The Underground Coal Gasification (UCG) Market 2012-2022

6.3 Cougar Energy Limited

Cougar Energy is one of the major players in the UCG industry. The company is focused on the development of commercial UCG projects on the Australian and international energy market. In 2010, the development of the companys flagship $550m 400MW power plant project in Kingaroy, Queensland was shut down by the government following a ruptured gas production well which allegedly led to trace levels of benzene and toluene being emitted into the groundwater. The company is now working with governments and companies in China, Indonesia, and Mongolia to develop UCG projects in Asia.

Rob Neill is CEO and Managing Director of Cougar Energy.

6.3.1 Cost of UCG End Product

Visiongain: Cougar Energy is one of the leading UCG companies and involved in projects in various countries. As a company at the forefront of making UCG a commercially viable energy source, how would you rate the competitiveness of UCG in terms of up-front capital costs required for commercial production and price of the end-product compared to traditional coal mining and natural gas?

Rob Neill: My view is that we are very competitive because UCG is quite different to other projects like coal mining and geothermal where there is a big upfront capital cost to build all the necessary infrastructure, but with the funding demand tapering away at the back end.

With UCG its the opposite, with a relatively low cost to do the geological review of the coal resource, site characterisation work and a drilling program upfront, but with the larger capital cost coming at the end with the construction of the actual project.

The issue I am seeing at the moment is that financiers are saying they need to better understand the technology first and then look at what drives the costs inside the technology. As an emerging industry in Asia we are working hard on an education program that will address these issues.

Project risk is something else that we are very focussed on. We approach the development of risk assessments for all of our potential Asian UCG projects in a similar manner, using four key themes.

1. We first look at securing the funding from a bankable feasibility study once it has been developed.

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2. Power pricing and Power Purchase Agreement (PPA) conditions must make good economic sense. 3. Grid connection and substation costs must also make economic sense. Weve got to make sure that these are not too expensive or it could affect the viability of the project.

4. Land access is also a pretty big issue in Asia, especially Indonesia, however the Government has moved forward on infrastructure projects by having a land acquisition law put in place in 2011. Then for public and private partnerships (PPPs) the Government released another updated set of laws to grant even better access to project owners to get right of entry for their projects.

The energy recovery from UCG exceeds 75 per cent making the process very cost effective in terms of coal resource utilisation. Its not about the well head price of the synthetic gas, or syngas, but the production price of the end use product using syngas as a feedstock.

In the table below we highlight the costs to produce certain products, which clearly demonstrates the competitive advantage of syngas as a feedstock.

Table 6.2 Production Cost Comparison of UCG and other Power Generation Fuels ($)

For cost to produce(1) refer to M.S.Blinderman et al (2011) Gasification Technologies Council Conference , October 2011, San Francisco, USA

6.3.2 Regulatory Problems for UCG Companies

Visiongain: Cougar Energy has been involved in a lawsuit with the Queensland government over its Kingaroy UCG facility. What were the major obstacles Cougar Energy had to overcome to

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realising its project so far, what obstacles is it facing now to move towards commercial production, and what obstacles are there to developing similar projects in Australia and around the world? Rob Neill: Firstly, there are two lawsuits, which are continuing. One is seeking to overturn the orders to suspend the operation of our Kingaroy UCG facility and the other is seeking damages following the suspension.

Probably the major obstacle in moving forward in Queensland has been the Queensland government itself. We strongly contend that we have caused no environmental harm at the Kingaroy site, which is at odds with the Governments position and the company is fighting to vindicate its position whilst suspension orders continue.

The company is of the opinion that the government has made a political decision rather than an evidence-based decision based upon the application of proper environmental protection criteria. Until this is resolved, the outlook for commencing commercial UCG projects in Australia is constrained.

A recent independent report by the Queensland Ombudsman highlighted that the government department involved, did not have the proper technical expertise to impose conditions on our Project. The Ombudsman identified departmental systemic failure in their processes and at all times Cougar Energy was in compliance with the departments demands.

By contrast we have now focussed our attention on Asia as the future for our UCG efforts, where governments and responsible departments are showing very strong support for UCG and are actively encouraging companies like Cougar Energy, to develop alternative energy projects. UCG is a top priority for these governments as our projects will be environmentally cleaner, will certainly offer more cost effective electricity to end users and we will provide prosperity for these communities in Asia, in the areas in which we work.

6.3.3 UCG in Asia and the World

Visiongain: Cougar Energy is in the process of evaluating new production areas and has been involved in China, Indonesia and other countries in Asia. In which countries do you see the most potential for UCG development in the next years?

Rob Neill: Our biggest focus right now is in Indonesia with our partner PT Medco Energi, one of Indonesias largest energy companies, and in Mongolia with our new partner Hulaan Coal.

