Could South Africa adopt a gas economy?

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SIMON BROWN: I chat with Stefano Marani. He is the CEO of Renergen. Disclaimer – I own shares in Renergen. Stefano, I enjoy the early hours. I want to try to get a feel for the processes and timelines to get to production phases 1 and 2. Obviously our focus here is Renergen, but there is a bigger story to understand how mining or l The company achieves this capacity. If I understand correctly – Phase 1, where are you currently with that? This is your first part, almost a proof of concept around the company.

STEFANO MARANI: Hello. Yes correct. Phase 1 has always been a proof of concept, both for us and for the United States. Obviously, Phase 1 was funded by a loan from the Overseas Private Investment Corporation, or now the Developmental Finance Corporation, DFC. Proof of concept – you take it with a pinch of salt. It’s still an investment of almost a billion rand, just over 800 million rand.

That goes into this exercise for us. We’re talking about getting gas into the plant in the fourth quarter and then putting gas in trucks and hauling it to customers shortly thereafter. That’s the equivalent, just to put it in the form of energy that people can think of, phase 1 will produce about 75,000 liters of diesel equivalent of energy per day.

SIMON BROWN: Wow. Okay. And that proof of concept is that there is what is expected in the ground. Obviously you researched, you dug, you said (it’s there) – it’s a proof of concept that there is something in the ground. Also, to some extent, can you and your team achieve it and achieve it?

STEFANO MARANI: Yes. I think the proof of concept was not necessarily about what was underground. We have proven reserves and proven resources, so it’s there. I think the proof of concept was more about whether or not South African companies could adopt a gas economy.

The other part is obviously helium. Phase 1 produces 350 kg of helium per day. While that doesn’t sound like a lot, you should understand that gas is (a) incredibly expensive, (b) incredibly scarce, and 350 kg is roughly 1.5 times South Africa’s total consumption. It is therefore significant.

SIMON BROWN: A very large amount of gas balloons at the same time, because helium for me is always those birthday balloons.

I like your point about moving to a gas economy, and it’s a change. Our entire economy has been made up of hydrocarbons, petroleum and LNG (liquefied natural gas); and you have your cryogenics. Speaking of trucks, I remember running on LNG. I remember the refrigerated trucks – you have some intellectual property around that. There is a kind of change within the economy at large. Is this change happening? Do you see customers saying, wait, that actually sounds like something worth trying.

STEFANO MARANI: You mentioned Imperial a little earlier and the fact that foreigners are now starting to see value in South Africa. I think it’s an upward trend. And what you’re going to see is that when these outsiders start arriving, they’re going to start applying their ESG (environmental, social and governance) criteria to South African businesses. We are a dirty economy, we are a dirty economy. And what we’re seeing is that internationally, globally, the push and shift from diesel to gas is unprecedented. The reason is that even though an electric vehicle, an electric vehicle, is great for your car and for my car possibly on the road, you cannot power a large 51 ton combined payload truck with an electric vehicle. Even if you hit the theoretical limit of what a battery can store, it will never be economically viable in South African conditions. So people need alternatives. You need higher energy density, and that’s where LNG comes in.

SIMON BROWN: And then phase 2. You raised some money last month to move on to phase 2. You have your proof of concept. You are now doing, I guess, a more detailed feasibility around this. And then you’ll start to ride on what’s a much bigger Phase 2 project – especially in helium space – for Renergen in your fields.

STEFANO MARANI: It’s correct. We obviously had a drilling campaign. This drilling campaign has been a monumental success – far more successful than we thought. And now all of the data from the wells we drilled has been passed to our reservoir engineers in the United States, and they’re busy figuring out the numbers. We have two engineering teams, Saipem and EPCM, to start designing what phase 2 will look like and what the feasibility studies will look like. This will also come back to our tank engineers.

And we hope that in the next one or two months, we will be able to announce to the market exactly (a) what is underground in terms of pure and crude molecules that are economically viable to extract, and (b) what phase 2 looks like, obviously with all the associated funding mechanisms and so on. But we’re pretty confident and working towards a phase 2 schedule in 2023. And, as you said, we see this as a game-changer when Renergen really puts its mark on the South African energy mix.

SIMON BROWN: At this point – and with no disrespect – it’s sort of a start / ramp up in 2023.

STEFANO MARANI: Of course, we are tiny.

SIMON BROWN: And 2023 is fast approaching. It’s pretty close.

I want to quickly move on to the history of helium, which I encountered maybe three years ago. I read the results of Party Shack in the United States and they say (they have) some really, really bad numbers because they couldn’t get their hands on helium, and therefore no helium balloons. Therefore, their sales suffered during this particular period.

Helium has a pretty crazy story. This has been a strategic reserve in the United States, although I understand that they have turned the tide. And then somehow sought to reverse the reverse. The history of helium in the United States has been a wild ride, especially over the past decade, as they reserve it “non-strategic”.

STEFANO MARANI: You couldn’t have a team of fictional writers in a room, even if you took the Game of Thrones team, able to make up a more fantastic story than helium. So yes, you are right. It started just before WWI. The US Secretary of Defense borrowed money from the Fed to build the Amarillo Strategic Reserve in Texas, and the idea was to make planes for logistics and bombing. That was pretty much the only use of helium – for lifting.

And then Oppenheimer happened; not our Oppenheimer, Oppenheimer in the United States arrived in WWII. While on paper everything looked good, he actually couldn’t build anything without helium. And so the Secretary of Defense borrowed a lot more money and built a very, very big reserve of helium.

And then with the Cold War, that obviously required an inordinate amount of helium. It got to the point where the Fed wanted to get their money back. The Fed therefore developed this law called the Helium Stewardship Act, which required the Reserve to auction helium commercially.

Now, what they hadn’t predicted was that soon after this act was performed, MRI scans were invented – and MRI scans use an excessive amount of helium, both in their manufacture and operation. You can’t do an MRI or CT scan without helium. It is not possible. This literally led to the point where the consumption of helium greatly exceeded the reserves of fresh helium coming from the ground, which ended up depleting that reserve. And, as you said, in 2018 the United States government declared helium the second most critical element for United States national security. It is a problem. This is a real problem. There are senators and congressmen seeking to ban the Macy’s helium balloon parade in the United States.

SIMON BROWN: (Laughs) In order to save. That’s it. Helium used to be (to) lift, but nowadays it is also part of medicine.

We will leave it there. Stefano Marani, CEO of Renergen, we tried to figure out how to go from an entirely new mining operation to final production in 2023. It’s two years away, just around the corner.

Listen to Friday’s full MoneywebNOW podcast here.

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