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Tuesday, 20 September 2011

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Blackhams great CTL gamble

BLACKHAM Resources is a company with a $9 million market cap, a share price hovering around 24c and a dream to build a multibillion dollar coal-to-liquids plant in the sleepy town of Esperance in Western Australia.
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Some may accuse the company of overreaching, given that it has no previous CTL experience, but it is sitting on the right resource to make a CTL project a reality. The company says it is potentially sitting on a lignite coal resource of almost 1.4 billion tonnes at its Scaddan and Zanthus projects, which it says will be enough to produce 860 million barrels of oil equivalent, mostly in the form of a clean diesel fuel. Its a very big project and while we have a long way to go, its potentially one of the biggest oil projects in Australia, Blackham Resources managing director Bryan Dixon told EnergyNewsPremium. Dixon said internal estimates of 15,000 barrels per day production put the project cost at the $2 billion-mark, with its latest resource estimate outlining a resource capable of supporting a 60,000bpd production over a 40-year term. You dont have to be a rocket scientist to figure out that to get the project up and running the company will need a lot of cash and even more faith in its vision. Part of the problem is that CTL hasnt exactly taken off in Australia. While South African CTL pioneers Sasol have been using the method since the 1950s, no commercial CTL plants are up and running in Australia. Although Australia has a sizeable coal resource, the massive capital costs of CTL projects has spooked investors. Linda Cook, former chief executive officer of Royal Dutch Shells Shell Gas & Power arm, told the Australian Financial Review in 2008 that project economics were a massive drawback. Whats not proven is more on the commercial side and whether you can afford to do those two technologies back to back and have it economically attractive, she said. You have to build a coal gasification plant and a gasto-liquids plant, so [it's] very capital intensive. It would work economically in a place where you have low construction costs, where you are relatively close to market, and where you have a lot of low-cost coal reserves. So you can see maybe Australia has some of those ingredients. In fact, capital costs have been so intensive that only China and South Africa have been able to invest in CTL in any meaningful way. In Chinas case, it has the capital to throw at new technologies and will do so as it seeks to shore up its power and fuel supply for its ever-energy hungry economy. In South Africas case, necessity was the mother of invention, as embargoes imposed on the regimes of the 1950s and 60s meant it couldnt import oil. Liquids specialist Sasol stepped up with a solution to take advantage of the coal resource within its own borders which couldnt be touched by any outside sanctions. If CTL is so expensive and the company has no experience in the technologies involved, why even try?

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EVEN as South Africa's Sasol exits a $US9 billion ($A8.8 billion) coal-to-liquids project in China, Chinese investment in the technology is set to grow, with Shenhua Energy Company returning the first ever profit on its own CTL project. - more

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We were focused on resources generally, and we wanted to acquire large coal projects and while we were doing that this opportunity came up after listing in 2007. We found ourselves with a very large lignite resource and though okay, how do we bring some value to this?, Dixon said. Wesfarmers had been sitting on the asset until Blackham bought it from them, and drilling had gone back as far as the 1970s, something that has helped, Dixon said. Armed with data, the company started to look at various options for the project including producing a synthetic crude, a urea, but settled on gasifying the coal, putting it through a Fischer-Tropsch process to produce a clean diesel. The reason we settled on diesel is that the diesel market is just such a large market. If we want to utilise as much of the resource as possible, then we think theres significant benefit of producing diesel. Australia consumes over 100 million barrels of diesel per year it makes a lot of sense for us to supply the domestic market. We could produce up to 20 million barrels per year, and stage one would very much be focussed on the domestic market which would put us at a comparative advantage. He said a CTL project may not have delivered a good return on investment as recently as eight years ago, as crude oil prices down near the $20 per barrel mark would have made the exercise not worth the gamble. However, with Tapis crude prices now sitting comfortably about $115 per barrel, the economics have become more attractive. While the company has been proving up its lignite resource to whet the appetite of any potential investors, it has also quietly gone about acquiring more in-house CTL expertise. We had no background when we acquired the project and over the past four years weve been developing expertise, so weve now got a significant amount of inhouse expertise in the process, Dixon said. Dixon said the company had also formed relationships with gasification suppliers and looked into research on the latest techniques and technologies. Effectively were looking to use mainly independent consultants to confirm what were trying to do, he said. The company has also been visiting Chinese CTL plants to have a look at the various options. While in China, the company talked to Chinese investors about putting up the cash to get the project off the ground. We have made some statements in the past to that effect [talking to Chinese investors], and we continue to talk to a range of parties and those discussions are ongoing, Dixon said. The Chinese are probably doing 95% of the worlds gasification projects. Weve spent a lot of time in China looking at the various plants up there. Most other places in the world are talking about CTL but the Chinese are actively doing it, While the company hopes to maintain a minority interest in the project if a strategic partner comes in, it has planned the project in several trains to keep any upfront capital requirements to a minimum. The company has set an aspirational goal of six years to plant commissioning, and has signed a memorandum of understanding with the Esperance Port Authority regarding its proposed plant site. While a CTL plant in Esperance with the potential to become one of Australias largest energy projects is quite a while off, Blackham hopes by putting in the groundwork it can overcome the economic and technological challenges faced by a small company entering the CTL industry. We know that over the last seven or eight years theres been a massive amount of money being poured into CTL, the processes are being refined and improved on what was already known and there are new gasifiers being developed, Dixon said. We now think the time is right for CTL, and if were able to do the due diligence on our resource and CTL were hopeful of attracting enough attention to make the project viable. Subscribe | Advertise FREE TRIAL!

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