ucg eskom’s experience and future projects · 2016-05-13 · ucg – eskom’s experience and...

UCG – Eskom’s Experience and Future Projects

Shaun Pershad

11 May 2016

FFF Workshop to present Updates on the Developments in South Africa – Is there Gas?

Content

1. Eskom’s UCG Strategic Drivers

2. Current Status of Eskom UCG Pilot Project Development

3. Risks for UCG Development

4. Summary of Eskom UCG Project Mandate

2

Disclaimer

This presentation does not constitute or form part of and should not be construed as, an offer to sell, or the solicitation or

invitation of any offer to buy or subscribe for or underwrite or otherwise acquire, securities of Eskom Holdings Limited

(“Eskom”), any holding company or any of its subsidiaries in any jurisdiction or any other person, nor an inducement to

enter into any investment activity. No part of this presentation, nor the fact of its distribution, should form the basis of, or

be relied on in connection with, any contract or commitment or investment decision whatsoever. This presentation does

not constitute a recommendation regarding any securities of Eskom or any other person or technology.

Certain statements in this presentation regarding Eskom’s business operations may constitute “forward looking

statements.” All statements other than statements of historical fact included in this presentation, including, without

limitation, those regarding the financial position, business strategy, management plans and objectives for future

operations of Eskom are forward looking statements.

Forward-looking statements are not intended to be a guarantee of future results, but instead constitute Eskom’s current

expectations based on reasonable assumptions. Forecasted financial information is based on certain material

assumptions. These assumptions include, but are not limited to continued normal levels of operating performance and

electricity demand in the Distribution and Transmission divisions and operational performance in the Generation and

Primary Energy divisions consistent with historical levels, and incremental capacity additions through our Group Capital

division at investment levels and rates of return consistent with prior experience, as well as achievements of planned

productivity improvements throughout our business activities.

Actual results could differ materially from those projected in our forward-looking statements due to risks, uncertainties and

other factors. Eskom neither intends to nor assumes any obligation to update or revise any forward-looking statements,

whether as a result of new information, future events or otherwise.

In preparation of this document we used certain publicly available data. While the sources we used are generally

regarded as reliable we did not verify their content. Eskom does not accept any responsibility for using any such

information.

3


Why is Eskom, an electricity utility, working on a mining technology ?

• SA mining houses were approached before Eskom started our UCG project, but they declined to participate. PetroSA and Sasol have displayed collaboration interest.

• Coal is South Africa’s largest fuel resource, but three quarters of it is unminable with conventional mining technology (due to economics, poor quality, geology etc.). Eskom has proven that UCG can unlock this potential.

• UCG offers an indigenous fuel that is shielded from international commodity prices.

• Eskom is leading UCG development, so can be an energy price-setter.

• The availability of an alternative energy resource for co-firing in Eskom’s stations provides future primary energy options.

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UCG Strategic Drivers Research Achievements

• Independent, long-term fuel source Proven at Concept level

• Total Environmental footprint (including Carbon) In progress

• Low cost energy source In progress

• Mining efficiency Proven at Pilot level

• Security of supply – baseload or mid-merit option

In progress

• Technology transfer In progress

• Mining safety Proven at Pilot level

• Broader geographic distribution for new

generating capacity Proven at Concept level

• Job creation in rural locations Proven at Pilot level

• Valuable by-products Proven at Pilot level

• Ash left underground Proven at Pilot level


5

1. Opportunities for UCG in South Africa

2. Current Status of Eskom UCG Pilot Project Development

3. Key Risks to UCG Project Development

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Risk Description Root Cause of Risk Consequences Mitigations/

Controls

Environmental

Contamination

UCG industrial process leaks and

contaminates surrounding

environment.

• Gasifier

• Wells

• Surface infrastructure (will not go

further on this one as it is

duplicated all over the world –

nothing new here)

-Cannot operate and business terminates

-Prosecution, penalties

-Non existent social license, permitting &

funding to exist and operate non existent.

……………..

Project

Economics

• Project costs

• Market demand

• Competing energy prices

Permitting &

Licensing

-Limited UCG Knowledge by

regulators to grant licenses.

-Unforeseen/additional studies

required by authorities.

