Linc Energy fuel claims under question

IT JUST seemed too good to be true. Print ads run in major newspapers last year by colourful Brisbane-based oil and gas company Linc Energy claimed its technology to convert coal into gas, and then into diesel, could produce a barrel of ultra-clean fuel for about $30 a barrel.

"That's about 19¢ per litre!" trumpeted the Linc ads, which also claimed its underground coal gasification (UGC) and gas to liquids (GTL) technology would result in "much less pollution" and provide a "sustainable answer to the world's energy demands".

Lending weight to the claims, Linc's ads said CSIRO research had "shown our synthetic fuel to be cleaner". According to one ad, CSIRO tests confirmed synthetic fuel reduced tailpipe nitrous oxide (NOx) emissions by 13 per cent, particulate (PM-10) emissions by 35 per cent and hydrocarbon emissions by 43 per cent.

Following inquiries by BusinessDay and concerned at the use of its name, CSIRO wrote to Linc expressing concern that the ads "could be interpreted as suggesting a relationship between Linc Energy and CSIRO that does not exist, given we have not worked with or for the company".

Around June, Linc pulled the ads. Linc told BusinessDay it stood by its figures but it updated its ad campaign "to avoid any confusion to the reader as to where the referenced data came from".

Linc had based its figures on a 2001 CSIRO paper titled Life-Cycle Emissions Analysis of Alternative Fuels for Heavy Vehicles, which found emissions from so-called Fisher-Tropsch diesel (the name of the process used by Linc), were in line with normal diesel for NOx, better for particulates and toxics, but the worst of all fuels studied for greenhouse gasses.

"Even though Fisher Tropsch diesel produces slightly lower tailpipe emissions, the upstream emissions of greenhouse gases during [production] are much greater than those emitted during production of diesel," the authors wrote. Pre-combustion greenhouse emissions were 76 per cent higher.

The paper also pointed out its findings had a limited shelf life, particularly because in 2001 there were no operating Australian plants producing Fisher-Tropsch diesel, and would need to be repeated based on "production processes that are actually in place". The paper assumed such a plant would be built near Western Australia's North West Shelf, where the gas was.

That was before the boom in unconventional oil and gas extraction technologies, including the UCG-GTL process that Linc helped pioneer with its own plant at Chinchilla, Queensland, built in 2008.

And those eye-popping figures on the cost of Linc's fuel? Linc said its references to production cost per barrel were based on "internal calculations, supported by independent engineering studies that Linc Energy commissioned".

Linc's multimillionaire chief executive, Peter Bond, who in 2011 drove 600 kilometres from Chinchilla to Perth in a VW Golf powered by Linc's diesel fuel, and last year flew his own jet 4200 kilometres around the country on Linc's jet fuel, says the company has done a number of tests and the production cost always comes out at about $30 a barrel.

Linc is the world's biggest player in UCG, a technology that was originally pioneered in Stalin-era Russia and that Bond believes will be of major interest in eastern European countries with coal such as Hungary, Poland and Ukraine, which are dependent on Russian gas.

"It's not going to get traction in our backyard," Bond says.

Bond's vision was that UCG-GTL, producing about 1.7 barrels of liquid per tonne of coal, could help solve Australia's increasing dependency on imported fuel - perhaps supplying 20-30 per cent of the country's needs. In time UCG could also fuel power stations here, reducing greenhouse gas emissions relative to coal, says Bond, who has spent more than $200 million on the technology.

While Bond says federal Energy Minister Martin Ferguson saw UCG-GTL as a "win-win", Linc was discouraged after the Queensland government put a moratorium on underground coal gasification in 2010, when benzene was detected in groundwater at Kingaroy, where ASX-listed Cougar Energy was conducting a UCG trial. (Cougar is now negotiating over damages with the state.)

Bond says Linc could not stand still and be pushed offshore. "When the Bligh government said, 'OK, we're not so sure about this UCG thing, we're going to hold you up,' the first thing I did was buy ground in South Australia, the second thing I did was buy ground in Wyoming, I did joint ventures in Asia, I bought ground in Alaska."

Some of those acquisitions are now paying off, with Linc's shares doubling to $2.15 since the end of November amid a surge of takeover interest after Russian tycoon Roman Abramovich paid Linc a visit.

Linc shares spiked a fortnight ago when it released consultant estimates that it may have an undiscovered, "unrisked prospective resource" of up to 223 billion barrels of oil equivalent in three shale formations within its 100 per cent-held Arckaringa acreage in South Australia.

The Adelaide Advertiser, in a report quickly hosed down by Bond himself, reported Linc had found a resource worth $20 trillion. It was a claim that was too good to be true.