Linc Energy, Xinwen to Develop Coal Gasification

By Dinakar Sethuraman

Sept. 11 (Bloomberg) -- Linc Energy Ltd. and Xinwen Mining Group Ltd. will gasify coal and extract liquid fuels from natural gas in China, the world's second-biggest energy consumer.

The companies will produce natural gas from coal resources found in the Yining mining area in China's western province of Xinjiang, Brisbane-based Linc said in a statement to the Australian Stock Exchange today. The area may hold as much as 15.37 billion metric tons of coal deposits.

China is tapping gas from unconventional sources such as coal to meet rising demand for the cleaner-burning fuel and plans to more than triple its output to 250 billion cubic meters by 2030. Some of the gas extracted from Yining will be delivered to Shanghai via the West-East pipeline and some will be converted into fuels such as gasoline and gasoil, Linc said.

``This is an exciting development as Xinwen already has government approval for underground coal gasification,'' said Peter Bond, chief executive officer of Linc. ``This means that once commercial terms are finalized, Linc Energy and its partner Xinwen can move directly into commercialization and very quickly monetize stranded coal in China.''

Xinwen has operations in Chinese provinces including Shandong, Xinjiang, Inner Mongolia and Shaanxi. It produces 15 million tons a year of coal and aims to boost its output capacity to 40 million tons a year by 2010.

Shandong-based Xinwen agreed last week to purchase two coal exploration permits from Linc for A$1.5 billion ($1.2 billion), becoming the latest Chinese company to buy into Australia's resources industry, according to a statement on Sept. 5.

Linc jumped 50 percent on Sept. 5 after announcing the license sale. The shares rose 0.01 percent to A$4.15 in Sydney trading today after advancing as much as 11 percent.

Further drilling in Yining may yield an additional 14.87 billion tons of coal reserves, Linc said today. China is the world's biggest producer of the fuel.

Linc also increased its estimate for coal deposits in Chinchilla in Queensland to 600 million tons from 401 million tons, the company said today.

To contact the reporter on this story: Dinakar Sethuraman in Singapore at dinakar@bloomberg.net.