-Public appeals

-Delays by the authorities

-Negative international

environmental incidents from UCG

operations

-

• Technology selection*

• Site selection*

• Site characterization*

• Piloting*

• Specialist studies for EIA

• Design

• Operational Controls

• Monitoring*

• Decommissioning

• Rehabilitation & Containment * Described in more detail

= No

Business

Case

= No

Project !!

• Design and integration

• Stakeholder engagement

• Published regulations

• Controlled Timelines

3. Mitigation/Control: Technology Selection IS KEY !!!!

2016-05-11 9

Activities:

• End-user needs analysis

• Technology match analysis

• Technology selection

• Technology provider capability assessment

• Engage UCG users worldwide

• Visit UCG reference plants

• Evaluate technology provider credentials

and guarantees

• Select and appoint technology provider

• Compile pre-feasibility level study with

technology provider

• Motivate project

Objectives:

• Match needs to technology

• Identify technology, and providers thereof

• Rank technology providers

• Appoint technology provider

• Motivate project

Outputs:

• Technology selection

• Technology provider tender evaluation matrix

• Commercial process

• Tender evaluation

• Technology provider appointment

• Technology provider review of project, and pre-feasibility report

• Stakeholder approval of project

•

3. De-risking technology development

2016-05-11 10

From : AACE 18R-97 International Costing Practice

Applies to

cost,

performance

guarantees,

regulatory

compliance

etc.

Screening/Conceptual

Feasibility/Preliminary

Budget, Authorisation

Control, bid\tender

Check or bid\tender

FS

U

UC

G

US

A/E

U U

CG

Austr

ali

an U

CG

?

?

?

?

?

?

Eskom

UC

G

DESCRIPTION of UCG - known for 100 years.....as opposed to

QUANTIFICATION of UCG (through actual demonstration) – still to be largely done

3. Description of UCG

2016-05-11 11

3. Quantification of UCG

2016-05-11 12

Carefully consider how

each of these criteria

affect your project.

3. Quantification of UCG – Confidence…….Beyond Costs ……..

13

3. Mitigation/Controls : How to set up for SUCCESS !

2016-05-11

Science:

• The UCG technology basic science derived from prior UCG operations must be combined with the site-specific topography, geotechnics, surface features and infrastructure, geology, hydrogeology, rock mechanics, drilling/well completion etc. in order to confirm a site.

• The site must be characterised for UCG suitability with drilling, well completion, water & air injection tests that evaluate the likely impact and success of UCG.

• Specialist studies are completed for the EIA

Wrong site =

HIGH

ENVIRONMENTAL

RISK

Engineering:

• Technology components are selected/designed based on the science and regulatory requirements

• Piloting

Legal & Regulatory

Operations & closure:

Successful operations, monitoring, decommissioning & rehabilitation = multi-disciplinary, skilled team

Incorrect

Engineering =

HIGH

ENVIRONMENTAL

RISK

Poor operation

& closure =

HIGH

ENVIRONMENTAL

RISK

See later

Class 5

Class 4

Class 3

Narrow the

Uncertainty !!

Commercial Process Class 2

Commercial Process Class 1

3. Mitigation/Control : Site Selection

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Activities:

• Shortlist potential locations and resources

• Evaluate available and required regulatory

and stakeholder approvals on all locations

• Evaluate available and required scientific

information on all locations

• Quantify resources as per SAMREC code

• Analyse end-user needs

• EIA & Public Participation.

• Evaluate potential commercial application

performance and cost

Objectives:

• Confirm suitable site(s)

• Confirm UCG technology potential at site(s)

• Confirm stakeholders

• Confirm needs analysis

• Confirm regulatory requirements

• Confirm gaps in scientific knowledge for

the site(s)

Outputs:

• Preferred location selection

• Potential sites at preferred location

• Regulatory and social approvals required

• Specialist studies required

• Gap analysis

• Fatal flaw analysis

• Risk assessment & mitigation strategy

• Technical performance model

• Financial model

3. Mitigation/Control : Site Characterisation

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Activities:

• Regulatory and stakeholder approvals

• Prospect to SAMREC code for measured

coal resources

• Evaluate and optimize drilling methods

• Analyse and test core samples, eg.

Chemical analyses, bench scale

gasification etc.

