Jade Gas Holdings (ASX: JGH) Marks Key Milestones Toward Commercial Gas Production in Mongolia
Jade Gas Holdings (ASX: JGH) has made significant progress, marked by a series of important developments and partnerships. Under the leadership of Dennis Morton, the company has shifted focus to accelerating commercial gas production in Mongolia, particularly through its flagship Tavan Tolgoi Coal Bed Methane (TTCBM) Project and the adjacent Baruun Naran (BNG) Project.
Jade Gas Holdings: Key Developments Since January 2023:
- Successful Drilling Campaigns:
- Jade Gas has conducted successful drilling campaigns in both the Red Lake and BNG fields. In particular, wells at BNG have yielded substantial results, with significant gas-bearing coal seams being intersected, including 104.6 meters of gassy coal in well BNG-3
- At Red Lake, the 2023 campaign drilled and tested multiple wells, and Jade has expanded its gas resource potential to cover a 45 km gas field extent.
- Production and Commercialisation Pathway:
- Jade commenced its first production well program at Red Lake, aiming to establish commercial gas production by the end of 2024. The production program, involving both vertical and lateral wells, will demonstrate gas flow rates, with the goal of generating Jade’s first revenues.
- In parallel, the company signed a gas production partnership with DWK from China, a company with extensive coal bed methane experience. DWK will fund 20 production wells following the success of the initial four, providing a pathway to larger-scale gas production.
- Strategic Partnerships:
- In 2024, Jade signed key Memoranda of Understanding (MOUs) with strategic partners:
- UB Metan LLC, Mongolia’s largest gas distributor, to supply LNG for a newly built fueling station aimed at replacing diesel in the South Gobi region.
- Mongolian Mining Corporation (MMC), Mongolia’s largest coal producer and exporter, to potentially supply gas for mining operations and trucking logistics. These partnerships demonstrate growing local demand for gas, particularly as Mongolia seeks cleaner energy alternatives to diesel.
- In 2024, Jade signed key Memoranda of Understanding (MOUs) with strategic partners:
- Future Focus and Expansion:
- The company is focused on commercial production at Red Lake in 2024, with six new wells planned to expand the gas resource. Jade is also working on the adjacent BNG project with additional exploration and a Production Sharing Agreement (PSA) in process.
- Exploration at the Shivee Gobi and Eastern Gobi projects is planned for later in 2024, with Jade looking to expand its footprint beyond TTCBM and BNG
Key Takeaways for the Future:
- Under Dennis Morton’s leadership, Jade is accelerating its move from exploration to commercial gas production.
- The partnerships with UBM and MMC provide a direct pathway for gas offtake agreements and support Jade’s mission to deliver cleaner energy alternatives to Mongolia’s energy-intensive sectors.
- The company is well-positioned to take advantage of growing local demand for natural gas, displacing diesel and supporting Mongolia’s transition to lower carbon emissions.
Jade’s next few years will focus on ramping up production, securing long-term sales agreements, and further expanding its resource base in Mongolia.
Q&A with Mr. Dennis Morton, Executive Chairman of Jade Gas Holdings (ASX: JGH)
October 2024
Mr. Dennis Morton, a geologist with over 40 years of experience in the oil and gas industry, now leads Jade Gas Holdings as Executive Chairman. Following a successful year of exploration and drilling across the Tavan Tolgoi Coal Bed Methane (TTCBM) Project and the Baruun Naran (BNG) Project, Jade Gas is making significant strides toward commercial gas production in Mongolia. In this interview, we explore the company’s progress, potential market outlook, and the next steps in its journey toward becoming a key gas producer.
1. Dennis, you’ve been leading Jade Gas through a busy year. What key achievements have been made since you took over?
It has been a team effort, working with fellow directors Joe Burke and Ian Wang to move the company into commercial gas production phase. The Australian and Mongolian based technical team have pulled together all the components of the drilling and gas production phase, now it is time to implement that program. We have contracted a Chinese company with extensive coal seam gas drilling, completion and production experience, working mainly in the Qinshui Basin, China and located only about 1000 kms south of the border with Mongolia.
2. Red Lake has been a major focus. Can you update us on the production program there?
The Red Lake area was originally targeted based on coal and coal seam gas core holes that had been drilled before commencement of JGH’s operations. The area has proven to contain multiple, thick coal seams from surface outcrop to depths of about 1,000m. Many of these coal seams contain high levels of gas saturation and with the contained gas averaging 92 -98% methane.
The vertical core holes have tested permeabilities as high as 12 md and present a significantly large gas resource. In other words, the Red Lake Project area contains all the key ingredients for successful gas production. Drilling and completing wells for commercial rates of gas production is the final critical work required before gas reserves and gas sales contracts can be achieved.
