Here’s why CSG is key to TMK’s race to be a major gas supplier in Mongolia

TMK’s successful exploration drilling at its Gurvantes XXXV project in 2022 has allowed it to define a Mongolian gas resource that won’t be out of place in a top tier company’s portfolio.

This best estimate (2C) Contingent Resource of 1.2 trillion cubic feet of gas is the largest in the country and has the potential to reduce Mongolia’s reliance on coal and feed China’s massive demand for gas – as highlighted by its binding memorandum of understanding with PetroChina.

TMK Energy (ASX:TMK) is now gearing up to drill three pilot production wells that will determine the ability of the target coal seams in Gurvantes XXXV to flow gas, which will in turn demonstrate its commerciality.

In the event of successful production, the company already has plans in place for early commercialisation through a cooperation and electricity offtake agreement with Mongol Alt LLC (MAK), which currently owns and operates the coal mining lease where the Gurvantes XXXV is located.

That this pilot production well program will be funded by fellow Australian partner Talon Energy (ASX:TPD) to a cap of $3.15m in return for taking its stake in the project up to 33% is just icing on the cake.

But what is coal seam gas (also known as coalbed methane), and just why has the company being able to define such a large resource in such a short time?

Coal seam gas – proven unconventional gas source

Coal seam gas (CSG) is one of two unconventional sources of gas – the other being shale gas – that have unlocked significant resources across the world.

Notably, CSG has powered Queensland’s liquefied natural gas export sector out of Gladstone since 2015 with the various projects exporting 5.856Mt of LNG in the fourth quarter of 2022, proving that it is easily capable of large-scale production.

Unlike regular gas wells that are drilled into rock formations that host the fossil fuel, CSG wells are drilled into gassy coal seams – often horizontally – before they are fracture stimulated, which involves pumping fluids and proppants (solid materials) into the seam to induce fractures.

This is then followed by a period of dewatering the well to reduce pressure before gas production in any significant quantities begins.

Once this is achieved, CSG wells typically have high rates of gas production before declining at a variable rate that can be very sharp in some areas.

A consequence of this is that more wells are typically required at CSG projects to keep production at a stable level compared to conventional gas fields.

On the other hand, coal has a large internal surface area, meaning that coal seams are able to store more gas than a conventional reservoir of the same volume.

Coal seams also tend to have consistent gas content across the seam.

When combined with the net thickness of the bituminous – black coal – seams found at the project, high gas content and estimated gas-in-place density Gurvantes XXXV compares very favourably to leading CSG fields.

CSG also tends to have very low CO2 content, which makes the project cleaner compared to current energy sources in Mongolia.

China and Mongolia gas supply opportunities

TMK’s large gas resource is ideally located to supply gas to both China and Mongolia.

It is less than 20km from the Chinese border and close to existing gas infrastructure in northern China as well as existing and planned power infrastructure in Mongolia.

Discussions are currently continuing with leading energy offtake partners in both countries with the goal of expediting project development.

Mongolia which is entirely dependent on coal for its power generation is particularly keen for greener forms of energy given that its capital Ulaanbaatar is heavily populated with an average Particle Matter (PM) of 2.5 concentration in 2022, which is 5.9 times the World Health Organisation’s annual air quality guideline value.

It currently has no gas production though there is strong political desire to develop a natural gas industry to reduce pollution and address energy security, reliability, and independence.

Additionally, mining accounts for 40% of Mongolia’s energy consumption, which presents further opportunities for the company to commercialise its gas resources.

This article was developed in collaboration with TMK Energy, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.