SES wins approval for Hai Hua gasification plant expansion

Synthesis Energy Systems, Inc. has received the required Shandong Provincial Government approval for the Phase II expansion of the Company's Hai Hua plant located in Zaozhuang City, Shandong Province, China. This approval will allow SES to expand its current facilities to include production of approximately 50K tpa of monoethylene glycol ("Glycol") and associated by-products. The approval describes certain details of the expansion project including but not limited to its use of land, the main additional facilities required and the utilization of the existing facilities and syngas product for the expansion. 

"We are extremely pleased with our U-GAS(R) technology's performance at Hai Hua and our ability to demonstrate operational success. Now we are seeing an opportunity to optimize the asset and create additional value through a Phase II expansion of the plant," said Robert Rigdon, President and CEO. "As we have mentioned previously, we have been investigating this possibility for the past several months and although we have not yet made a definitive decision to move forward, this approval advances the likelihood of such an expansion significantly," Rigdon added. 

SES believes the Phase II expansion will strengthen the financial performance of the Phase I assets and does not believe additional equity will be required from SES for the expansion. SES is currently engaged with parties who are interested in becoming a partner in the Phase II expansion. SES expects the additional capital required for the expansion to be provided by new partners while SES will contribute a portion of its current 95% equity stake in Phase I towards the expanded plant. 

Additionally, the government has expressed support for the expansion project and SES received a letter of intent in July 2009 from the local Xue Cheng government which describes their intent to allow a new local coal mine to be used as the debt guarantee for the expansion project. 

Today China imports about 70% of its Glycol, which is an important raw material used in a wide variety of products and applications, including the manufacture of polyester fibers in the textile industry, special resins, antifreeze formulations and other industrial products. Glycol price largely tracks crude oil price as it is normally derived from ethylene which is produced from crude oil derivatives such as naphtha. 

The southern Shandong region is a strategic location with abundant coal resources and positioned in the heart of China's rapidly growing chemical production base. Expansion of the plant was part of the earlier initial project conception and a separate approval was received in August 2008 for a Phase II expansion which contemplated an additional production capacity of approximately 17,000 standard cubic meters per hour ("scm/hr") (a 15 MW equivalent) of high grade syngas. However, after completing a feasibility study last year, using a certified Chinese Design Institute, SES elected not to proceed with the additional syngas capacity approach and instead decided to explore the monoethylene glycol opportunity.



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