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Could South Africa adopt a gas economy?

Stefano Marani explains Renergen’s progress from ‘greenfield’ sort of mining to expected final production in 2023, as well as the global demand for helium.

SIMON BROWN: I’m chatting with Stefano Marani. He’s the CEO of Renergen. Disclaimer upfront – I hold shares in Renergen. Stefano, I appreciate the early morning. I want to try and get a sense of processes and timelines of getting to production Phases 1 and 2. Obviously, our focus here is Renergen, but there’s a bigger story as to understanding how mining or business gets to that capacity. As I understand – Phase 1, where are you currently with that? That’s your early part, almost a proof of concept around the business.

STEFANO MARANI: Good morning. 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 almost a billion-rand investment, just over R800 million. 

That goes into operation this financial year for us. We are talking about getting gas into the plant during the fourth quarter and then and then putting gas in trucks and moving it around to customers shortly after that. That is the equivalent, just to put it in the form of energy that people can think about, Phase 1 will be producing somewhere about 75 000 litres 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’ve done the research, you’ve done the digging, you’ve said (it is there) – it’s proof of concept that there’s something in the ground. Also, to a degree can you and your team deliver on this and actually make it happen?

STEFANO MARANI: Yes. I think the proof of concept wasn’t necessarily so much as to what was sitting underground. We’ve got proven reserves and proven resources, so that’s there. I think the proof of concept was more about whether or not corporate South Africa could adopt a gas economy. 

The other part of it is obviously the helium. Phase 1 produces 350 kg of helium per day. Although it doesn’t sound like a lot, you got to appreciate the gas is (a) incredibly expensive, (b) insanely rare and 350 kg is about 1.5 times South Africa’s entire consumption. So it’s meaningful.

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

I like your point about adopting a gas economy, and that is a shift. Our whole economy has been hydrocarbons, oil and LNG (liquefied natural gas); and you’ve got your cryogenics. Talking around trucks, I remember running on LNG. I remember the refrigerated trucks – you’ve got some IP around that. There is a sort of shift within the broader economy. Is that shift happening? Are you seeing customers who are saying, hang on, this actually looks like something worth trying.

STEFANO MARANI: You touched on Imperial a little earlier and the fact that foreigners are now starting to see value in South Africa. I think that is an increasing trend. And what you’re going to see is that, as these foreigners start to come in, they are going to start enforcing their ESG (environmental, social, and governance) criteria on South African companies. We are a dirty economy, we’re a filthy economy. And what we are seeing is that internationally, globally, the push and the move from diesel to gas is unprecedented. The reason for this is that while an EV, an electric vehicle, is great for your and my car eventually on the road, you cannot power a big 51-ton combination payload truck with EV. Even if you were to reach the theoretical limit of what a battery can store, it will never be economically viable under South African conditions. So people need alternatives. You need a higher energy density, and this is where LNG comes into it. 

SIMON BROWN: And then Phase 2. You raised some cash last month going towards Phase 2. You’ve got your proof of concept. You’re now doing, I suppose, a more detailed feasibility around it. And then you’ll start rolling on what is a significantly larger – particularly in the helium space – Phase 2 project for Renergen in your fields.

STEFANO MARANI: That’s correct. We obviously had a drilling campaign. That drilling campaign was monumentally successful – way, way more successful than we thought. And now all of the data from the wells that we drilled has gone over to our reservoir engineers in the US, and they are busy crunching the numbers. We’ve got two engineering teams, Saipem and EPCM, to start designing what Phase 2 will look like and what the feasibility studies will look like. That will then also go over to our reservoir engineers. 

And we’re hoping in the coming one to two months we will be able to announce to the market exactly (a) what is sitting underground in terms of just pure, raw molecules that are economically viable to extract, and (b) what Phase 2 looks like, obviously with all of the associated financing mechanisms and whatnot. But we’re pretty confident and working towards a timeline of turning Phase 2 in 2023. And, as you said, that we see as being the game changer when Renergen truly puts its mark on the South African energy mix.

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

STEFANO MARANI: Of course, we’re tiny. 