• Conduct permeability & air injection tests

• Bury instrumentation in & above resource

• Model coal resource attributes

• Design pilot plant to prove technology

• Evaluate commercial equipment selection

Objectives:

• All regulatory and social approvals in place

• Baseline pre-UCG site conditions for EIA

• Specialist studies for EIA

• Build comprehensive databases and

models of resource background science

• Model concept-level (AACE Class 5) UCG

performance, longevity and economics of

commercial UCG application


• Confirm site suitability !!

Outputs:

• Regulatory approvals

• Risk assessment & mitigation strategy matrix

• AACE Class 5 UCG costs, timescales and performance for commercial UCG application (incl.

mining plan, power generation costs etc.)

• AACE Class 3 UCG costs and timescales for UCG pilot plant

• Approved business case for pilot plant investment

• UCG pilot plant test plan

• Hydrogeological, geological, rock mechanic and UCG models

• Financial model

• Power plant performance model (equipment selection, economics, emissions etc.)

3. Mitigation/Control : Piloting

2016-05-11 17

Activities:

• Site establishment

• Injection and production well completions

• Gas pipeline, treatment plants and flare

design and construction

• Regulatory and stakeholder approvals

• Prospecting continued to SAMREC code

• Initiate and operate UCG in a 2-dimensional

gasifier cavity

• Measurement and monitoring

• Geology, hydrogeology, rock mechanic and

UCG Process modelling

• Shutdown, gasifier sampling & rehab

Objectives:

• Qualify that the technology works, and

quantify key parameters

• Inform regulators and stakeholders

• Secure enough information for commercial

regulatory applications

• Build comprehensive databases and

models


• Staffing requirements & recruitment plan

• Lodge regulatory applications

Outputs:

• Pilot plant performance

• Specialist studies, including Environmental Management Plan

• AACE Class 3 UCG costs, timescales and performance for commercial UCG application (incl.

mining plan, power generation costs etc.)

• Gap analysis

• Fatal flaw analysis


• Technical performance model

• Financial model

• Regulatory reporting

• Regulatory applications for the next phase

3. Mitigation/Control : Monitoring

2016-05-11 18

Activities:

• Baseline environmental sampling PRIOR to

any UCG activity.

• Set up instrumentation on the site, above

and below ground

• Model process, hydrogeology etc.

• Routine monitoring – 3 zones (see

following diagram)

• Long term monitoring post closure

Objectives:

• Monitor and compare to baseline

• Alert exceedances

• Action correction or remediation

Outputs:

• Monitoring plan

• Exceedance response plan

• Remediation plan

• Rehabilitation plan

• Routine reports to regulator and management

19

3. UCG Water Monitoring Strategy - Zones

Production zone • Equivalent to

underground mine

workings or open

pit – “process

water”

• Operational area

• Monitoring purpose:

to observe “process

water” against

operations

summary

Process Control

zone • Safety zone around

mine workings or open

pit

• Buffer zone for early

warning of potential

problems

• Monitoring purpose:

monitor significant

changes in early

warning indicators

Compliance zone • Equivalent to external

environment of

conventional mine

• Area expected to be

unaffected by UCG

operation

• Compliance required

against agreed WUL

quality standards

3. Mitigation/Control: UCG Discipline Roles & responsibilities

2016-05-11 20

Hydrogeology

Geology

Rock Mechanics

Drilling

&

Well Completion

Disciplines Involved

in Design of

Underground

Activities Only :

UCG

Engineer

Geology

Rock Mechanics

Drilling

&

Well Completion

UCG

Engineer


2016-05-11 21

Hydrogeology


in Design of

Underground

Activities Only :

Responsible for : • Part of multi-

disciplinary team

• Reviewing

background

hydrogeology data

• Commissioning test

work

• Modelling

• Recommending

hydrogeology control

philosophy

• Designing

underground aquifer

monitoring system

• Monitoring (incl. post

UCG)

• Participating in

remediation activities

• Regulatory

applications &

reporting


2016-05-11 22

Hydrogeology

Rock Mechanics

Drilling

&

Well Completion


in Design of

Underground

Activities Only :

