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Cluff Natural Gas goes the conventional route

Published: 13:41 23 Sep 2015 BST

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Cluff's conventional assets offer the best chance of near-term returns to shareholders

Cluff concentrates on conventional gas as his underground coal-to-gas project goes on hold

Chairman Algy Cluff, the boss of Cluff Natural Resources (LON:CLNR), recently told investors that much of its executive time has been spent advancing its cooperation with Halliburton - which extends to both underground coal gasification (UCG) and conventional hydrocarbons.

Cluff, or CLNR, got into bed earlier this year with Halliburton primarily to advance its flagship UCG project in Scotland, but at the recent interim results meeting Cluff highlighted that conventional hydrocarbons in the North Sea now represented a more immediate and tangible commercial opportunity to shareholders. Halliburton also happens to be an expert on fracking in the US.

Efforts towards the company making a planning application for the Kincardine UCG project, in the Forth of Firth, have been put on hold amid political uncertainty in Scotland.

CLNR pointed to factors such as the Scottish Government’s review of the country’s energy needs, for which a report is due next month, and a call from the Scottish National Party for the inclusion of UCG in a moratorium on Scottish onshore oil and gas, as well as the elections for Scotland’s parliament (expected in May 2016).

“Work on a planning application will likely be postponed until after such time as the political situation is more certain,” Cluff said.

Cluff has called the planning process in the UK “cumbersome” and “insane”. The UCG programme is a project very dear to Cluff's heart. Probably just to rub home to planners how important coal gasification could be to the UK economy, a report commissioned by his company has just been published.

The report, produced by Biggar Economics, claimed some £12.8bn could be added to the UK economy over the long term. The nascent industry could create 7,500 new jobs on average, the report says, with a peak of about 11,900 jobs.

Asked to comment on the situation, CLNR finance director Graham Swindells told Proactive Investors: “Our conventional assets are our priority so we can advance near term value for shareholders. The report is an attempt to create awareness of underground coal gasification and its importance to the British economy.”

He added: “The planning process in the UK, what with concerns about fracking, can be drawn out, although that hopefully will improve with the new government guidelines.”

As for the conventionally drilled gas, in December 2014, the Department of Energy and Climate Change (DECC) awarded CLNR five promote licences for conventional gas exploration covering a total of eleven blocks, in an emerging gas province of the Southern North Sea.

The blocks are located in an under-explored, emerging gas province, with diverse, high-potential play fairways and trap types in both the Zechstein and the Carboniferous.

Notable developments in the wider area include first gas production from the Breagh Field (operated by RWE Dea and estimated to contain nearly 600bn cubic feet of recoverable gas reserves) in October 2013.

CLNR has said that it is preparing a competent person's report (CPR), which should give an idea of how much oil and gas is in place in the conventional fields and, hopefully, how much is recoverable. The CPR is expected in the fourth quarter this year.

Meanwhile, while the UCG project is on hold, it is unlikely to go away. Cluff reckons that the UK faces problems in two ways. The government wants to close all old polluting coal power stations and become more reliant on cleaner gas to keep the lights on.

There are also concerns about security of supply. The UK’s dependence on gas imports (currently 47% of the total used) could rise to 80% by 2020 as it relies on the likes of Norway and liquefied natural gas (LNG) from less stable states.

Cluff believes he has the answer to the problem with UCG. Proven technology has worked elsewhere around the world, in Russia and Australia for example. Cluff is convinced it could work in Britain where there is a lot of stranded coal.

Accordingly, he assembled 11 licences around Britain’s coast. Some five of them are close to old coal areas like Durham and Whitehaven in Cumbria. Cluff intends a programme of seven plants in due course, but he has focused, as his first project, on the Kincardine licence in the Firth of Forth.

The area contains 335mln tonnes of coal. The immediately exploitable part of this resource is the energy equivalent of 1.4bn cubic feet of natural gas. To put this in perspective, 1bn cubic feet of gas would meet the energy needs of 11,000 homes for one year.

The gas can be extracted without having to mine the coal. Horizontal drilling techniques, ironically honed in shale gas extraction, can be used to access the coal from onshore so the conversion can take place on site.

Unlike fracking, the gasification process does not need millions of gallons of fresh water, does not involve underground explosions and possible earthquakes.

It does not need toxic chemicals which, so it is said, can leach into aquifers and contaminate water supplies, and it requires only two drill holes rather than dozens. Oxidants, usually oxygen and steam, would be pumped down one borehole under high pressure causing the coal to combust.

The captured syngas, a combination of hydrogen, carbon dioxide, carbon monoxide and methane, is pumped up a second borehole and cleanly delivered to nearby power stations and the huge INEOS petrochemical plant at Grangemouth.

As for carbon capture, proponents of UCG say it would be less expensive and more efficient to strip carbon dioxide from coal at a UCG site than a power station.

Cluff seems confident that his project will prevail.

He has been quoted as saying: “We are talking about a second North Sea here … It’s far too big an opportunity for government and energy ministers to ignore.”

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