Wildhorse Energy Managing Director Matt Swinney spoke to Interfax about the company’s plans in Hungary and other European countries and what underground coal gasification has to offer to the gas markets
Interfax: Now Wildhorse is officially active in Hungary, and you have got licence applications pending in Poland and Czech Republic, are there any plans to look towards the UK, which has granted 18 licences for underground coal gasification (UCG)?
Matt Swinney: The UK has not traditionally been our core focus, but we’re looking at everything on its merits and the way things are evolving, it definitely appears that the UK is one of the leaders in UCG. I could see Hungary, Poland and the UK making for a natural fit, and they’ve all got high gas prices, which is appealing.
Interfax: What is the next hurdle to clear from a regulatory perspective in Hungary?
MS: The next step with the Hungarian government is to review current legislation, which we’ve already started to do, and see what changes, if any, are required. Interestingly, since the release, another country in the region has approached us expressing an interest in establishing a similar type of agreement.
Interfax: As it stands, Hungary has a high dependence on Russian gas. What is the potential outlook for Hungary if UCG production does take off?
MS: Last year, imported gas contributed about 80% of Hungary’s consumption and, obviously, the country doesn’t want to be so reliant on one source. Hungary’s got a lot of stranded coal and so it has the potential to replace a lot of the gas that’s imported, but it will take time. If you’re an electricity generator, you can understand the desire to substitute some of that reliance and risk on imports for domestic production.
Interfax: Looking at your estimates, you have 185 million tons (mt) of coal at Mecsek Hills and between 310-360 mt at the Izabela and Amelie licences. How does that translate to gas production?
MS: Firstly, Mecsek Hills is the core project. For that, we only actually need about 6 mt over 25 years for our first stage, so you can see that the potential production is staggering, and that’s why you’re now seeing companies that have been successful in shale gas interested in UCG. [Wildhorse assumes 1 ton of coal is equivalent to 14.7 million Btu, although this is not a production target.]
Interfax: UCG is relatively unknown compared with other unconventional gas sources. Do you think the public and corporate appetite for it will be better than that of shale, which has been disparaged, and in some cases outlawed, in Europe?
MS:Once the market starts to really understand UCG and its economic and environmental benefits, especially when projects start to produce large and dedicated supplies of syngas from traditionally stranded coal assets that previously had little value, it’s logical there will be a big impact on valuations, and one day perhaps even on gas prices. Although there are similarities between UCG and shale, there are two key differences: the coal geology is very well understood in Europe and, most importantly, we don’t frack. So you can see the appeal of it.
Shale’s not going to be the complete answer in Europe. I believe it will have an impact, but not to the same extent as in the United States. So for sure, we believe UCG will have an important place in that energy mix, and we are seeing evidence that more and more companies are beginning to recognise this – whether they are players from other segments of the unconventional gas space, like those who may have done well in shale and now see UCG as the next generation, or utilities who just want to diversify their sources of gas feedstock.
Interfax: Fracking obviously requires a lot of water. Are there any issues for UCG in terms of large water requirements?
MS: Our main inputs are oxygen and steam. Obviously, we need water for steam but the overall quantities are not large, and we consider them quite manageable. Our preliminary feasibility study has shown a number of potential water sources for our project.
Interfax: How could it change the markets in countries that choose to adopt UCG?
MS: I believe that, in the longer term, UCG does have the potential to affect gas prices wherever it’s produced. There is an absolute abundance of coal and it’s cost-effective to produce. UCG production is very competitive with shale gas and with natural gas. Also we can create dedicated pipelines to power stations and thus potentially bypass transport tariffs from pipeline networks, which in itself provides some cost benefit.
Interfax: How large is the potential of UCG?
MS: Even in my wildest dreams I don’t expect UCG to replace natural gas, but I can see it becoming an important part of the energy mix, for diversification reasons and others. There are power stations using biomass and woodchips just to offset that dependence on natural gas, so there is going to be a growing appeal to use UCG syngas.
Interfax: Cougar Energy had issues in Australia with tests showing benzene and toluene in water nearby. Do you think this is going to cause problems for you when it comes to getting the go-ahead?
MS: We are planning on developing our gasifiers between 500 and 1,000 m deep which, to start with, is normally well below most water tables anyway. More importantly, site selection is key. We are picking sites that are not near important water tables or aquifiers, and even once we pick the site we are using proven and standard oil and gas technologies developed to manage such issues. For example, all our production wells will be sealed and there is no way the gas can get into the water table. It is really about following regular and robust practices. As a result, we are confident we can demonstrate that UCG is safe and, of course, the use of monitoring wells, etc., will support this.
Interfax: When do you expect commercial production to begin?
MS: I would say late 2014 to early 2015, but it is somewhat dependent on capital. We raised some capital in April, but we are still looking for strategic partners and are speaking to a number of possible partners now to finish the financing. We’re looking at oil and gas producers, utilities and power generators. It all depends on when we will bring in the investor, but late-2014, early 2015 is the target.