Botala Energy Ltd (ASX:BTE) has taken a big step towards helping feed energy-hungry southern Africa with gas due to a 42% increase in the 2C Contingent Resources (best-case estimate) at its Serowe Coal Bed Methane (CBM) Project in Botswana to 454 billion cubic feet (bcf).
The increase from 317bcf comes after the latest independent recertification by Sproule in the USA and is ahead of the company’s expectations.
It also solidifies the potential of the 100%-owned project to play a key role in providing energy to southern Africa with a severe gas supply shortage looming from 2026, as forecast by Sasol.
“A key player”
Botala CEO Kris Martinick said: “I am thrilled by the significant increase in our 2C contingent resources and the vast potential of our CBM Project in Botswana to supply gas to energy hungry Southern Africa, especially the nearby industrial heartland of South Africa.
"This development further positions Botala as a key player in the Southern African gas market and aligns with our vision to address the region's energy needs.”
Unrisked Contingent and Prospective Resources; independently certified by Sproule, July 1 2024.
Behind the increase
The increase is a result of extensive exploration and improved mapping techniques that have enhanced the understanding of the CBM potential in Botswana in terms of CBM presence and potential gas flow rates.
Since the previous Sproule Report of April 2022, six additional wells have been drilled. These include a 5-spot pattern near the Serowe 3-1 well and step-out wells Serowe-6 and 7. This drilling confirmed the presence of significant coal intervals with free gas in all wells.
A new low estimate of 363bcf (2C) is higher than the previous best-case estimate of 317bcf (2C) with the resources being in the Serowe, Upper Morupule and Lower Morupule coal formations, and the average net coal thickness is approximately 33 metres.
The strategic location and the substantial increase in 2C contingent resources place Botala in an excellent position to contribute significantly to gas and general energy security in Botswana and southern Africa.
“Well-positioned”
"We are well positioned to capitalise on this opportunity and I look forward to the encouraging gas flow-rate investigations and negotiations with potential partners and customers delivering value to our shareholders,” Martinick said.
"The future of Botala is incredibly promising in today’s energy-hungry Southern Africa, and I look forward to sharing our progress as we advance this project.”
The updated mapping and data integration reflect new geological insights, including the impact of dolerite intrusions which have been factored into the resource estimates. The assessment incorporates a 15% reduction in coal volumes due to these intrusions.
Key risks include the need for further production testing to classify the resources as reserves. The Sproule report outlines a phased exploration and testing program to achieve feasibility and commerciality.
About 2C resources
2C Contingent Resources refer to the estimated quantity of gas that Botala and Sproule believe can be recovered from the known coal seams but with certain conditions that need to be met before it can be produced. The 2C label stands for the ‘best estimate’ scenario, meaning it's a middle-of-the-road estimate - not too optimistic, not too pessimistic.
Botala said that 2C Contingent Resources were important because they showed potential future value. "They are not yet considered proven reserves and therefore can't be counted on for immediate production.
"They provide a reliable indication of how much gas might be available when certain conditions such as successful testing, securing financing, confirming market and obtaining regulatory approvals, are met," the company stated.
Next steps
The company aims to convert 2C Resources to 2P Reserves by concluding gas offtake agreements as 2P reserves are more valuable and reliable. 2P stands for 'Proved plus Probable' reserves, which means these quantities are not only discovered but are also commercially viable to extract with a high degree of certainty.
Future steps required to convert the prospective resources to contingent resources include:
- Conduct Further Testing - Confirm gas can be produced in economic quantities – Current Project Pitse.
- Secure Financing - Ensure sufficient money available to develop the project.
- Obtain Approvals - Permissions from government and regulatory bodies.
- Market - demonstrate access to an economically viable market for the gas.
Looming gas crisis
Southern Africa is facing a looming gas shortfall crisis from early 2026 onwards. This stems from a combination of depleting gas reserves and increasing demand across the region.
Key existing suppliers, such as Sasol, have publicly announced they will have to cease supply to traders and industrial users by mid-2026 due to:
- Depletion of their gas reserves in Mozambique; and
- Strategic shift to retain more gas output for their own operations.
This has raised alarm across sectors that heavily rely on natural gas, including manufacturing, healthcare and households, and the potential impact of this shortage is significant.
The gas shortage threatens to disrupt industrial operations, power generation and domestic energy supply, with possible severe economic and social consequences for South Africa and other parts of southern Africa.
Key industries such as steel, aluminium, mining, agriculture, paper, glass, ceramics, construction, automotive and food and beverage could face severe disruptions. This could lead to plant closures, increased production costs and higher consumer prices, exacerbating South Africa's economic challenges.
CBM has role to play
As well as efforts to mitigate the gas crisis in South Africa, the Botswana Government has identified the requirement to generate 100MW of electricity from CBM-powered gas-generating facilities. Botala aims to supply most, if not all, of this CBM.
Botala’s substantial CBM resources provide a viable solution to this impending gas shortfall. The key market entry points for Botala’s gas include local LNG consumption, power generation, industrial use and customers within the Southern African Power Pool (SAPP).