Australia's Linc Energy in China coal-gas venture

Australia's Linc Energy Ltd has signed a deal with Xinwen Mining Group to develop gas resources from Chinese coal deposits, part of an alliance that also gives the Chinese firm exploration rights in Australia.

Linc said on Thursday its letter of intent with Xinwen covered the Yining Mining Area in Xinjiang province, northwest China, where Xinwen owns the Yinan and Yibei coal fields with a reported resource of 15.37 billion tons of coal.

The fields, covering more than 479km² (185 sq mile), also boast an exploration target of another 14.87 billion tons through further drilling, Linc said in a statement.

Energy firms are scrambling to extract gas from coal deposits, with an increasing number of countries, including China and India, turning to underground coal gasification technology to fully utilise their coal resources amid surging energy demands.

Instead of burning coal directly, underground coal gasification involves drilling holes into coal seams, heating the coal and introducing a mix of oxygen and steam to generate gas.

Such projects typically use stranded coal resources that are considered to be sub-economic because of poor coal quality or distance from transport infrastructure.

Linc said the two firms planned to form a joint stock company to develop underground coal gasification fields to produce gas for transport directly to Shanghai through the "West to East" pipeline project already under construction.

The project would also provide feedstock for a gas-to-liquids facility that would in turn supply the Dushanzi oil refinery.

All negotiations and the establishment of the joint company would be finalised by the end of 2008, Linc said.

Queensland-based Linc said the latest project in China came under a deal announced last week when it sold coal exploration rights in Australia to Xinwen for A$1.5bn ($1.21bn).

The synthetic gas produced could be used as feedstock for gas-to-liquids plants and for power generation in gas turbines.

by Fayen Wong, Reuters.