Synthesis Energy Systems Enters JV with YIMA for Coal Gasification in China; Financing Key, as SES Halts Synthetic Gasoline Project in US
Synthesis Energy Systems, Inc. (SES), a gasification company, entered into a primary joint venture agreement with YIMA Coal Croup, a China integrated coal company, for the development of a coal gasification plant which will provide syngas feedstock for the downstream production of transportation fuels and chemicals intermediates in Henan Province, China. The joint venture agreement includes a provision whereby YIMA will guarantee the debt financing for the Plant. SES expects this guarantee will allow debt financing to be obtained from domestic Chinese banking sources.
SES also announced that it and its partner CONSOL Energy stopped funding the front-end engineering design package for the Benwood, West Virginia synthetic gasoline project announced earlier this year (earlier post) “due to the difficult financial environment.” With the lack of advancement of the project, the joint development agreement between SES and CONSOL expired according to its terms.
In China, SES and YIMA will work on the development of the project, but will not be required to make capital contributions to the joint venture, pending final government approvals. The preliminary estimate of the total required capital of the joint venture is approximately $350 million. In exchange for their capital contributions, SES will own a 49% interest in the joint venture and YIMA will own a 51% interest.
Additionally, SES announced that coal testing for this project, utilizing coal from YIMA’s Yaojin mine, is scheduled to commence at SES’s Hai Hua facility in Zaozhuang City, China. Data from the testing will be used to verify process simulation calculations and ensure proper design of the Plant.
The execution of the joint venture agreement with YIMA underscores our current focus on projects in China where traditional bank financing remains accessible. We are fortunate to have a partner like YIMA that has the ability to provide a guarantee for the financing which we believe will allow SES and YIMA to advance this project despite these turbulent financial times. From an operational perspective, the ability to conduct coal testing in our Hai Hua commercial facility as opposed to a pilot plant will be invaluable to the design process.—Tim Vail, president and CEO of Synthesis Energy Systems
YIMA is very pleased to have signed the joint venture contract with SES. Despite the downturn in the international financial markets, Chinese banks have recently decreased interest rates and the central government has reduced reserve ratios for banks, enhancing the ability of Chinese banks to lend to projects. We are committed to ensuring the financing for this project as this is an encouraged industry in China with excellent government support. We believe this is an opportunistic time to be building new capacity and we expect this project to be just the first step in a series of projects with SES.—Wu Luyu, Chairman, YIMA Coal Group
The gasification plant will utilize SES’ licensed U-GAS technology to convert low- quality, high-ash sub-bituminous coal into syngas and downstream products for transportation fuels and chemical intermediates. The Plant will be constructed in a phased approach that takes advantage of the U-GAS technology’s ability to economically scale the build-out of capacity. Phase one of the Plant is designed to process 2,000 tonnes per day of sub-bituminous coal into syngas for downstream chemical and fuel products while phase two, if constructed, is expected to double the design output.
The primary advantage of U-GAS relative to other gasification technologies is its overall low cost, enabled by fuel flexibility, low operational cost, and the technology’s ability to economically scale projects to meet the needs of industrial customers. SES licenses the U-GAS technology from the Gas Technology Institute.