UCG

Engineer


disciplinary team

• Reviewing

background

geology data

• Prospecting

• Modelling

• Recommending

mining philosophy

• Pre-production

prospecting


remediation

activities

• Regulatory

applications &

reporting

Geology


2016-05-11 23

Hydrogeology

Geology

Rock Mechanics

Drilling

&

Well Completion


in Design of

Underground

Activities Only :

UCG

Engineer


disciplinary team

• Reviewing

background RM

data

• Prospecting

participation

• Modelling

• Site subsidence

monitoring

• Recommending

subsidence

management

philosophy

• Monitoring (incl.

post UCG)


remediation

activities

• Regulatory

applications &

reporting


2016-05-11 24

Hydrogeology

Geology

Rock Mechanics

Drilling

&

Well Completion


in Design of

Underground

Activities Only :

UCG

Engineer


disciplinary team

• Reviewing

background

drilling data

• Designing drilling

& well

completion

philosophy

• Controlling all

drilling activities


remediation

activities

• Reporting


2016-05-11 25

Hydrogeology

Geology

Rock Mechanics

Drilling

&

Well Completion


in Design of

Underground

Activities Only :

UCG

Engineer

Responsible for : • Integrating all

activities

• Leading multi-

disciplinary team

• Reviewing all

background data

• Prospecting

participation

• Modelling

• Mining

philosophy &

plan

• Monitoring (incl.

post UCG)

• Leading

remediation

activities

• Regulatory

applications &

reporting

3. Mitigation/Control: Example of UCG

Disciplines Integration in Hydrogeological Model

3. Mitigation/Control: Project Economics

2016-05-11 27

Carefully consider how

each of these criteria

affect your project.

Quantification as opposed to Description

3. Mitigation/Control: Project Economics

• Capex : Design : Mine including initial wells, piping (gas and oxidant), surface infrastructure (gas and liquid treatment), end product (power generation, fuels, chemicals)

• Opex : Replenishment Well drilling & completion, piping, manpower, input energy, royalties/taxes, shutdown, decommissioning, rehabilitation.

• Permitting & Licensing : Timelines & currently unknown specific design requirements.

• Products : Raw gas, Electricity Fuels/Hydrocarbon/chemical byproducts

• Target price benchmarks are freely available to determine business case viability.

• Benchmarks and thus business case are thus “quantified” in specific detail and NOT “described” generally. Margin for error is very small in a competitive energy pricing business.

2016-05-11 28

Costs Income

Design & Integration are thus

critical !

3. Mitigation/Control: Project Economics Risk - Design & Integration

2016-05-11 29

Activities –

Class 3

• Engineering is 10-40% complete for

established technologies – UCG being “FOAK

“will require more activity.

• PFD’s, UFD’s, Plot Plan, Developed Layouts,

Utility equipment lists

Class 2

• Engineering 30% to 75% complete.

• High degree of deterministic estimating

methods

• In addition to above Class 3, Heat & material

balances, final plot plan, final layout drawings,

complete engineered process and utility

equipment lists, single line diagrams for

electrical, electrical equipment and motor

schedules, vendor quotations, detailed project

execution plans, work force plans.

• Prepared in great detail, involving tens of

thousands of unit cost line items

Objectives –

Class 3

• Support full project funding requests.

• Class 3 is often the last estimate required and

could very well form the only basis for

cost/schedule control – this is however for

established mature technologies – care to be

taken with First of a Kind (FOAK) projects.

Need for greater depth.

• Referred to as : Budget, Scope, Sanction,

Concept Study, Basic Engineering phase

estimate. Target estimate

Class 2

• Used by contractors to establish contract value

and detailed contractor baseline (and update

the owner control baseline)

• Referred to as Detailed control, forced detail,

execution phase, Master control, Engineering,

Bid, Tender, Change order estimate


2016-05-11 30

Outputs:

• Piping & instrumentation diagrams issued for design.

• Class 3 = 10-40% of full project definition. Class 2 = 30-75%.

• Ranges could exceed those shown if there are unusual risks !


31

?

Detailed Cross Comparison of Deliverables Maturity Level


32

?


• The UCG mine is ultimately about fuel production, but even more so about the optimum gas specification. Operational Trade-offs possible, e.g. CO2 emissions vs maximum mining efficiency. Gas spec is site, technology and process specific/unique. Piloting is critical

• Gas specification: What is in the gas ? Specifications, tolerances and margins are key. Detailed down to trace elements for Class 3/2 work. If not, assumptions and tolerance stack

up will occur.

