L&M Energy has provided markets with some welcome news it will sell electricity from its Ohai coal-seam gas pilot project to the Tiwai aluminium smelter.
L&M chairman Geoff Loudon said in a statement the company had entered into a landmark agreement to sell the electricity to the Rio Tinto Alcan-owned New Zealand Aluminium Smelters.
The smelter, situated less than 80km away from Ohai, was New Zealand's biggest single electricity user and expected to use 5500GWh of electricity this year.
L&M had also received all the regulatory consents required to site a Gough's Power Systems-supplied 1MW Caterpillar gas-fired generator on the Ohai site.
"This is a vindication of the potential for the company's coal-seam gas project to generate strong economic returns."
The company was looking forward to building a strong commercial relation with the smelter, he said.
Craigs Investment Partners broker Peter McIntyre said the announcement proved to the market L&M had gone past the drilling and licensing phase of the coal gas project to reach a point of viability.
The deal with the smelter was significant because L&M could possibly supply other large industries in Southland, such as the Fonterra plant in Edendale.
"There will be a sigh of relief by investors," Mr McIntyre said."
The amount of electricity generated initially might not be a huge amount, but it was a start, he said.
Mr Loudon said L&M had been talking to the smelter and had recognised it had significant energy requirements in the form of electricity, fuel oil and liquefied petroleum gas.
"We are looking forward to exploring all of these opportunities with NZ Aluminium Smelters as the coal-seam gas development progresses into the future."
