REG - UK Oil & Gas PLC - UKEn South Dorset Hydrogen Storage Project Update

UK Oil & GasAnnouncement

27/01/2025 07:00

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RNS Number : 6974U  UK Oil & Gas PLC  27 January 2025

UK Oil & Gas PLC

("UKOG" or the "Company")

 

UKEn South Dorset Hydrogen Storage Project Update

 

UK Oil & Gas PLC (London AIM: UKOG) is pleased to announce that DEEP.KBB
GmbH, one of Europe's leading salt cavern design and underground energy
storage engineering groups, has completed preliminary project design
("Design") for the Company's proposed new underground hydrogen storage
facility located west of Weymouth in Dorset ("South Dorset" or "Site"). The
Design, prepared for the Company's wholly owned UK Energy Storage subsidiary
("UKEn"), confirms the suitability of the Site for a material scale hydrogen
storage project, comprising 24 salt caverns at a depth of ~1330 m below
surface. The project is fully in keeping with the Government's Clean Power
2030 ambitions.

 

The following metrics summarise the Design and its advantages versus UKEn's
original Portland site ("Portland"), see Table 1 and also RNS of 27/06  and
21/08/2024:

 

·     The Design comprises 24 caverns providing up to 1.01 billion
standard m³ ("bcm") working hydrogen volume, 12% greater than Portland's 0.9
bcm;

 

·     Calculated hydrogen withdrawal and injection rates could provide up
to 2.9 times the annual cycling capacity of Portland, creating a technical
maximum annual storage capacity of 30.2 TWh¹/yr vs Portland's 10.4 TWh¹/yr,
a substantive increase;

 

·     If delivered and operated at full capacity, the Site's technical
maximum 30.2 TWh¹/yr annual storage capacity could represent a material
 proportion of the currently predicted UK 2050 annual hydrogen storage demand
of 50-100 TWh¹/yr ²;

 

·     The Design's adoption of a conventional "cushion gas" operating
scheme would significantly reduce project development costs (CAPEX) by around
36% compared to Portland, reducing costs by around £450 million;

 

·     The Design's resultant increased cycling capacity, lower CAPEX and
operating costs create potential for a significantly increased future annual
revenue base versus Portland and a more competitive submission for government
revenue support;

 

·     The Site also lies closer to the planned H2 Connect hydrogen trunk
pipeline, designed to connect South Dorset to the UK hydrogen transmission
pipeline system (Project Union) and the main hydrogen clusters in the South,
East Coast and Northwest.

 

Notes: ¹ TWh = terawatt hours; 1 bcm of pure hydrogen has the energy
equivalent of ~3.0 TWh; ² based upon 2023 National Grid/NESO  and Royal
Society hydrogen demand predictions as per RNS 27/06 and 21/08/2024.

 

The Design's significantly greater injection and withdrawal rates and
consequent increased annual energy storage capacity compared to Portland, are
a direct consequence of the underlying geology at the location. The Triassic
salt is thicker, permitting larger caverns, and lies 1070m closer to surface
at 1330m versus 2400m at Portland. The associated lower hydrostatic pressure
and temperatures within the salt underlying the Site enable a simple,
conventional "cushion gas" scheme to be utilised to provide the minimum
necessary cavern working pressure required to maintain cavern integrity.

 

The cushion gas scheme, as proposed by DEEP.KBB, is a proven technology used
in numerous salt caverns in the UK, Europe and USA, offering a much simpler
development and operation than the required brine compensation scheme (see
glossary) at Portland. The Design's scheme requires no additional brine wells,
brine facility or brine pipelines, plus there is only one well per storage
cavern versus two for brine compensation.

Therefore, applying Xodus supplied cost data to the proposed cushion gas
scheme, South Dorset CAPEX is now estimated to be around £800 million in
today's money, around £450 million lower than the Portland project.

 

As the Company intends to apply for government revenue support only for its
strongest hydrogen storage projects (see RNS of 29(th) May, 27(th) June, 2(nd)
August 2024), it is the Company view that South Dorset's potentially
significant increased revenue potential, plus the simpler, substantially lower
CAPEX renders it more economically competitive than Portland and versus other
potential applicants' projects on a cost/TWh basis.

 

Consequently, the Company has made a strategic decision that it will pursue
revenue support only for its more competitive South Dorset and East Yorkshire
projects and will no longer pursue the Portland project. The new South Dorset
hydrogen storage project will therefore play a flagship role in the Company's
activities to help the decarbonisation of the UK energy system, the Portland
Energy Hub, the pan-Dorset economic framework and regional Solent Cluster.
Similarly, as clean power and hydrogen storage is now the Company's primary
focus, the Company has also ceased its activities in Turkey.

