In its first offtake project, Elixir Energy Limited (ASX:EXR) has partnered with one of Mongolia’s largest fuel retailing firms, MT Group to develop the country’s first Small Scale LNG (SSLNG) plant supplied from local coal bed methane (CBM).

The company recently executed a non-binding Memorandum of Understanding (MoU) with MT Group that sets out the initial framework for the partnership. Under the MoU, the parties will seek to develop a SSLNG plant to supply fuel to the South Gobi region's large coal trucking fleet.

The South Gobi’s large trucking fleet currently burns diesel, a fuel that could economically be replaced by cleaner and cheaper gas fuelled vehicles. The Tavan Tolgoi mine, for instance, which is located inside Elixir’s PSC area, trucks 15 million tonnes of coal to China each year, utilising thousands of trucks.

SSLNG plants are now commonplace in China, just to the South of Mongolia, where there are over six million gas fired vehicles on the road.

Earlier this year, Elixir announced Mongolia’s first ever coal bed methane (CBM), or coal seam gas (CSG) discovery at its 100% owned Nomgon IX CBM PSC in the country’s South Gobi region. Delineation and further exploration is ongoing across the 30,000 km² landholding.

Given Elixir’s milestone event of making Mongolia’s first gas discovery, the company state that it is now timely to pursue the investigation of this first offtake option.

Initial modelling indicates that a SSLNG in this location should be highly profitable. Possible funding sources could include the various international financing institutions (IFIs) that are present in the country and with whom Elixir has an ongoing relationship.

MT Group was established in 1994 and its core operations comprise fuel retailing facilities across the country – including on the road connecting Tavan Tolgoi to China. It currently sources liquid products for these from the likes of Russia’s Rosneft and Gazpromneft. The company has also expanded its operations into other areas such as telecommunications and resource exploration.

Elixir’s Managing Director, Mr Neil Young, said: “Supplying gas to a SSLNG plant in the South Gobi region is a great initial offtake project for our company to investigate. There is a clear existing market in terms of the very large local coal trucking fleet which could operate on clean gas rather than diesel. We are very pleased to be working with a company of MT Group’s calibre in pursuing this project.”

The map below shows the Tavan Tolgoi coal mine and the Oyu Tolgoi copper mine — both of which are located with Elixir’s PSC area — along with the roads into China.