Alternative energy investment holding company Renergen expects its natural gas venture in the Free State to begin producing revenues during early 2016 when a bus company starts using its gas to operate a new fleet of compressed natural gas (CNG) vehicles, which will be used to transport miners and school children in the Virginia area.

The AltX-listed company is in the process of acquiring, for R650-million, Molopo South Africa Exploration and Production Limited, which is preparing to bring its first well into production on a small portion of a larger 187 000 ha property, over which it has secured the country’s only onshore petroleum production right.

The right spans the Free State gold mining towns of Virginia, Theunissen and Welkom, with the initial production well to be developed near Virginia. Molopo has drilled ten wells to date and has reported proven reserves of 25-billion cubic feet (Bcf) and probable reserves of over 200 Bfc.

The gas is relatively shallow at around 400 m; well above some of the gold mines in the area, which have operations that are kilometers below surface.

Gas intersections were first made when miners were exploring for gold on the Free State portion of the Witwatersrand basin. Geologists believe the gas to be derived from abiogenic and biogenic hydrocarbons associated with ancient fissure waters, coal beds or ancient algal mats. There is also helium, derived from natural radioactive decay of heavy radioactive elements, primarily uranium.

Renergen CEO Stefano Marani tells Engineering News Online that “clean” gas has flowed from all ten exploration wells and that in the initial stages it will require only limited processing.

For the bus contract, which has been concluded with Unitrans’ Megabus, the gas at the wellhead will simply be compressed into mobile storage units and transported by truck to the bus depot in Virginia for dispensing into a system that will be used for vehicle refueling.

Megabus is in the process of buying ten CNG Scania busses, which are currently undergoing homologation by the South African Bureau of Standards. They will consume a gas equivalent of about 2 000 l/day during the pilot phases.

Megabus’s Leon Nelson tells Engineering News Online that the buses are being assembled at Busmark in Randfontein and should be in operation during the first quarter of 2016. He confirms that they will be the first Scania CNG buses in South Africa and will offer the company an opportunity for a "proper local testing of CNG buses and a comparison with the diesel equivalent".

Marani says environmental approvals, or exemptions, are in place for initial production of around 200 GJ/day, which will continue in parallel with a more intense exploration and development campaign, designed to create a pipeline and processing network across the site capable of delivering 1 500 GJ/day. Molopo has also secured gas storage and trading licences from the National Energy Regulator of South Africa.

The first phase of development will involve the drilling of 16 gas wells, with full field development anticipated at 192 gas wells, interconnected by a pipeline network with a total length of about 500 km.

Ramping up production to 1 500 GJ/day is expected to take place over a 30-month horizon and will involve capital expenditure, which will be pursued in a piecemeal fashion, of around R90-million. The investment will be funded partially by a R62-million shareholder loan from Renergen, as well as through revenues from the initial CNG operation.

Over a period of three to five years the ambition is to raise output to around 3 000 GJ/day, which will also help facilitate the diversification of Molopo’s product offering. Besides producing gas for the bus fleet, Molopo is also eyeing the prospect of supplying CNG to dual-fuel-converted vehicles, while supplying industrial businesses in the region.

But Marani stresses that there is also a potential to produce and sell liquefied helium, as well as to divert some of the gas for use in the production of electricity for some of the mining operations in the area.

The company is unlikely to participate in the Department of Energy’s gas-to-power independent power producer programme, with the focus instead being on bilateral arrangements with “blue chip” enterprises in the Free State.

The Molopo transaction, which is Renergen’s inaugural acquisition, will be presented to shareholders for a vote on November 25.