 

Given our positive relationship with Portland Port and the role of hydrogen in
decarbonising the marine sector, the Company believes that there remain
synergies between our South Dorset project and the port. With this in mind,
the Company is considering the opportunity of a green hydrogen pilot plant at
the port that could be linked directly to the South Dorset site's storage,
offering the potential for local clean Hydrogen to Power generation both for
the port, Weymouth and its environs.

 

The Company's aim of delivering these key strategic energy infrastructure
elements is fully in step with the Government's ambitious target to
decarbonise the UK power system by 2030. The currently envisaged project time
scale, subject to necessary regulatory consents and financing, would see
construction well under way by 2030, with first operational caverns in the
2030-32 window.

 

Stephen Sanderson, the Company's Chief Executive, commented:

 

"DEEP.KBB's Design work demonstrates that the South Dorset Site has the
potential for far greater future revenues and profitability versus the
Company's original and otherwise robust Portland hydrogen storage project. It
is, therefore, also likely to be a more compelling case for government revenue
support in the forthcoming hydrogen storage procurement process, now scheduled
for later this year. Consequently, our efforts will now be focussed upon this
material project and its northern sister in East Yorkshire, both of which plan
to utilise simple and proven cushion gas operating technology."

 

TABLE 1: South Dorset Site versus Portland hydrogen storage metrics:

 

                                                               South Dorset Site  Portland Site
                      Approximate Cavern Depth (m)             1,330              2,400
                      Number of Caverns                        24                 19
                      Number of Wells                          24                 38
                      Operational Mode                         Cushion gas        Brine compensation
 Static Working Hydrogen Volume (bcm)                          1.01               0.90
                      Max Annual Cycling Capacity  (TWh)       30.2               10.4
                      Max Cycles per year                      ~10                ~4
                      Xodus Estimated Project CAPEX (million)  ~£800              ~£1,250

 

 

For further information, please contact:

 

UK Oil & Gas Plc

Stephen Sanderson / Kris Bone
 
                  Tel: 01483 941493

 

Zeus (Nominated Adviser and
Broker)

James Joyce / James Bavister / Andrew de Andrade
                                              Tel:
 0203 829 5000

 

CMC Markets (Joint Broker)

Douglas Crippen
 
                                  Tel:  0203 003 8632

 

Communications

Brian Alexander
 
                                    Tel: 01483 941493

 

Glossary

 Annual cycling capacity              the maximum amount of energy (or volume of hydrogen) that can be
                                      withdrawn from and injected into a salt cavern on an annual basis. It is
                                      calculated from the maximum number of times in a year the WGV can be fully
                                      withdrawn and injected.
 Brine compensation scheme            A mode of cavern operation employing injection/withdrawal of saturated brine
                                      to maintain cavern operating pressure and integrity. The cavern, initially
                                      containing 100% saturated brine, is filled by  withdrawing the brine and
                                      replacing with an equal volume of compressed gas (hydrogen) until the cavern
                                      contains 100% gas. To empty the cavern, the gas is withdrawn and replaced by
                                      an equal volume of injected pressurised brine. The process ensures that the
                                      cavern remains within a narrow window of operating pressure. The annual
                                      cycling capacity is limited by the brine injection and withdrawal rate. No
                                      cushion gas is required to remain in the cavern. The scheme is more CAPEX
                                      intensive as it requires multiple wells per cavern and a separate saturated
                                      brine source plus brine injection/withdrawal and pipeline facilities.
 Cushion gas (hydrogen) volume (CGV)  the volume of hydrogen that is permanently stored in a salt cavern to maintain
                                      sufficient pressure to ensure cavern volume integrity. In the case of South
                                      Dorset being approximately 32% of the TGV. In the case of hydrogen storage,
                                      cushion gas could be hydrogen or other heavier gases (CO2, Nitrogen, Methane).
 Salt caverns                         man-made caverns constructed by the physical dissolution of naturally
                                      occurring halite (rock salt) deposits. The dissolution provides an impermeable
                                      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. Halite deposits with sufficient thickness to
                                      accommodate significant caverns are confined to three areas of Great Britain:
                                      South Dorset (Triassic), Cheshire (Triassic) and the northeast Yorkshire coast
                                      (Permian Zechstein age).
 Total gas (hydrogen) volume (TGV)    the maximum volume of hydrogen that can be contained within the cavern(s).

                                      TGV= WGV+CGV.
 Working gas (hydrogen) volume (WGV)  the amount of hydrogen that can be injected, stored and withdrawn during the
                                      normal commercial operation of a hydrogen storage facility. WGV = TGV-CGV.

 

The information contained within this announcement is deemed by the Company to
constitute inside information under the Market Abuse Regulation (EU) No.
596/2014, as it forms part of UK domestic law by virtue of the European Union
(Withdrawal) Act 2018. Upon publication of this announcement, this information
is now considered to be in the public domain.

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