REG - UK Oil & Gas PLC - Future hydrogen-ready energy storage project

UK Oil & GasAnnouncement

30/05/2022 07:15

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RNS Number : 1548N  UK Oil & Gas PLC  30 May 2022

UK Oil & Gas PLC

("UKOG" or the "Company")

 

   Future hydrogen-ready energy storage project

 

UK Oil & Gas PLC (London AIM: UKOG) is delighted to announce that its
wholly owned subsidiary, UK Energy Storage Ltd ("UKEn") has signed an
Agreement to Lease  ("A2L") with Portland Port Limited ("PPL") covering two
sites at the former Royal Navy port in Dorset, with the intent to develop,
subject to new planning consent and securing necessary development finance, a
planned integrated Energy-Hub, centred around hydrogen-ready gas storage and a
future green hydrogen generation capability.

 

UKOG's Portland Energy-Hub concept:

 

As agreed between the parties, UKEn's planned Energy-Hub development concept
seeks to reinvigorate and build further upon a prior unrealised project by
Portland Gas Storage Ltd, granted planning consent by Dorset County Council in
2008, to situate approximately 43 billion ft³ "bcf" (1.2 billion m³ or
"bcm") of underground salt cavern storage beneath PPL's land. Utilising
established engineering concepts, public record planning submissions, publicly
available data, UKOG internal studies and technical, engineering and economic
modelling advice from Xodus Group ("Xodus"), the planned new Energy-Hub is
envisaged to include the following key elements:

 

·    A strategically located hydrogen-ready Energy-Hub within an active
harbour site;

 

·    Construction of up to 43 bcf (1.2 bcm) of hydrogen-ready salt cavern
storage. For context, if this capacity is ultimately achieved it would
materially increase the UK's current reported 61 bcf (1.7 bcm) total working
underground gas storage capacity. The envisaged hydrogen-ready build also
means the site could hold either hydrogen or natural gas from operational
inception;

 

·    Salt cavern storage would be linked to the national pipeline
transmission system ("NTS") via a new planned hydrogen-ready pipeline. As per
the prior 2008 project, the new pipeline would be designed with an envisaged
capacity designed to be capable of handling up to 1 bcf/day (28 million
m³/day). For context, this throughput capacity, if achieved, would equate to
approximately one seventh (14%) of current estimated UK daily natural gas
consumption;

 

·    Pilot scale green hydrogen production and storage, together with
hydrogen battery concept investigation. The Company and its consultant Xodus
plan to develop future potential to supply renewable electricity for green
hydrogen production at the site via an over-the-horizon floating wind farm, an
area of Xodus expertise;

 

·    Addition of a new planned LNG import facility in the port, designed
to optimise cavern-fill cycle times and maximise revenues. The Company's
ambition is to source long-term LNG from the USA and other secure suppliers;

 

·    Development planned to be 'future-proofed' by engineering designed to
transition seamlessly into green hydrogen production and storage as the
'hydrogen economy' evolves;

 

·    Local high geothermal heat gradient to be investigated for possible
local heat network and/or to power green hydrogen production;

 

·    The Company and PPL will also jointly investigate the potential for
using future green hydrogen generation at the port to directly fuel future
hydrogen propelled ships. The possibility of future green hydrogen export by
ship will also be explored.

 

Stephen Sanderson, UKOG's Chief Executive, commented:

 

"It's hard to recall a time in recent history in which the critical importance
of energy security and the resilience of the UK energy system has been so much
in the public and governmental eye. UKOG is therefore delighted to announce
the intention to develop an infrastructure project, fully in keeping with the
government's new British Energy Security and Hydrogen Strategies and National
Grid's 2021 Future Energy Scenarios ("FES"), that could both materially
strengthen the UK energy system's resilience to supply and demand shocks, plus
provide the foundations for a potentially significant and strategic element of
the future green hydrogen economy."

 

A2L and Lease:

 

In return for an annual ground rent, a future gas throughput tariff and
related LNG vessel berthing charges, the A2L conveys to UKEn the exclusive
right to proceed with the development and enter into a 30-year lease should
certain conditions be met to UKEn's satisfaction (namely: final property due
diligence, planning and regulatory permits, sufficient development finance and
the site being free from significant contamination).

 

The A2L contains agreed forms of the Lease and Operating Agreements and
contains a longstop date which, unless otherwise agreed, will allow UKEn to
terminate if the conditions have not been met within 4 years of the effective
date. The lease also grants UKEn the discretionary right at 5-yearly intervals
to continue or break the lease. At the end of the initial lease UKEn has the
discretionary right to extend the lease for a further 30-year lease period on
the same terms. The aggregate total ground rent payable by UKEn up to the A2L
longstop date is approximately £0.9 million.

 

Next steps:

 

The Company intends to complete further detailed engineering and commercial
studies, followed by the preparation and submission of a detailed planning
application. Where appropriate and to reduce the planning consent cycle time,
the Company intends to update and utilise pertinent aspects of the prior
consented development in its planning submission.

 

The Company has been advised by Zetland Ltd, its planning consultants, that
the scale and nature of the Energy-Hub development is expected to qualify as a
Nationally Significant Infrastructure Project ("NSIP"). This would require
planning consent to be sought via an application for a Development Consent
Order ("DCO") directly to the Planning Inspectorate. Ultimate authority over
the decision on whether to issue a DCO would rest with The Secretary of State
for Levelling Up, Housing and Communities.