3. You recently signed a gas production partnership with DWK. How does this partnership fit into Jade’s broader strategy?
JGH initially transferred extensive coal seam gas evaluation and production knowledge developed in Australia and the USA as experienced by the JGH team. It became evident that whilst the transfer of knowledge was simple, the transfer of specialised drilling and production equipment from Australia and North America into Mongolia is expensive.
JGH looked across the border into China and specifically coal seam gas production in the Qinshui Basin where Carboniferous age, sub-anthracitic coal seams had been successfully exploited for over 25 years, mainly using lateral well completions up to 1,000m in length.
JGH Non-Executive Director Ian Wang had worked on many of these coal seam gas projects in the Qinshui Basin and Ian was also well known to some JGH Directors. Ian introduced JGH to Yan’an Drilling Wellking Energy Technology Service Limited (DWK), a company managed by individuals with extensive coal seam gas drilling, completion and production experience and with whom Ian had previously worked.
DWK was asked to tender on the gas production program and were ultimately awarded the work . Rather than contracting separate companies to conduct each of the drilling, steering, electric logging, completion, installation of surface production equipment and pipelines, JGH now has just one company, DWK, who will complete all those tasks. This approach minimises JGH’s risk in both implementation and cost.
4. What do the results from the BNG Project signify for Jade’s future resource base?
The BNG Project, located immediately to the west of Red Lake, offered the opportunity to significantly expand gas resources in the same area and eventually benefit from Red Lake production infrastructure. The BNG Project also contains multiple, thick, gassy coal seams and will be developed in conjunction with the Red Lake Project plus offering operation synergies and ultimately cost savings. The BNG Project is an extension of the Tavan Tolgoi coal basin and is a JV with the Hong Kong listed company, Mongolia Mining Corporation (MMC).
5. With so much drilling success, what are your next steps to converting resources into reserves?
The drilling, completion and production of the Red Lake lateral wells is aimed at establishing our first coal seam gas reserves in Mongolia. That next step is a big one, as establishing initial gas reserves at Red Lake will in turn enable the Company to enter its’ first gas sale contracts, generating income from gas sale and eventually full gas field development.
6. How is Jade positioned to meet the increasing demand for cleaner energy in Mongolia?
Mongolian Government policy targets energy independence and cleaner energy by replacing coal fired electricity generation with renewable energy projects and displacing the import of coal fired electricity from China. Renewable energy offers only intermittent power supply, and these renewable projects require underpinning by a cheap, reliable source of base load power.
Only coal, nuclear and natural gas offer affordable and reliable base load power supply. Mongolia has chosen not to build coal fired power plants, it does not want to import anymore coal fired power from China and it has not developed a nuclear industry, leaving gas as the only alternative. JGH’s Red Lake coal seam gas project presents Mongolia with the most advanced gas project in the country.
7. You’ve mentioned UBM’s new LNG fuelling station. How will this impact Jade’s commercial pathway?
JGH’s Mongolia coal seam gas projects offer a rare combination a large gas resource located in an area with a very large gas sales market. Diesel replacement by LNG is one of the two main gas markets, the other being gas fired power generation. Three extremely large coal mining operations are located within JGH’s coal seam gas operating areas. High quality coking coal is mined and trucked about 200 kms south for sale in China.
Coal transport involves well over 12,000 trucks hauling coal from the three adjacent operating coal mines. The haulage trucks are currently fuelled by diesel, all of which is imported from Russia. Security of supply and high diesel sale prices makes it desirable to replace Russian supplied diesel. Trucks fuelled by LNG and replacing diesel as a fuel are common anywhere there is a supply of natural gas eg. China. LNG processed from Red Lake and BNG coal seam gas is an obvious local market for produced gas and provides for a very high profit margin.
8. What potential do you see for Jade’s gas resources in supporting Mongolia’s mining sector?
Operating metal and coal mines near JGH’s coal seam gas projects offer an obvious second market for gas sale. These operating mines consume large amounts of diesel and coal fired electricity, currently imported from China, and present a second gas sale opportunity located adjacent to and within 100 kms of the Red Lake Gas Project (Oyu Tolgoi, Kharmagtai, Tavan Tolgoi, BNG). The mining sector is seeking a lower cost, reliable source of cleaner energy and only coal seam gas offers that opportunity.
9. Let’s talk about funding. How will Jade finance the continued development of its projects?
JGH has been financing its operations from equity sale and also the issue of convertible notes. Moving forward, JGH has entered a non-binding HoA with DWK to fund and drill the next 20 gas production wells in the Red Lake Project. DWK would then be repaid through participation in gas sale or interest paid on the money spend on the development wells – this subject to negotiation. Larger infrastructure funding would likely be from companies active in the downstream infrastructure projects such as LNG plants and power stations, rather than equity sale. JGH has been in conversation with several companies that are active in this space.