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The Indonesian government has done a great job so far with its 2011 announcement of the coal upgrading programs, directing the coal companies to find alternative uses for their coal outside of supplying coal for power generation. Therefore UCG fits very nicely as an energy source by way of alternative use for their deeper coal assets. This is an Asian first and certainly an Australasian first, so I commend the Indonesian government for taking the lead in the region and this government directive certainly cant be underestimated.

We are aligning with the Indonesian Governments coal upgrading program and I can see the resource companies developing their own coal technology programs. There is still some work to do around policy guidelines for the alternative energy sector, particularly around project permitting, environmental regulatory control and the Perusahaan Listrik Negara (PLN - the State owned Electricity Company) off-take guarantees.

I am encouraged by the work of the Indonesian government and we are currently working on developing an Alternative Energy Independent Power Producers (AEIPP) Committee so that the voice of the Independent Power Producers (IPPs) and in particular, the AEIPPs, can be heard and can contribute to a meaningful solution to Indonesias energy needs.

After all, according to the PLN`s Head of Corporate Planning, Pak Made Ro Sakya, Indonesias forecast power demand growth is expected to grow by some eight to nine per cent due to the PLN`s desire to increase electrification across Indonesia from 73 per cent today to 83 per cent by 2016.

Between 2011 and 2020 some 55.3GW of power is needed with the PLN supplying 31.5GW and its expected that the IPPs will supply 29.3GW. The issue now is that supply will grow just 6 per cent leaving a major supply gap, but offering the IPPs and the AEIPPs excellent opportunities to play their part in the energy mix.

In Mongolia, the energy demand is well reported and today they rely on just one aging coal fired power plant in Ulaanbaatar for their supply.

Recently there was an announcement regarding the granting of a power production license for another 600MW, but again this will be coal fired.

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Our discussions with the government have been very productive and we remain in discussion to secure a MoU to work with the government in the development of UCG to power generation in that country. A good first step for our market entry is partnering with Hulaan Coal to review their coal resources for UCG suitability. We have no doubt that together we will be able to provide Mongolia with the first commercial UCG to power project over the coming years.

6.3.4 Carbon Capture and Storage and UCG Development

Visiongain: How big do you think will the impact of CCS be on the development of UCG projects around the world, when do you think this can happen on a commercial scale?

Rob Neill: We see very real opportunities for carbon capture and storage in what we do. With UCG we are in the business of sourcing stranded coal reserves those that are traditionally too deep to mine from the surface or even underground, so we are talking generally 200 metres and deeper. The process of UCG is to identify a suitable coal seam and then gasify the coal in that seam in-situ and capture the gas on the surface. This then leaves a cavity deep underground, which could be suitable for carbon capture and storage, so the prospect exists for us to take advantage of this opportunity. Clearly we need to commercialise UCG first, and then look at how we might add value, but we are certainly thinking about how CCS could be utilised in our industry.

6.3.5 Market Development over the Next Decade

Visiongain: With many countries investing in UCG development, how do you think the global market will look in a decade?

Rob Neill: If we look back to the start of this century we probably wouldnt have guessed how big the coal seam gas industry would become. I have read estimates of the value of Liquid Natural Gas (LNG) in Australia alone being put at more than $11 billion and this has grown fourfold over the last decade. We know that UCG will reduce greenhouse gas emissions. Black coal power plants in Australia generate around one tonne of CO2 per MWh whereas a power plant fuelled by UCG will only produce only 0.7 tonnes of CO2 per MWh. The syngas generated from UCG can be readily processed to remove its CO2 content thereby providing a source of cleaner energy.

So in a decade I believe UCG will be a major clean technology industry around the globe. Although alternative energies will continue to advance, we will still be relying on fossil fuels for large scale continuous power operation for a long time to come. Even electric cars rely on fossil fuels for their

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electricity, but I believe we can be smarter and more environmentally aware in the way we use our fossil fuels and this is what UCG does. I strongly believe that UCG will have its day and that governments and regions around the world will understand the benefits and embrace this environmentally friendly technology and its ability to create lower cost energy solutions, especially for the energy-starved nations of Asia. This is our focus today and will remain our focus for the foreseeable future.

6.3.6 Offshore UCG Possibilities

Visiongain: When do you think it will be feasible to use offshore coal reserves, which are currently being explored in the UK, for commercial production?

Rob Neill: It is certainly something that is generating a lot of interest from the bigger players in the industry but for us, the important thing at the moment is the commercialisation of UCG across coal reserves that are land based.

Its my view that the costs associated with offshore exploration and the subsequent infrastructure project costs are prohibitive right now.

Cougar Energy has more than enough suitable stranded coal reserves onshore in Indonesia, Mongolia and China to allow us to move UCG to commercialisation in Asia.

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