Mongolia coal seam gas pioneer Elixir Energy has signed its first offtake agreement with one of the country’s largest fuel retailers to build a small-scale liquified natural gas (LNG) plant to supply the large truck fleet hauling coal to China. The memorandum of understanding is with MT Group and covers using local coal bed methane gas.

MT Group, established in 1994, retails fuel across Mongolia, including along the road from the huge Tavan Tolgoi coal mine in the South Gobi region to the Chinese border. MT Group now sources it fuel supplies from Russian companies.

Tavan Tolgoi ships 15 million tonnes of coal per annum to China, using thousands of trucks to move the material.

Elixir added that the South Gobi hosts a large trucking fleet that, at present, burns diesel. These vehicles could economically be replaced by cleaner and cheaper gas-fuelled trucks.

Small-scale LNG plants are now “commonplace” to the south of Mongolia in China, where there there are more than six million gas-fired vehicles on the road. “Given Elixir’s milestone event of making Mongolia’s first [coal seam] gas discovery earlier this year, the company concluded it is now timely to pursue the investigation of this first offtake option,” Elixir noted.

In February, Elixir announced Mongolia’s first coal seam gas discovery at the 100%-owned Nomgon IX production sharing contract (PSC) in the South Gobi region. The Tavan Tolgoi mine is located within Elixir’s PSC area. Last month, Elixir’s share purchase plan to raise $1.65 million attracted $2.9 million in applications, resulting in allocations being scaled back. The company is looking at “multiple” market opportunities, including the rapidly growing Chinese gas market.

Shell has estimated that China’s gas demand will more than double by 2040, with that country seeking to diversify sources of supply.

Elixir said it expects Mongolian coal seam gas to be highly cost-competitive with other Chinese supply options. The gas can be exported to China by pipeline or by using it to generate electricity to be sent to China.