J. ZOLJARGAL: A PRODUCTION SHARING AGREEMENT (PSA) MUST BE AMENDED TO EXTRACT METHANE GAS

J. ZOLJARGAL: A PRODUCTION SHARING AGREEMENT (PSA) MUST BE AMENDED TO EXTRACT METHANE GAS

D. Oyunchimeg

time has shown that compressed fuel is not the optimal solution for reducing emissions in the capital city. what other options do we have? recently, methane gas has been discussed as a solution. what resources do we have to use this gas?

A number of exploration companies have been exploring and researching methane gas for more than five years. Ten years ago, exploration was carried out at the Nariinsukhait mine of Mongolian Gold Company (MAK) and at the Erdenes Tavantolgoi mine. Although our country has potential, our mineral reserves have yet to be fully explored. The most practical short-term solution is to use coal mines. When coal is mined, layers of methane are clearly visible. In other words, in some parts of the mine, bubbles form from the leachate and burn.

It is possible to carry out experimental production on a small scale in the coal deposits. Thus, methane gas can be converted into electricity using a generator similar to a diesel engine. The technology of the electric generator is relatively simple. In order to test the use of gas, we will need a long time to work in areas of unconventional oil and methane gas exploration. This is because baseline surveys and exploration are very expensive, and it takes a long time to discover deposits.

There are currently no methane gas deposits discovered on a national scale. Because of the high cost, the national budget has not financed any exploration. There is only an estimate of about 7.4 trillion cubic meters. That is a wealthy resource.. It comes froma rough estimate by Australian explorers based on 15 Mongolian coal deposits. After drilling and analyzing the results of the exploration work, the full extent of reserves will be determined.

If it is possible to produce methane gas from coal mines, then why don’t we do it today?

The main task of coal mines is not to produce methane gas. Perhaps mines could produce a small amount of electricity using methane, up to 1-5 MW. On the other hand, investments are needed to produce methane gas. Of course, starting with technology and equipment, a lot of funding would be needed. However, when the issue of investment is resolved and the production phase begins, the government requires the conclusion of PSA agreements.

Compared to the amount of coal, the amount of extracted gas is very small. In addition, the extracted gas cannot be sold directly, and only a small amount of electricity will be generated by burning it. Does this mean that coal mines must share the profits from electricity production? There is nothing to negotiate gainfully here for coal mines. The process of using gas is complicated. It’s a new industry making no profit.

In other words, the methane gas production zone in a coal mine can look like a small dot. This is the reason coal miners are not very interested in producing methane gas.

However, if there is an opportunity to exploreand extract methane gas from a large area by unconventional methods, a PSA can be concluded. Another solution for exploration companies is to negotiate with coal mines to conduct experimental production and demonstrate that future demand for methane gas will grow.

I would like to emphasize another point. In order to increase the price of their shares, listed companies periodically disseminate information that they have “1,000-year methane gas reserves” and create false expectations among the public.

let’s imagine that methane gas is produced and used. how much resources are needed to provide Mongolia with 100% electricity and fuel?

Methane gas is contained in all types of coal. In that sense, calculating how much methane gas is contained in one ton of coal can result in a huge number. This is an estimate of the raw material. In order to turn it into a production reserve, drilling must be carried out. So, a physical study and resource modeling must be done to determine if the methane layer is moving, how permeable it is, whether it is flowing through the coal, and whether it is migrating.

Our country has little experience in developing methane gas models. But it can be done on the basis of studies conducted by external and domestic experts.

Thus, it takes time and considerable investment to determine the size of reserves. Of course, if we discover sufficient gas reserves, we can meet our national needs. But so far only theoretically.

what is the global demand for methane gas?

Methane is a natural gas. There is a great demand for it in the world. Our country can both export it and use it domestically. In general, coalbed methane gas does not accumulate in one place like natural gas and does not reach a level sufficient for extraction and production. Methane gas from coal is widely spread across a large area, but its accumulation is small and the cost of production is high. Therefore, compared to natural gas, production of coal-bed methane gas is expensive and inefficient.

If we start mining uranium, we can build a nuclear power plant and reduce energy dependence. If we can extract and use methane gas, we can reduce smoke emissions. but what do we have to do to use them?

It is good that professional bodies are paying attention to exploration. The Petroleum Law contains the term “unconventional oil”. Along with this, the government should improve the legal environment and regulations. Companies have plans and visions. Therefore, it is advisable to first estimate the reserves, then put them into economic circulation and accurately calculate the profitability.

The development of the methane gas industry and the time it takes to start consuming this gas depends directly on government policy and understanding and support of local communities. Also, if you want results in a short period of time, it is better to use coal mines. If cooperation is not possible, a legal environment must be established for coal mines using methane gas. Working in underground mines requires pushing methane out of the mine cavity. At that time, the methane can be burned to generate electricity.

If methane gas is released into the air without being used, it will have a negative impact on the global climate. If companies want to use it as clean energy, they need to sign a PSA. In other words, a legal basis for the use of methane gas must be established at the mine. In particular, it will be necessary to convey to the public that methane gas production will benefit Mongolia socially and economically.

domestic companies are conducting exploration for methane gas. can we use methane gas and when can we start ?

Several companies are doing exploration. Last year, experimental production was carried out at the Nomgon-9 site in Umnugobi Aimag. The companies are exploring and estimating reserves. Once the reserves are determined, they will change their activities. Before we start using methane gas, we need to address issues such as re-developing a feasibility study, constructing a liquefaction plant, and building infrastructure. Also, depending on the resources, the most suitable solution will be chosen, such as whether to supply local consumers or transport it directly to the capital city.
Perhaps it will become clear whether it is necessary to install pipes or transport by vehicles. In general, there will be a need for a large pipeline network to transport methane gas. The construction of this pipeline to the

capital city would require a large investment. Pipelines would also need to be built through Ulaanbaatar. Therefore, questions on how to build infrastructure, how to attract investment, etc., will arise one after another.

On the other hand, methane can be liquefied on-site and used as LNG, which is cheaper than building a pipeline. There may be another way out. for example, methane gas can be extracted and converted into DME gas at a chemical processing plant. In doing so, the gas is packaged in canisters similar to propane and butane imported from Russia. The experiment to use it in residential areas was carried out ten years ago as part of a coal gasification project implemented by the Mongolian Gold Company (MAK), MCS, and Bodi International Group. Cylinder gas is the easiest to distribute and transport. But the priority for Mongolians is to identify gas reserves first in order to use it.

Since smog is an urgent problem for citizens, we do not have time to wait until methane gas reserves are identified. Therefore, it is possible to extract coal, gasify it, and convert it into a DME-type gas. MAK, MCS, and Bodi International had large-scale coal gasification projects, but there were no conditions to attract investment at the time.

Since smog is an urgent problem for citizens, we do not have time to wait until methane gas reserves are identified. Therefore, it is possible to extract coal, gasify it, and convert it into a DME-type gas. MAK, MCS, and Bodi International had large-scale coal gasification projects, but there were no conditions to attract investment at the time.

can we say that it is not yet possible to determine how long it will take to solve ulaanbaatar’s air pollution problem with methane?

A lot of dollars are spent each year to reduce air pollution in the capital city. I see investment in converting coal into DME as the most important task. We cannot be too radical and demand that only the government or the private sector should be in charge of this. Any form of investment is acceptable including public and private. I think it is very important to change policy and bring air pollution to the public’s attention once and for all. In the future, if large reserves of coalbed methane gas are discovered and production begins, we will have ample opportunity to address air pollution, energy needs, and exports.