Name of the Project
Free State natural gas project.

Location
The project spans 187 000 ha of gasfields across Welkom, Virginia and Theunissen, in the Free State, South Africa.

Client
Tetra4, a subsidiary of Renergen.

Project Description
The project entails the construction of a 107 km pipeline network and associated gas-processing facilities.

The aim is to produce all South Africa’s helium and liquefied natural gas locally instead of importing it.

Based on Renergen’s five-year production mark, it is feasible that the company can produce between 1 000 kg/d and 1 500 kg/d of helium, which could increase to about 5 000 kg/d of helium once it taps into the contingent reserves.

Additionally, Renergen will produce, concurrently, 10 000 GJ/d of liquefied natural gas (LNG). This amount of energy is equivalent to 45 000 ℓ/d of diesel, which will be ramped up to the equivalent of between 200 000 ℓ/d and 250 000 ℓ/d of diesel within their five-year production mark.

Potential Job Creation
Not stated.

Value
The total projected capital expenditure to roll out the first phase of production is about R400-million. To bring the Virgina project into full-scale production – including the production of LNG – will cost between $15-million and $20-million.

Duration
As a result of significant engineering, Tetra4 will start construction of natural gas liquefiers in early 2018, with production of LNG to start in early 2019.

Latest Developments
Renergen expects to become a significant global producer of helium when its Virginia project starts production in 2019.

This will also result in South Africa is becoming the eighth country in the world to export helium.

Renergen released an updated independent reserve review for its Virginia project in March 2018, which included quantified results of recoverable helium-4 resources, at 6.2-billion cubic feet on a discovered commercial basis.

The reserve review was undertaken as a result of a condition precedent in an agreement with Renergen’s credit facility provider, the Industrial Development Corporation, obligating Renergen to have an independent expert verify the resource. Renergen decided to combine the independent expert report, compiled by US petroleum specialists MHA Petroleum, with an updated report on the field, with a specific focus on assessing the helium in the reserve.

The independent reserve review estimates contingent helium reserves in the area to be up to 25-billion cubic feet. Helium is found within natural gas in concentrations typically up to 1% by volume of the gas released; however, the updated reserve review shows that the latest well drilled in the Virgina project contains a concentration of almost 11%.

This ensures that the LNG production equalises the helium production to ensure sufficient supply with regard to LNG demand in South Africa, unlike, for example, helium reserves in Qatar being 0.4% concentrated, meaning there is an oversupply of LNG along with it.

The company’s prime focus currently is to complete final studies at the Virginia project to finalise the amount of necessary capital expenditure, procure drilling equipment and services, build a reticulation network and start production by the third quarter of 2019.

Renergen signed an offtake agreement and distribution rights for the helium in May 2016, with US-based Linde Global Helium.

Further, all excess amounts of helium will predominantly be exported, owing to the anticipated depletion, in 2021, of the US Bureau of Land Management’s (BLM’s) helium reserve, which is currently the largest supplier of helium globally.

Currently, demand outstrips supply – one of the key uses for helium is in the medical industry and with China’s growing middle class now getting access to better healthcare, demand pressures are compounding, making this helium discovery in South Africa a globally significant one for the helium market.

South Africa uses about 350 kg/d of helium, largely by the medical industry for magnetic resonance imagining machines, fibre optics and electronics, such as microchips, as well as in specialised welding applications.

Prior to the Petroleum Agency of South Africa granting Renergen environmental authorisation for the natural gas development in September 2017, the company had spent an estimated R150-million on exploration and construction of the first compression plant, which services transport operator Megabus.

In terms of challenges, Renergen CEO Stefano Marani has said that the company has an established contracting methodology to reduce construction risk. “Fortunately, most of the equipment is plug-and-play and is containerised, so we can limit exposure in this regard.”

Additionally, the reticulation network to collect the gas is low pressure and made from plastic, so its installation is quite straightforward.

Marani says the final milestone is raising equity, for which Renergen will approach the market when it is satisfied that “all the boxes have been checked”.
 
Key Contracts and Suppliers
MHA Petroleum (helium reserve independent expert report).

On Budget and on Time?
Too early to state.

Contact Details for Project Information
Renergen, tel +27 10 045 6000, email info@renergen.co.za or investorrelations@renergen.co.za.