Centrica in Talks With U.K. to Develop Hydrogen Storage

(Bloomberg) -- Centrica Plc is in talks with the U.K. government about plans to convert its disused Rough natural gas storage site off the coast of northeast England to store hydrogen.

The conversion requires about 650 million pounds ($908 million) of investment and would create several thousand jobs during construction, Chris O'Shea chief executive officer said in an interview.

Rough closed in 2017 after operating for over three decades. It had been plagued by technical problems and became too expensive to repair without government funding. Now O'Shea sees the possibility of a second life for the facility but it would still need help from state coffers.

“We've been working with government and others to see if we could convert Rough to store hydrogen for the U.K.,” O'Shea said. “We need a regulated model probably for that. It probably doesn't work with a merchant model.”

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Energy minister Kwasi Kwarteng visited the Rough gas field in August last year, O'Shea said.

The government “looking at how hydrogen technology can help us meet targets to eradicate our contribution to climate change by 2050,” the department for business energy and industrial strategy said in by email.

The site could be linked with the planned zero carbon industrial cluster in the northeast of England. The project is a hub of energy producers, industry, infrastructure and engineering expertise powered by electricity that will develop and use carbon capture and storage technology and hydrogen. Centrica is a partner in the initiative along with Equinor AS, Drax Plc and Uniper SE.

The Humber cluster will need a ready supply of hydrogen and if it's only produced in one place, there could be security of supply issues, O'Shea said.

While Rough was once a jewel in Centrica's crown, its efficiency had declined with age and usage. Rough was turned from a depleted gas reservoir into a storage site in 1985. Its main function was to keep prices from jumping during the winter if demand rose beyond what the fields could produce. The facility lost its strategic importance with and influx of liquefied natural gas imports from the U.S. and Australia.

Centrica's decline is more wide-reaching than just Rough. The company has struggled in recent years with dwindling profits and customers switching away from its energy supply business. O'Shea is trying to turn the company around with a new focus and a promise to simplify the business made back in June. The utility shed 5,000 jobs and announced the sale of its U.S. business for $3.6 billion.

The remaining gas at the Rough field will continue to be processed until early 2023 so conversion couldn't happen before then. Adjustments would need to be made to the facility to ensure its safe to store hydrogen. Hydrogen is much lighter than methane gas and the molecules much smaller so it escapes more easily.

“Hydrogen is not the only answer and I think we're going to have a mix of energies,” O'Shea said. “I think gas will be part of the energy mix for the next 20 to 30 years but with cleaner gas, and having hydrogen means that can happen.”

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