Australian gas explorer Kinetiko Energy has announced plans to develop an onshore liquefied natural gas (LNG) project in South Africa through a joint venture (JV) between its subsidiary Afro Energy and the Industrial Development Corporation of South Africa (IDC).

In this regard, the parties have signed a non-binding term sheet that envisions the appraisal and production of LNG with the goal of providing 50MW gas-equivalent energy initially. This will subsequently expand to a gas-equivalent energy capacity of 500MW.

Kinetiko Energy, which is engaged in commercialising advanced shallow conventional gas and coal bed methane projects, said that the term sheet underpins its objectives to tap into two trillion cubic feet (TCF) in gas reserves.

The proposed project consists of Block 1 and Further Blocks. Block 1 will be a 50MW-equivalent LNG-size operation, focused on the commercial advancement of onshore wells covered by the currently awarded exploration rights.

The expenses associated with upstream and midstream activities for natural gas development in Block 1 amount to roughly A$138m ($89m).

IDC will equity fund nearly A$52m ($33.4m) for 30% JV interest, while Afro Energy will contribute around $A38m ($24.4m) for 70% interest.

The latter stage will involve the commercial development of additional onshore natural gas wells within the prevailing exploration rights, for the remaining gas for LNG operations equivalent to 450MW. This will be incorporated through additional block special purpose vehicles (SPVs).

The parties predict that Block 1 will be developed within a span of two-three years. The second stage is projected to be developed over a period of nine to 10 years.

Kinetiko Energy CEO Nick de Blocq said: “This is a step change in the scale of the Company’s development and represents a national project to support South Africa’s transition to cleaner, reliable, affordable energy. I cannot overstate the importance of this massive step we have taken in collaboration with our IDC joint venture partners, as it represents a level of confidence in our project from high layers of Government.

“The project has been registered under the Strategic Infrastructural Projects management mechanism that operates from the Office of the President.”

Block 1 SPV and Further Blocks SPVs will exclusively handle upstream operations.

The parties agreed to establish an additional SPV to manage downstream and midstream operations. In this arrangement, the LNG offtaker or investor will invest directly and until then, the ownership structure will initially be 70% held by IDC and 30% by Afro Energy.

The IDC intends to fund 30% of the second stage development.

Kinetiko Energy currently has a 49% economic interest in Afro Energy, which holds the exploration permits. Recently, the Australian firm secured the required shareholder approvals which enables it to gain a 100% economic interest in Afro Energy.