 

For further information, please contact:

 UK Oil & Gas PLC
 Stephen Sanderson / Matt Gormley / Allen D Howard     Tel: 01483 941493

 WH Ireland Ltd (Nominated Adviser and Broker)
 James Joyce / Andrew de Andrade                       Tel: 020 7220 1666

 Communications
 Brian Alexander                                       Tel: 01483 941493

 

The information contained within this announcement is deemed to constitute
inside information as stipulated under the retained EU law version of the
Market Abuse Regulation (EU) No. 596/2014 (the "UK MAR") which is part of UK
law by virtue of the European Union (Withdrawal) Act 2018. The information is
disclosed in accordance with the Company's obligations under Article 17 of the
UK MAR. Upon the publication of this announcement, this inside information is
now considered to be in the public domain.

 

Notes:

 

Green hydrogen: a product of the electrolysis of water using a renewable
source of electricity such as wind or solar. The 2021 UK Hydrogen and 2021 FES
reports provide forecasts for hydrogen production, storage, demand and its use
in power generation, energy storage, rail and road transport, fuel for
shipping and aviation, domestic and industrial heating and direct air carbon
capture.

 

Green hydrogen storage: Hydrogen as an energy storage medium is envisaged to
provide the ability for both short-term and longer term interseasonal storage,
which can be rapidly converted to electrical power via clean combustion (i.e.,
a hydrogen battery). The four modelled 2021 FES scenarios state hydrogen
storage as an integral piece of achieving net zero, helping to manage both
seasonal swings in demand for heating and capturing excess renewable
electricity at times of low demand for subsequent quick release during peak
demand.

 

The FES scenarios envisage UK underground hydrogen storage capacity
requirements  by 2050 (predominantly in new salt caverns) to be between 12
and 50 TWh, some 3 to 10 times greater than the UK's current underground
storage capacity (note: that since hydrogen has one third the energy capacity
of natural gas, the current underground natural gas storage capacity of c. 14
TWh (61 bcf/1.7 bcm) would reduce to around 5 TWh if filled with hydrogen).

 

In energy equivalent terms the Portland site as envisaged could provide a
material 4 TWh of short to long term hydrogen storage.

 

Gas storage: is a fundamental element of the current energy system that helps
provide the system's resilience to meet any energy shortfall during periods of
extreme demand, adverse weather and/or when other power generation sources
aren't available (such as the nuclear outages and weather-related reduction in
wind power of 2021 necessitating coal fired power to be utilised to meet
demand). Gas storage helps stabilise the gas market and is an insurance
against disruption and price volatility. It can also provide short-term
physical security of supply.

 

The UK ranks 12(th) in underground storage capacity compared to EU countries
and has seen its storage capacity significantly decline since the closure of
the offshore Rough field in 2017, which supplied around 70% of the UK's
capacity. Currently UK underground storage contains an equivalent of
approximately 8 days UK gas consumption, less than a tenth of  Germany's
supply capacity. Whilst the UK's low storage capacity is partly offset by gas
production and LNG imports, the predicted UK N. Sea production decline and
move away from Russian gas imports could expose the UK to the same gas supply
vulnerability as its EU counterparts, strengthening the strategic need for
increased natural gas storage capacity in the immediate energy transition.

 

Hydrogen battery: the storage of green hydrogen, generated from surplus
seasonal renewable electricity (wind and solar), for future rapid combustion
and power generation to meet peak energy demands.

 

Hydrogen ready: the small size of the hydrogen molecule and its interaction
with high grade steels causes the metal to become brittle with time.
Consequently, the steel and engineering specifications currently used in
today's natural gas facilities will require modification to be fully
compatible for hydrogen. UKOG, therefore, aims to build-in hydrogen
compatibility during initial construction, thus future-proofing any Portland
Energy-Hub development.

 

Over the horizon floating wind farm: An offshore wind farm hidden from any
shore based visual observation (i.e., located beyond or over the visible
offshore horizon). Such a windfarm would be located to prevent any visual
impact to Dorset's Jurassic heritage coastline. Floating turbine
installations  are secured to the sea floor by cables and anchors in the same
manner as offshore platforms and drilling rigs (see:
https://www.youtube.com/watch?v=sgCA5e7K7r8
(https://www.youtube.com/watch?v=sgCA5e7K7r8) ).

 

Salt caverns: man-made caverns constructed by the physical dissolution of
naturally occurring halite (rock salt) deposits. The dissolution provides a
gas tight cavern space that is permanently filled with gas and/or brine at an
equivalent pressure to that within the surrounding rocks i.e., it is not an
empty void at any time. Portland Port is ideally situated for the construction
of large caverns as it overlies a thick, high quality halite section of
Triassic age. Halite deposits with sufficient thickness to accommodate
significant caverns are confined to three areas of the UK: S. Dorset
(Triassic), Cheshire (Triassic) and the northeast Yorkshire coast (Permian
Zechstein age). Thinner Triassic halite deposits are present in areas of the
NW and Somerset. Active salt cavern gas storage exists in Cheshire and the
northeast.

 

 

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