Erdenes Methane hopeful of getting foreign investment

Erdenes Methane was established in February 2016 by the state-owned Erdenes Mongol to identify coal bed methane (CBM) reserves. G.Iderkhangai talks to the Executive Director of the company, D.Amar, to find out how it has been doing. 

 Erdenes Methane is three years old. How has it been growing?
As is our mandate, we have been conducting research on coal bed methane (CBM) in coal basins and identifying methane reserves, preparing feasibility studies, estimating commercial viability, preparing extraction plans, and trying to raise funds. We also have to determine how best to use the gas.

Our primary goal is to produce CBM and use it to provide an environmentally friendly and ecologically clean source of energy. As state-funded prospecting of methane was found problematic, we have restricted ourselves to estimating CBM reserves and studies. Since I took up my present position as Executive Director, I have been focusing on attracting foreign investment for prospecting. Last December, the Board of Directors of Erdenes Mongol decided to implement the CBM project with foreign investment.

How is the Government supporting Erdenes Methane?
Erdenes Methane is a 100% owned subsidiary of 100% state-owned Erdenes Mongol, which operates under the management of the Cabinet Secretariat.

What is the legal environment for methane exploration and extraction?
The legal environment supportive of our operation is set out in the Government Action Plan 2016-2020, the Three-Pillared Development Strategy, the Government Policy on Crude Oil and Unconventional Oil, effective until 2027, and the Mongolian Sustainable Development Vision - 2030. The Mongolian methane industry has the potential to grow with such support at the policy level. As a signatory to the Paris Agreement on climate change, Mongolia is committed to meeting no less than 50% of its power needs from environmentally friendly and renewable sources.

How are you going about looking for foreign investment?
We are aware that a lot of work has to be done first. CBM is likely to be found in large coal deposits, so Erdenes Methane is looking for methane not only in the Tavan Tolgoi coal fields, but also in other deposits, including in the western region.

All our CBM resources are inferred, as no drilling or any other exploration work has ever been done to identify the location and the exact amount of reserves. Even when such resources are identified, it is not clear whether it will be economically sensible and technologically feasible to go for extraction. 

At the moment, the priority is resolving the problems of financing. We need a significant amount of money at this stage, though we cannot say how much we would need to come up with enough results from exploration to know about the viability of proceeding further. The feasibility study for a project will be developed as we progress with prospecting and drilling. Any potential investor would insist on a clear picture of the possibilities of the project. 

Assuming we are successful in obtaining finance after sufficient exploration and completion of the feasibility study, we shall begin developing the project. We shall have to construct methane gas pipeline, gas plants and a liquefied gas transportation system. If this really comes to pass, Ulaanbaatar city will be smoke free. 

Why does Erdenes Methane want to be known as an asset, methane in this case, management company?
Erdenes Mongol is also one. Our company will operate as a CBM joint venture with large deposits such as Ovoot, Ukhaakhudag, Tavan Tolgoi, Nariinsukhait and Khushuut.

Which companies have reacted most favourably to your initial feelers? Investment in prospecting is always risky, so why do you think you will get investors to come?
Currently, we are in close touch with some investors in Australia, a country with extensive experience in the methane sector. They very well know the rewards that might come, so could feel inclined to take the risks and join in the prospecting phase. We are also talking with the Russian company, Gazprom Promgaz, which has been working in natural gas since 1949. The Ministry of Foreign Affairs and the Mongolian Embassy in Russia are assisting us in these talks.

We have sent proposals to Chinese methane companies also, but are yet to receive any response. Aggreko of the United Kingdom is a major supplier of natural gas and we have held preliminary talks with them.We, together with Elgen LLC, already have a cooperation agreement with Korea Gas Corporation (KOGAS) to develop a feasibility study on the use of the CBM in Tavan Tolgoi coal deposit. This was signed in April 2016 and updated last year.

Investors from Kazakhstan, which has been actively developing its natural gas sector over the past decade, have visited us. Since we are trying with so many prospective foreign partners, and have received some potential offers, we are confident that everything will work out well. An advantage is that ours is a project fully supported by the Government. 

Will you enter into a cooperation agreement with Erdenes Tavan Tolgoi?
Of course, since the Ministry of Mining and Heavy Industry has ordered us to work with Erdenes Tavan Tolgoi. We have already submitted a proposal to them on this and hope the issue will be resolved soon. We already have an agreement allowing us to prospect for the purpose of extracting methane from the Tavan Tolgoi deposit under the Petroleum Law.

Are you considering Borteeg as the target area for your project?
Well, yes. The coal seam is located at the deep underground part of the Borteeg area in Tavan Tolgoi. It is highly probable that there is a large accumulation of methane there with high pressure and high concentration of water. The possibility of methane extraction in other parts of the coalfield depends on the nature of the open-pit mining operations. 

You see methane as a potential export earner. Is that your priority, or do you put meeting domestic demand first?
Mongolia has over 20 billion tonnes of proven coal reserve, but utilization of coal bed methane will provide cheap and clean energy in the country.The gas has begun to be widely used in Ulaanbaatar city and some rural areas. Before we start exporting methane, we shall need construct infrastructure, which will require substantial investment. 
Incidentally, unlike what is seen with other Mongolian export commodities, the global price of methane has been relatively stable.

What do you think of the proposed natural gas pipeline from Russia to China passing through Mongolia?
This is a matter of geopolitical interest. Since Erdenes Methane will discuss export issues only after fully supplying domestic needs, I have no information or comments on the matter.