Australia's Linc Energy Ltd has signed a letter of intent with Xinwen Mining Group Ltd to develop underground coal gasification and gas to liquids projects in China, Linc said yesterday.

The partners will gasify coal in the Yinan and Yibei fields in Yining, in the northwestern region of Xinjiang. The areas, owned by Shandong Province-based Xinwen, cover over 479 square kilometers and have a reported 15.37 billion tons of coal, Linc said. Through further drilling, an additional 14.87 billion tons of coal deposits may be yielded in the areas.

UCG is the process carried out in coal seams using injection and production wells drilled from the surface, which enables the coal to be converted into gas that can be used as chemical feedstock or as fuel for power generation.

The two firms have also agreed to form a joint stock company to develop the UCG fields. Linc, based in Brisbane and Australia's clean coal technology leader, said that negotiations and the formation of the joint company will be finalized by the end of the year.

"This is an exciting development as Xinwen already has government approval for underground coal gasification,'' Linc Chief Executive Officer Peter Bond said.

Once the commercial terms are finalized, the partners can move directly into commercialization of UCG and GTL, Bond said.

Some of the gas extracted will be delivered to Shanghai through the country's West-East pipeline project and some will be used as feedstock for a GTL facility, said Linc.

The latest deal follows an agreement announced last week in which Xinwen would buy two coal exploration permits in Australia from Linc for A$1.5 billion (US$1.2 billion).

Xinwen, which generated sales of 21.9 billion yuan (US$3.2 billion) last year, has plans to raise it to 50 billion yuan by 2010, according to its Website.

(Shanghai Daily September 12, 2008)