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Elixir Energy well-placed to benefit from Mongolia and China decarbonisation policies as it moves to set up Mongolia’s first gas-fired generation plant www. proactiveinvestors.com.au

The gas exploration and development company has also achieved progress on multiple fronts for its green hydrogen project – Gobi H2 – including the recent signing of an MoU to support project finance.

Elixir Energy Ltd (ASX:EXR) is very well placed to benefit from Mongolia’s and China’s decarbonisation policies as it ramps up plans to set up Mongolia’s first gas-fired generation plant in the South Gobi region using natural gas, and at the same time develop the region’s first green hydrogen project.

The gas exploration and development company has already achieved progress on multiple fronts for its green hydrogen project – Gobi H2 – including the recent signing of a memorandum of understanding (MoU) to support project finance with the Mongolia Green Finance Corporate, a joint-public-private sector body.

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 new major legislation is needed for the development of green hydrogen projects in Mongolia.

Elixir is also confirming the bankability of the renewable power inputs for green hydrogen production and has procured expert water advisory services, with potential water sources for the pilot H2 project already identified.

The company recently lodged plans for its long-term coal-bed methane (CBM) pilot production testing project with the Mongolian petroleum regulator as part of the mandatory annual budgetary approval process.

Elixir Energy is currently primarily focused on an exploration and appraisal program in Mongolia targeting natural gas in the form of CBM, also known as coal seam gas (CSG) in Australia. More recently it has developed the Gobi H2 green hydrogen project, in the same area of operations as its CBM business.

First mover advantage
Elixir Energy has named the green hydrogen project the ‘Gobi H2’ project and is applying for a Mongolian trademark for the name.

Elixir managing director Neil Young said: “All the work we are doing on our Gobi H2 project serves to reinforce our original starting concept: the country is a potential tier-one location for large scale hydrogen exports.

“Elixir’s first-mover advantages are being progressively locked in and it is fantastic to see the rapidly growing interest in this future-facing industry from multiple local and international stakeholders.”

Investor of the Year for second consecutive year

Elixir Energy bagged the ‘Investor of the Year 2021’ award by Mongolia’s Minister of Mining and Heavy Industry, making it the second year in a row the company has been recognised for its efforts.

Elixir’s Young said: “It is a great tribute to our local staff and contractors that we have yet again been formally awarded as ‘The Investor of the Year’ by the Mining Minister.

“This recognises their great resilience in not just maintaining, but in fact greatly increasing, our exploration and appraisal efforts, notwithstanding all COVID has thrown at them.

“We look forward to even more growth in 2022 as we undertake Mongolia’s first sustained production pilot program and continue our ‘rinse & repeat’ model of adding new coal- bearing sub-basins to our inventory.”

2021 drilling program wrapped up

The company’s 2021 drilling program has been wrapped up, with the following results:

➢ The Nomgon-7S well has been successfully drilled and suspended as a pressure monitoring well for next year’s production pilot in the Nomgon sub-basin;

➢ The Richcairn-4 appraisal well reached a total depth of 560 metres and encountered 20 metres of coal and 6 metres of silty coal. Further appraisal work will be undertaken in the Richcairn sub-basin in 2022; and

➢ The Bag-1S exploration well reached a total depth of 779 metres but did not intersect coal.

Elixir’s final 2021 drilling program comprised 17 wells of which 65% successfully intersected coals in the CBM window.

Seismic acquisition program
Elixir’s 2021 2D seismic acquisition program in the South Gobi has been wrapped up as planned.

A total of 528 kilometres was acquired in a two-stage program that required 123 days of field operations – a program of record size for the region.

The data is now being processed and interpreted and is feeding into lead generation for 2022’s drilling 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 licence area covers around 30,000 square kilometres and is on the Mongolian Chinese border, with excellent infrastructure, mines and planned pipelines. It is around 400 kilometres north of China’s main gas transmission grid.

This very large area has been independently certified to contain a giant CBM risked recoverable prospective resource of 7.6 Tcf (best case).

2022 forward program

After nearly 300 days of non-stop drilling undertaken in 2021, there will be a short hiatus in the field, whilst the mandatory annual regulatory processes for the 2022 program are underway.

These include:

➢ The company’s exploration drilling tendering process has closed and a number of bids are currently being evaluated.

➢ The pilot drilling tender is still open and to date a number of companies have informally expressed their interest. The award of the contract, which will involve the regulator, is expected to be handed out next month.

➢ The company’s currently open seismic tender has also attracted multiple informal expressions of interest. The tender will close imminently and is expected to be awarded next month.

➢ Standard discussions are underway with the petroleum regulator over the formal 2022 budget.

➢ Key long lead items for the pilot production program have recently been ordered.

Approvals from the petroleum regulator are expected to come through in February, followed by annual sign-offs from the Environment Ministry.

Final approval, depending on developments on the COVID-19 front, should be forthcoming in the first half of March.

Chinese gas markets
The company noted that the de-carbonisation efforts in China are real and realistic, with the security of supply arguably even more important than the price, as shown by the current exceptionally high Asian gas prices being paid by China.

China has already been actively reducing the carbon intensity of its economy, with the neighbouring province of Inner Mongolia changing its coal-heavy energy mix.

China has been accelerating its own hydrogen developments and in the long term is likely to turn to imports.

Furthermore, Russia’s increasing gas supply leverage over Europe has not gone “unnoticed” by China, Elixir noted.

Competitive advantage
Around two-thirds of the cost of producing green hydrogen is the cost of renewables.

Shipping hydrogen by boat costs multiples of shipping the same energy as methane.

The delivered cost of hydrogen is, therefore “all about the quality of renewable energy and the cost of delivery”.

Access to markets by pipeline is massively advantaged over seaborne supplies and Mongolia can supply hydrogen to the Chinese markets this way.

New business opportunities
Like many other oil and gas companies, Elixir has carefully considered what new business opportunities the energy transition might offer it that take advantage of its existing skillsets and do not present a value destructive distraction.

As the first mover in this area, the company signed a MoU with Mongolia’s Ministry of Energy to work with it in exploring hydrogen opportunities and other stakeholders are also being progressively engaged.

In the meantime, it is garnering bankable quality renewable resource data in the region from its SODAR equipment.

Its desktop analysis has concluded that the combination of wind and solar resources in the Gobi region is exceptional – and the locational advantages this region brings in terms of immediate proximity to Chinese steel mills, for example, should place green hydrogen produced in the globally lowest delivered cost category.

Expert water advisory services

Elixir has worked with Mongolian drilling company ErdeneDrilling LLC for a number of years on the CBM drilling front.

Although water is not a large part of the cost structures of producing green hydrogen, it is a vital input and the social issues surrounding it are a key priority.

Elixir’s CBM business, where producing water 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 have recently formalised their relationship over procuring water for hydrogen through an agreement for the provision of water advisory services.

The parties are currently planning field-based water exploration and appraisal activities for later in the year.

Renewable resources
Other than water, the other key input for a green hydrogen project is high-quality renewable power sources, which desktop analysis indicates are of globally very high quality in the Gobi region.

On this front, Elixir is currently:

➢ Measuring wind and solar resources to a bankable standard through its Australian sourced SODAR unit imported to the country last year and deployed in the South Gobi region; and

➢ Importing a solar focused measurement tool (from the same Australian firm who supplied the SODAR – Fulcrum3D) to be deployed at its recently acquired Solar Ilch solar farm.

Published Date:2022-01-19

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Elixir Energy well-placed to benefit from Mongolia and China decarbonisation policies as it moves to set up Mongolia’s first gas-fired generation plant www. proactiveinvestors.com.au

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