Our principal business activities are currently focused in China and the United States, areas which are estimated by the U.S. Department of Energy to represent a combined 40% of total global coal reserves. Our first commercial scale coal gasification plant is located in Shandong Province, China and has been in operation since January 2008. We have a second plant under construction in Inner Mongolia, China and have plants under development in the United States.



Coal is China’s most abundant indigenous energy resource, and with a ready supply of low rank coal, we believe that China offers immediate opportunities to develop U-GAS®-based coal gasification projects. In addition, the Chinese government is promoting the expansion of the domestic supply of chemical products and transportation fuels derived from coal. For example, methanol is used as a natural gas substitute in power generation and recently promulgated legislation is expected to mandate methanol blending into gasoline supplies. More than 4,000 cars are being added daily to China’s existing fleet of 92.3 million vehicles in registration and we anticipate the demand for transportation fuels to increase dramatically. In addition, methanol and dimethyl ether, or DME, are both experiencing strong consumption growth. Methanol is used as a natural gas substitute in power generation and as an automotive fuel additive. DME, a methanol derivative, is presently used as a clean-burning substitute for liquefied petroleum gas, or LPG, and is used in China as an automotive fuel as a replacement for diesel fuel. China’s methanol consumption has grown from 2.6 million tonnes in 1999 to 10.6 million tonnes in 2007.

We have also targeted the United States market for development of U-GAS®-based coal gasification projects. The United States has the most abundant coal reserves in the world and a ready supply of low rank coal. Our U-GAS® technology can convert this low rank coal into higher value products, such as methanol, synthetic gasoline and ammonia, which have been experiencing a rise in cost related to the increased price of natural gas, a feedstock used in their production. Coal has a significant cost advantage over natural gas on a BTU basis, and the syngas produced by our technology can be used as a substitute feedstock for natural gas in the production of these products. As a result, we believe that this cost advantage will allow us to become a low cost producer of methanol, synthetic gasoline and ammonia.

Hai Hua Project

Our first project is a joint venture with Shandong Hai Hua Coal & Chemical Company Ltd., or Hai Hua, an independent producer of coke and coke oven gas that also owns a subsidiary engaged in methanol production. Through the joint venture, we developed, constructed and are now operating a syngas production plant utilizing U-GAS® technology in Zaozhuang City, Shandong Province, China designed to produce approximately 28,000 standard cubic meters per hour of gross syngas. The plant produced initial syngas in January 2008 and commenced sales of syngas and various byproducts of the plant in February 2008. To view the time-lapsed video of Hai Hua construction, please click www.synthesisenergy.com/haihua

Golden Concord Project

We have a joint venture project with China Coal Chemical (Xilin) Company Limited, or Golden Concord, a subsidiary of one of China’s largest private providers of electricity, steam and chilling water, to develop, construct, operate and manage coal gasification plants to process low rank lignite coals from Golden Concord’s coal mines in Inner Mongolia, China. The facility is expected to produce syngas which will be used as a feedstock for a 225,000 tonne per year methanol plant. As of September 30, 2008, we had funded a total of approximately $3.3 million of its equity contribution and Golden Concord had funded approximately $3.1 million of its equity contribution. We do not anticipate funding any further equity contributions to the GC Joint Venture until acceptable financing can be obtained for the project. We are continuing to work with Golden Concord on financing alternatives for the project.

YIMA Project

Our third project in China is being developed under a joint venture agreement with YIMA Coal Industry Group Co. Ltd., or YIMA, a large integrated coal company owned by the Chinese government. We plan to construct coal-to-methanol plants in Henan Province, China and are currently negotiating various agreements related to the project. We are waiting for final government approvals before this project commences. The phase one facility is expected to produce syngas which will be used as a feedstock for a 500,000 tonne per year methanol plant. In November 2008, coal testing for the YIMA project was successfully completed at our Hai Hua plant utilizing coal from YIMA’s Yaojin mine. The Yaojin mine’s coal is a reactive sub-bituminous coal containing approximately 33% ash. Our U-GAS® technology showed excellent carbon conversions and high capacity utilizations on this feedstock. This performance information will be utilized to further define the gasifier design for the YIMA Project.

North American Coal

In July 2008, we entered into a joint development agreement with The North American Coal Corporation, or NAC, a subsidiary of NACCO Industries, Inc., through which we and NAC will conduct a pre-feasibility study to explore the development of a lignite coal-based gasification facility utilizing our proprietary U-GAS® technology. The location for the study is NAC’s Red Hills Mine operations near Ackerman, Mississippi. In addition, in September 2008, we commenced another feasibility study with NAC for the development of a coal-based gasification facility at NAC’s proposed Otter Creek Mine in North Dakota. NAC is currently pursuing the permitting process for the mine site. Following the completion of the pre-feasibility studies, we and NAC will determine if we will proceed with a front-end engineering package for either the Red Hills or Otter Creek project, but in any event, we will only proceed with one of these projects. If constructed, the facility is expected to produce synthetic gasoline, chemical feedstocks and/or synthetic natural gas.

Other Industry Partners

AEI
We are also working with AEI, a developer, owner and operator of essential energy infrastructure businesses that serves more than 6.1 million customers in Latin America, Europe and Asia. SES and AEI have agreed to jointly develop coal conversion projects using U-GAS® in emerging markets worldwide.