• Business case will depend on gas specification certainty. The class 3/2 technical work must be the basis to reduce risk. This includes the gasifier upon which the surface infrastructure is dependant on.

33

Raw gas specification

dependencies

Risk Background: Permitting/Regulatory Processes

2016-05-11 34

Research/Science

-Quantification

Permit/Regulations

Quantification

The dilemma…….. Piloting follows full/normal permitting process !

Research/Science

Quantification

2001 t

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3. Mitigation/Control: Permitting & Licensing

2016-05-11 35

2014 – Scoping & Environmental Impact Reporting Process (S&EIR)


2016-05-11 36


2016-05-11 37

3. Mitigation/Control: Permitting & Licensing -Water Use Licensing (IWULA)

2016-05-11 38

• A UCG Site will typically trigger the following

sections for an IWULA Section 21 (e) – Engaging in a Controlled Activity for the UCG process

Triggers in terms of the Traditional Water uses:

S21(a) – Abstraction of Water from Groundwater during UCG Process

S21(b) – Water Storage Dam

S21(c) – Impeding or Diverting the flow of water in a watercourse for

the construction of roads and bridges over watercourses

S21(g) – Disposing of waste that may impact on a water resource.

S21(h) – Disposing of waste from a power generation process for re-

injection of treated process water

S21(i) – Altering the bed, banks, course or characteristics of a

watercourse for the construction of roads and bridges over

watercourses

S21(j) – Removing and disposing of groundwater from the UCG

process

• UCG Declared a controlled activity in October 2015.

• Awaiting :

Draft control guidelines for public comment.

Final control guidelines.

Application format.

WU

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loc

k f

or

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pp

licati

on

s n

ot

yet

ab

le t

o

sta

rt t

ickin

g t

o 3

00 d

ays.

Until the above process is finalised, the 300 days

(excl appeal period of 90 days) cannot start

ticking and no project WUL can be granted !

3. Key Insights from IBM FOAK Research Program

• Partnership is essential !

• Process of partnering in any context - be it business, community, government, or just plain ordinary people is never easy to define, much less document. Partnering is more art than science, more passion than intellect, and, ideally, more oriented toward giving than getting.

• Needs for partnering must be clear and complementary.

• Researchers are the creative catalysts of FOAK: no researchers = no projects.

• Must have the ability to imagine how technologies might be used & to consolidate ideas, capabilities, resources

• Successful innovation depends on having the right people - those with a commitment to innovation and the skills to help move an idea into the marketplace.

• While not every skill may be available, basic resources and capabilities should be in place before an innovation project begins.

• Because innovation may be difficult to explain, may payoff only in the long term, and may carry higher risk, setting expectations with partners is a critical success factor.

• FOAK contracts uses nonstandard T&Cs. Prolonged contracting process not best for FOAK & Partners who cannot work with non-standard T&C’s are not desired.

• FOAK projects suffered from reprioritizing human resources not long after the projects began.

• Project must be aligned with real business value.

2016-05-11 39

• IBM Research program since 1996

• Only allocated part funding from

internal budget.

• Funding model still in place today

(2010)

• 200 projects completed

• 15 projects completed from 20-25

approved for funding annually

• 70% successful asset transfer for

reuse from projects completed.

Eskom’s Intent : to develop an independent, long term, lower cost, market

immune, primary fuel source for South Africa

How ?

Why?

Whom?

Where?

When?

Majuba

Eskom

2018

Majuba or Elsewhere

Eskom+ Partner/s

2018

• Demonstrate safe environmental operation

& shutdown/decomissioning practice &

compliance

• Quantify long term environmental &

geological impacts

• Provides key information for permit and

licensing processes

• Allows for future growth of technology &

Majuba coalfield.

• Integrate and share resources to leverage

existing assets and knowledge

• Provide an execution structure that

addresses previous & current piloting

difficulties

• Deliver the original objectives & benefits

4. Summary of Eskom UCG Project

Thank You

2016-05-11 41

ucg eskom’s experience and future projects · 2016-05-13 · ucg – eskom’s experience and...

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