Leigh Creek Energy (ASX:LCK) is poised to feed South Australia and the world’s hunger for fertiliser after making the final investment decision for Stage 1 of its namesake urea project in the state.

This will involve the drilling of up to five new syngas wells and installing a power plant capable of generating up to 5 megawatts of power.

Initial costs for the Stage 1 commercial development, which will consolidate the company’s proprietary gasification technology, capability and intellectual property, will be funded using the company’s existing cash balance and finance facility.

Negotiation of purchase agreements, seismic work, planning, drilling and power plant installation are currently scheduled for the remainder of calendar year 2021.

Urea demand is strong with sales of about 2Mtpa in Australia making up less than 2 per cent of global demand.

About 90 per cent of this is imported while the remaining is produced at Incitec Pivot’s Gibson Island plant.

Leigh Creek Energy Project

The $2.6bn LCEP is one of the largest infrastructure projects of its kind in Australia and will produce 1Mtpa of urea using the company’s 1,153 petajoule gas resource.

Commercial life has been estimated at over 30 years while net present value and internal rate of return, both measures of a project’s profitability, have been estimated at $3.4bn and 30 per cent respectively.

This is thanks to the LCEP’s nominal production cost of just $109/t excluding transportation and logistics, which compares favourably to global urea production costs that average $281/t.

The project will produce syngas through the underground gasification of coal with Leigh Creek noting the natural surrounding strata forming not just the gasifier chamber but also as a barrier to ensure the isolation of the chemical, thermal and mechanical effects of the process.

Syngas produced by this process will then be fed into the processing facility to produce hydrogen, nitrogen and carbon dioxide.

The hydrogen and nitrogen will be fed into an ammonia plant for conversion into ammonia, which will in turn be pumped into the urea plant where it will be combined with carbon dioxide to form urea.

Leigh Creek is also confident of producing syngas within all approved environmental parameters set by the regulator and has set the goal of becoming carbon neutral by 2030.

There is also potential to double urea production and to produce hydrogen.