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Virginia gas project, South Africa – update

Image of helium block at the Virginia gas project

Photo by Renergen

30th June 2023

By: Sheila Barradas

Creamer Media Research Coordinator & Senior Deputy Editor

     

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Name of the Project
Virginia gas project.

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

Project Owner/s
Tetra4, a subsidiary of domestic natural gas and helium producer Renergen.

Project Description
The project entails the construction of 52 km of gas-gathering pipeline and cryogenic liquefaction processing facilities.

The aim is to produce all South Africa’s helium requirements and export the balance of production, as well as the first liquefied natural gas (LNG), for commercial consumption.

Phase 1 aims to produce up to 350 kg/d of helium. Output will be increased through the construction of Phase 2, expected in 2026, “arguably making it amongst the bigger helium projects on the planet", Renergen CEO Stefano Marani has said.

This will deliver more than 0.4-billion cubic feet (bcf) of helium, which, over 19 years, amounts to 7.6 bcf, or just over half of its estimated proven and probable reserves.

Phase 1 of the project will produce about 50 t/d of LNG, which is about 75 000 ℓ/d of diesel equivalent.

Phase 2 of the project will entail drilling additional gas wells, constructing additional gas-gathering pipelines and a larger processing and liquefaction facility, as well as the associated road tanker distribution and downstream customer dispensing facilities.

In this phase, production output will increase by 34 400 GJ/d of LNG and 4 200 kg/d of liquid helium, in addition to the Phase 1 operation.

Potential Job Creation
It will create an estimated 360 temporary jobs during development and construction, and an estimated 160 permanent jobs once all the clusters have been developed. Although this is small, relative to mining operations, energy is typically a catalyst and has the effect of creating significant knock-on opportunities by offering clean, reliable energy.

Capital Expenditure
The total Phase 1 projected capital expenditure to roll out the first phase of production was about R1-billion, which included the cryogenic liquefiers. Phase 2 is estimated at $1.16-billion.

Planned Start/End Date
Phase 2 of the Virginia project is expected to start construction in 2023, and is expected to be ready to start operations in 2026.

Latest Developments
Renergen has marked another significant milestone for Phase 2 of its Virginia gas project, with the completion of a notification process by the US International Development Finance Corporation (IDFC) to the US Congress of a commitment to provide a $500-million loan for Tetra4.

Renergen announced earlier this month that it had received approval from the US IDFC for $500-million in senior debt funding, and secured a $250-million debt facility from Standard Bank. The funding was, however, dependent on the Congressional notification.

As the company progresses closer to the start of construction, Marani says the team is “fully committed to reducing the number of hurdles”. He adds in the company’s latest quarterly update, published on June 26, that this approval is a “major step forward in derisking Phase 2”.

Only the standard project finance conditions for Phase 2, like those of Phase 1, remain outstanding.

The milestone update follows several months of due diligence on site, studying the Phase 1 construction, and the geological and market conditions for helium and LNG with the lenders.

During the quarter under review, Phase 2 of the project was assessed by the respective credit and board committees, which resulted in positive approvals to proceed with the cumulative loans of $750-million.

Meanwhile, while preparing for helium performance testing to achieve a taking-over certificate, Renergen identified a defect that was reducing efficiency in the helium liquefaction process.

The helium cold box operates in a vacuum to optimise the insulation of the cold box and, during liquefaction, the vacuum chamber showed signs of losing its vacuum.

Upon inspection, the Renergen team located the circuit containing the leak and the original-equipment manufacturer has started preparation to repair the leak.

The repair will be done off site to ensure maximum safety of the helium cold box and avoid any contamination of equipment from the elements.

Renergen envisages restarting performance testing of the helium system in October.

The Virginia gas project’s Phase 2 development is not affected by this process.

Morpheus

Meanwhile, Renergen has drilled a twin of an historic blower in the southern part of the Phase 1 well's footprint and the new well is flowing at 70 000 standard cubic feet a day, with helium at a concentration of 3.2%.

The new well – Morpheus – has highlighted some important characteristics on the migration path of the gas in this portion of the field, and further downhole studies will be done to map the geology in this section of the field to bolster Renergen’s underground geological model.

The drilling of the well has cost R1.8-million to date.

Key Contracts, Suppliers and Consultants
Phase 1:
Sproule, formerly MHA Petroleum (helium reserve independent expert report); and VGI (owner’s engineer regarding the engineering and procurement phase of the project).

EPCM Bonisana (gas-gathering work), a subsidiary of EPCM Holdings (engineering, procurement and construction (EPC) contractor – Phase 1 gas-gathering pipeline).

Western Shell Cryogenic Equipment (technology and equipment); Babcock (DAF CF 430 trucks); and Volvo (FM440 trucks).

Phase 2:
Saipem (front-end engineering design, or FEED, contract for the development of the downstream LNG and liquid helium processing facilities, including the associated balance of the plant).

Sproule (evaluation and certification of reserves, based on the results of the additional data acquisition and current drilling campaign. This will build on previous work undertaken by MHA Petroleum Consultants, acquired by Sproule in 2019).

Worley RSA (scope of owners engineer role to execute the expansion of the Virginia gas project).

The company is tendering the EPC contract to experienced helium and LNG equipment suppliers, based on the FEED.

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

Edited by Creamer Media Reporter

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