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The current state of play for TMK
Throughout 2022, TMK Energy (TMK) confirmed the prospectivity of its vast permit area in Mongolia’s South Gobi region by establishing 1.2 trillion cubic feet (TCF) of coal seam gas (CSG) as a maiden contingent (2C) resource at its Gurvantes XXXV CSG project, leading to the initiation of the company’s first pilot well program.
What is now the largest natural gas contingent (2C) resource in Mongolia will be further confirmed by TMK through a US$3.5 million (A$5.2) pilot well program starting this month to be undertaken over the next six to eight weeks.
The program has been designed to flow gas to the surface and measure the gas flow rates over a period of six months to help TMK to better understand how much of the contingent resource can be commercialised for domestic use and, in the longer term, international export, primarily to China.
“Last year’s work program identified significant gas resources in the ground, and the pilot well program aims to demonstrate that we can flow gas to the surface at attractive commercial rates,” TMK CEO Brendan Stats said.
On March 20, 2023, the company announced it had signed a cooperation and off-take agreement with Mongol Alt (MAK), whereby MAK agreed to purchase any electricity generated from the pilot well gas production wells to supply power to its adjacent mining operations.
This agreement with the MAK group of companies puts TMK in a prime position to access a market in dire need of energy while leaving further opportunities open to supply internationally to China, one of the biggest energy exporters in the world.
The Gurvantes project lies just 20 kilometres from the Chinese-Mongolian border, which is approximately 400 kilometres from the existing Northern Chinese gas transmission and distribution network that feeds gas to Beijing and the key gas markets in China.
So how is TMK advancing its early commercialisation opportunities on the ground?
The MAK agreement
The TMK collaboration with MAK will see its Gurvantes CSG project through to its first production, with several key benefits.
Firstly, the production of energy (electricity) from the pilot well gas production is a more environmentally friendly option than the alternative, which is flaring the gas at the well site.
MAK is a large user of electricity in the immediate area, and with a successful demonstration that electricity can be produced, it presents an immediate opportunity to supply significantly more electricity in the near term without extensive infrastructure investment.
Mr Stats emphasised that without the energy purchase agreement, the gas produced from the project would require flaring, which although common practice, is not the ideal environmental outcome.
“Typically, with a pilot well program, any gas produced to surface from the production well is flared, which is just burnt at the surface,” Mr Stats said.
“We are aiming to use gas produced from the pilot wells, to generate electricity and sell that to MAK to support its operations in the local area.”
Secondly, MAK wishes to use the produced water, another by-product of CSG production, for its mining operations, which will save TMK from having to store the water, a scarce resource in the South Gobi desert region.
“One important aspect is not wasting the resource, it’s using the resource to provide a tangible benefit to the local community including the mining operations,” Mr Stats said.
In return for the supply of energy and water, MAK has agreed to provide TMK with access to its heavy machinery, support equipment, and personnel to assist in the construction and operation of the Pilot Well Program.
The pilot well program
This week, TMK commenced its pilot well activities within the Nariin Sukhait area of the South Gobi Basin, where it will drill three production wells spaced 200 metres apart and test them over a six-month period.
TMK has contracted one of the world’s largest drilling service companies, Major Drilling, which has recently mobilised personnel and equipment to the site.
TMK has also built a semi-permanent camp to house up to 40 operations staff.
The company will drill the pilot wells in the vicinity of its successful Snow Leopard-02 (SL-02) exploration well.
The results from the SL-02 well have been incorporated into TMK modelling work, which indicates encouraging signs of an early gas breakthrough.
Mr Stats said he anticipated the gas flow rates from the pilot wells to gradually increase each month over the six-month testing period as the coal seams were dewatered.
This data will be further incorporated into the modelling work to provide additional confidence that the contingent (2C) resource can be commercialised over time.
“As we look forward and the project advances, we have also commenced feasibility studies on power generation to meet the immediate power needs in the local area, which is up to 70MW, as well as other early commercialisation projects such as CNG and mini LNG options,” Mr stats said.
The pilot well program will cost, and Talon Energy will fund the first US$3.15 million pursuant to a pre-existing farm-in agreement.
“Having observed high gas content and excellent permeability in the coals, we are confident in producing gas to surface,” Talon Managing Director and CEO Colby Hauser said.
Talon Energy acquired a 33 per cent interest in the project following its commitment to proceed to stage two of the farm-in agreement after TMK’s announcement of its 1.2TCF maiden contingent (2C) resource last year.
Market opportunities
From an early stage, PetroChina has demonstrated a strong interest in the Gurvantes CSG project, which resulted in a memorandum of understanding (MOU) between TMK and the Chinese company last year.
In February 2023, the MOU lapsed, but dialogue remains open as TMK begins operations this week.
“We continue to engage with PetroChina and other interested parties that recognise the enormous potential of the Gurvantes XXXV project and develop these relationships as we
progress through key milestones for the Project,” Mr Stats said.
“There are important gas and electricity markets in Mongolia we need to focus on in the short-to-medium term, but ultimately, we are only 20 kilometres away from China and it’s the biggest energy market in the world.”
China is the largest energy user on the planet, and its domestic gas production is struggling to meet rising demands.
The Chinese market is set to double its demand by 2040 at consumption rates between 497 to 655 billion cubic meters (bcm).
TMK will also launch its second exploration program in the second half of this year, which is expected to continue to deliver encouraging results.
“We are focussing this year’s exploration on a new field 30 kilometres to the east of where we drilled last year with the goal of proving up more and more the potential of the project,” Mr Stats said.
TMK remains focused on unlocking the potential of the South Gobi basin of Mongolia and plans to develop its Gurvantes XXXV gas project to meet the high demands for electricity from domestic Mongolian and international Chinese customers.