10. Can you give us a timeline for when Jade expects to achieve commercial production?
JGH will drill and complete the first lateral gas production wells by December, 2024. It is unknown how long it will take to dewater the coal seams and produce significant volumes of gas, but in any event, it should be in the time range of 3-6 months. Initial water production rates, measured in the first month or two, will provide the company with a qualitative indication of how high the eventual gas production rates will be.
11. What role does the Mongolian government play in supporting Jade’s projects?
The Mongolian Government is JGH’s joint venture partner in the Tavan Tolgoi licence and to date they have been excellent to work with and extremely supportive of the project. We could ask for no more. Mongolian Government policy seeks energy independence and increased renewable energy supply whilst lessening the reliability on coal fired power generation. Natural gas is the dominant energy supply to achieve those policy targets.
12. How is the regulatory landscape evolving, and how does it affect Jade’s plans?
The regulatory framework in Mongolia has been stable and subject to no surprises. JGH management works closely with the Mongolian Government on projects that the Government is keen to be successful.
13. What technical advantages have you leveraged from your experience in Australia’s CBM industry?
JGH Directors and senior management have worked over many decades on various, successful, Australian coal seam gas projects. By way of an example, I was a founder and foundation Managing Director of the ASX listed company that developed and eventually sold the huge Narrabri Gas Project, located in NSW. Mistakes made and knowledge gained form involvement in previous, successful evaluation and development of Australian coal seam gas projects has meant that JGH has had the advantage of focusing on the correct technology to develop and fund the JGH Mongolian projects.
14. Can you elaborate on your plans for lateral wells at Red Lake?
JGH will drill up to four, 800-1,000m lateral wells into the one coal seam, from the one drill-pad in the Red Lake area. These wells have been oriented to take advantage of the fracture permeability system developed in the coal seams and will be spaced about 150m apart in the subsurface. The close spacing of these wells has been designed to accelerate dewatering of the coals to achieve as quickly as possible the gas desorption pressure and high rates of gas production. The eventual development well spacing will be greater than that of the first lateral wells. The wells will be completed and brought into production immediately after drilling.
15. How do you plan to expand Jade’s footprint in Mongolia?
Success with the first lateral production wells will lead to a “cookie-cutter” type development approach to full gas field development. New production wells will be drilled only to meet required gas sale offtake agreements that are established under contracts. The production wells will have an initial production rate that will decline over time – many years. New wells will be drilled to maintain the required gas offtake sale agreements.
16. What’s the significance of your partnership with MMC at BNG?
The partnership with MMC allows us to expand the resource potential over the Tavan Tolgoi basin. Where Qinshui is developed by many different companies, JGH retains rights over the know coal resources in this area. In addition, MMC has large power and energy requirements at its operating coal mines and present a ready-made market for LNG replacement of diesel and gas for electricity generation.
17. How is Jade preparing for its next phase of growth?
The key for JGH growth is the successful implementation and gas production from the Red Lake Gas Project. Commercial rates of gas production achieved from the first lateral wells will immediately lead to independent gas reserve certification and the ability to enter in gas sale contracts. These achievements will be directly reflected in the share price and the ability to raise new capital to develop the gas field.
18. What challenges do you foresee, and how is Jade addressing them?
JGH’s two main risks are successful gas development well implementation and continued funding. The implementation risk has been managed by contracting one, contractor whose management has extensive involvement developing cola seam gas in the Qinshui Basin, China. This same experience and ability to import the required drilling and completion equipment only a short distance by land from China has also significantly lowered the cost.
19. How do you see the global market for natural gas influencing Jade’s future?
Mongolian gas markets are local and only really influenced by imported diesel and LNG costs. There is every reason to consider that international LNG and diesel prices will only increase in the future providing a significant cost and reliability advantage to domestic Mongolian coal seam gas production.
20. What are your long-term goals for Jade Gas Holdings?
The long-term goals will be dependent of successful achievement of commercial gas production from the Red Lake Project. The huge gas resource present within JGHs licences and the ready-made markets surrounding the license area present the company with potentially large commercial benefits to the Company. First gas production then “the game is on”.
How can people connect with Jade Gas Holdings?
Website: https://jadegas.com.au/
LinkedIn: https://www.linkedin.com/company/jade-gas-holdings
Twitter: https://twitter.com/jade_gas
Jade Gas Holdings Limited Contact Details
Level 1, 66 Rundle Street
Kent Town SA 5067
Australia
Phone: +61 437 603 294
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