SIMON BROWN: And 2023 is just around the corner. That is quite close. 

I want to quickly pivot to the helium story, which I ran into maybe three years ago. I’m reading results from Party Shack in the US and they say (they’ve) really, really bad numbers because they couldn’t get hold of any helium, and therefore no helium balloons. Therefore their sales suffered during that particular period. 

Helium’s got quite a wild story. It’s been a strategic reserve in the US, although I understand they reversed that. And then sort of looked to reverse the reverse. The helium story in the US has been a wild ride, particularly in the last decade or so, as they ‘unstrategic’ reserve it.

STEFANO MARANI: You couldn’t get a team of fiction writers in a room, even if you took the team from Game of Thrones, able to make up a more fantastical story than helium. So yes, you’re right. It started off just before World War I. The US secretary of defence borrowed money from the Fed to build the strategic reserve in Amarillo in Texas, and the idea was to make aircraft for logistics and for bombing. That was pretty much the only use for helium – in lifting. 

And then Oppenheimer came along; not our Oppenheimer, Oppenheimer in the US came along in World War II. While on paper everything looked good, he couldn’t actually build anything without the helium. And so the secretary of defence borrowed a lot more money and built a really, really large helium reserve.

And then with the Cold War, obviously that required an inordinate amount of helium. It got to the point where the Fed wanted its money back. So the Fed put together this act called the Helium Stewardship Act, which forced the Reserve to auction off helium commercially. 

Now, what they didn’t predict was that shortly after putting that act together, MRI scans were invented – and MRIs use an inordinate amount of helium, both in their manufacture and their operation. You cannot do an MRI or a CAT scan without helium. It’s not possible. That literally led to the point where helium consumption vastly exceeded fresh supplies of helium coming off the ground, with the result that it ended up depleting this reserve. And, as you said, in 2018 the United States government declared helium the second-most critical element to United States national security. It’s a problem. It’s a real problem. There are senators and Congressmen looking to have the Macy’s helium balloon parade banned in the United States.

SIMON BROWN: (Chuckling) In order to save. That’s just it. Helium was (for) lifting, but these days it is equally part medical.

We’ll leave it there. Stefano Marani, CEO of Renergen, we’ve been trying to get a sense of how you go from greenfield sort of mining to final production in 2023. That’s two years away, just around the corner. 

Listen to Friday’s full MoneywebNOW podcast here.

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Phase 1: i would like to know what the AISC and profit margin estimates are for both CNG en Helium?

Not with El Shabab stopping the gas field processing in Northern Mozambique

What is this article about? Seems like these guys smoked something weird and came up with random thoughts.

Very few industrial and residential suburbs in SA have gas piped to premises. If it’s not piped it is a ball-ache and the fire & insurance regulations will drive you insane.

Natural gas could be huge but it is chicken and egg. The users aren’t going to adopt new large scale industrial gas-driven processes unless they know there will be certainty of supply. The gas people aren’t going to establish certainty etc etc

Also, gas needs an edge. LPG is a regulated price as far as I know. Take away the floor price of LNG but keep a ceiling = LPG. How low could LNG sell for???

Renergen is about industrial use, not domestic. And it LNG not LPG

Simon:

That’s why I said, make it that LNG has no floor price but keep its ceiling at the LPG price.

If their LNG takes off, I’d imagine they’d supply into any market. Fairly large parts of JHB residential has piped gas as well as a few businesses. Trucking normal gas in is a tough market – other than expensive gasses used in low volumes.

Do you know much about their business? I am thinking of a speculative punt. Am a bit worried about the scope of government and semi government program reliance. I have no trust in the capability and speed of what are well intentioned and good support programs. Seen that movie… :/

That bio gas angle is fascinating, want to read more about it. Helium is an excellent market. If they have specific concentrations, there are energy-intensive businesses that could relocate to the gas location if the gas longterm price is right. Electricity effective cost is over 250c/kWh once take in admin, availability, peak and energy charges. Price also has no end in sight. Metals, glass, cement and some chemical sectors basically run a business model that pivots on energy price.

End of comments.

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