the area of Secunda we are hitting our terminal depth only at about 300 metres. And then further south, as we go towards the Newcastle area, the Karoo basement dips to the south. So we’re getting about 600 metres, double the depth, out of our southernmost reaches. 

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So it is shallow sandstone, supported a little bit by coal seam, but it’s not a CBM [coal bed methane] resource, it’s a sandstone play, sediment play.

And it’s remarkably easy in fact to extract the gas because you simply put holes in the ground, you case off the dolerite so it doesn’t run – and leave the rest there for it to produce.

The only thing you have to do is extract the water. 

Now water is a sought-after commodity, and the groundwater is simply saline – it’s not nasty. There are no bad things in the content of the water. But we can beneficiate the water. The water can be used agriculturally, it can even be processed into EPA [Environmental Protection Agency] potable drinking water.

So there could be a sideline beneficiation to be had alongside the gas there as well. And then the gas simply flows from the barefoot wells to your surface processing.

RYK VAN NIEKERK: There’s no likelihood that the gas would pollute groundwater on its way up?

NICK DE BLOCQ: None whatsoever. It’s already in the matrix of the sandstones, along with the groundwater that we produce from the bottom. Farmers typically get their water from wells on their properties that sink to about 80 metres or so. I could be slightly incorrect here or there.

We are extracting water from multi-hundreds of metres and there’s no chance of pollution whatsoever. We are taking the gas and the water out of exactly the same rock structures. 

RYK VAN NIEKERK: And then there are many environmental organisations in South Africa that are dead set against any carbon-based fuels. I think virtually all of the carbon-based exploration projects in South Africa have faced some sort of legal challenge, especially exploration off our coast. Have you had any dealings with these groupings, and do you foresee that there could be some legal opposition for you to launch a commercial enterprise?

NICK DE BLOCQ: I absolutely see this coming, Ryk. I think it’s probably poor communication from within our own industry.

True environmentalists, real environmentalists, would probably be sitting on the same side of the table as I am, facing down, can we say, foreign-paid lobbyists who are trying to get in the way of industrial development in South Africa.

Every molecule that we can produce of non-polluted gas that can replace polluted coal, heavy fuel oils and diesel, has to absolutely make sense in an environmental context. 

I am an environmentalist, I’m also a gas man. You know, if we are doing the one thing correctly, the other is not in conflict whatsoever.

We’re right there actually on a green ticket, and I think the country needs to understand this – that if a fairy came and waved a magic wand overnight, and all of South Africa’s fossil-fuel coal, HFO [heavy fuel oil] and diesel industries were run suddenly the next day on gas, we would oversubscribe our crop obligations immediately and forever, and the world would look at us as a model of how to do it. 

Ergo, therefore, it makes absolute sense that every molecule of gas we can use to replace pollutive fuels is clearly the right way to go.

RYK VAN NIEKERK: Nick, thank you so much for your time today. That was Nick de Blocq. He’s the chief executive of Kinetiko.