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ASX-listed Kinetiko Energy has reached a non-binding memorandum of understanding (MoU) with South Africa-based FFS Refiners that could potentially see the production and distribution of liquefied natural gas (LNG) in South Africa.

Under the MoU, the two companies would ultimately negotiate a formal binding gas supply agreement within the next six months, under which Kinetiko would agree to explore, drill and extract natural gas within South Africa, while FFS would purchase the natural gas in order to produce and distribute LNG.

Kinetiko said on Thursday that the companies intend on a first phase consisting of a proof of concept (PoC) trial for Kinetiko to collect and dehydrate the natural gas for supply to FFS at required specifications, in order to produce LNG.

Should the PoC phase meet the objectives, the companies would increase the volumes of natural gas over a long-term supply period.

“This MoU describes a fundamental approach to our eventual large-scale production plans. FFS brings with them internationally tried-and-tested midstream infrastructure for the production of LNG, as well as the ability to finance and operate the infield assets,” said Kinetiko CEO Nick de Blocq.

“Similarly to our recent announcement of a letter of intent with Gruner Energy, we will be targeting the southern areas of our Block ER271 for this project due to deeper, higher pressured wells with optimum flow rates. This MoU is therefore the second in our plans to develop multiple joint ventures with expertise in the provision of mid-stream infrastructure, and with a focus on those who bring an existing market along with them in urgent need of high-quality gas.”