Why this oil legend isn’t retiring yet
Tom Bulford Jan 22, 2013
In 1975, Algy Cluff, that insatiable explorer for natural resources, was drilling for oil in the North Sea. He discovered the Buchan Field, which is still producing today and has made Cluff his fortune. But he also found something that has intrigued him ever since. . He discovered the Buchan Field which is still producing today and has made Cluff both his reputation and his fortune. But he also found something else that has intrigued him ever since.
To get to the oil, the drill had to pass through thick seams of coal. There is enough coal under the North Sea to power Europe for hundreds of years, and Cluff thought of applying for the coal licences of the entire area.
He found that these were contained within the oil licences so that plan came to naught. But now he has finally made his move for some of this sub-marine coal. Through Cluff Natural Resources (CLNR), he has taken licences covering the Loughor estuary in Carmarthenshire and the Dee estuary on the borders of Merseyside and northern Wales.
Drilling in a new direction
Cluff reckons that the time has come to exploit these coal seams - and the secret is directional drilling. Previously it was only possible to drill in a straight line, going down vertically or at a slight angle. But now it is possible to steer the drill so that it first goes down and then turns to run horizontally.
This has been critical to the energy renaissance of North America and it is also the key factor behind the renewed interest in underground coal gasification (UCG). By allowing for the exploitation of a long length of the coal seam, it has transformed project economics.
The idea of UCG could hardly be simpler. Instead of going through the arduous, expensive and dangerous process of digging the coal underground and then hauling it to be burnt at the surface, it is simply burnt where it lies and the resultant synthetic gas, consisting of methane, hydrogen, carbon dioxide and carbon monoxide, is drawn up through a pipe to the surface.
There it can be used to feed a gas turbine power plant, it can be converted into liquid fuel via the Fischer-Tropsch process, or it can be a feedstock for the chemical industry. Environmentally damaging CO2 can be re-injected back down into the void space of the mine or else injected into mature oil fields to boost recovery.
Penny shares to watch 2013
Red Hot Penny Shares is a regulated product issued by Fleet Street Publications Ltd. Your capital is at risk when you invest in shares never risk more than you can afford to lose. Penny shares can be riskier than other investments – they can be relatively hard to trade and if you need to sell soon after you've bought you might get less back than you paid. Please seek independent financial advice if necessary. 0207 633 3601.
Why governments favour UCG
Cluff reckons that UCG should face less opposition than other forms of alternative energy. Wind power is arguably inefficient and certainly aesthetically unattractive, while the proposal to extract natural gas off the Lancashire coast through the process of fracking has the Nimbys up in arms. “It might be alright out in the wide open spaces of North America,” Cluff told me, “but the British public is not ready for it.”
This is not the first time that interest has been shown in UCG projects here in the UK. Trials were carried out in Derbyshire in the 1950s and, although they successfully proved the concept, they were discontinued for economic reasons. But today’s high energy prices have reawakened interest and the government seems to be in favour.
According to the Environment Agency, "the UK has significant coal reserves that are believed to be suitable for UCG and cannot be accessed using conventional techniques such as deep-shaft or open-cast mining. The government supports the development of UCG" - and before Cluff’s move, the Coal Authority had already issued 18 exploration licences, in Swansea Bay, the Thames estuary, up the east aoast of England, off the coast of Scotland, one off the Cumbrian coast and another in Liverpool Bay.
UK UCG is only a matter of time
There have also been developments overseas. One facility in Uzbekistan has been supplying syngas to a power station for over 40 years, while a number of projects in South Africa and Australia are moving into commercial production.
All alternative energy sources always stir up controversy and this will be no exception. The fact that the UK licences are all offshore is no doubt partly to head off local concerns about drilling, water pollution, underground explosions or houses disappearing down vast potholes. Proponents of green energy say that UCG is simply a new way of burning fossil fuels and that the capacity to sequester CO2 is overstated.
But with so many licences having been granted, it seems only a matter of time before a UK UCG project gets under way. According to Rohan Courtney, a veteran of the energy exploration game and one of the men behind the Swansea Bay project, “the technique costs one third of the price of conventional coal. And that's being generous to the latter.”
• This article is taken from Tom Bulford's free twice-weekly small-cap investment email The Penny Sleuth. Sign up to The Penny Sleuth here.
Information in Penny Sleuth is for general information only and is not intended to be relied upon by individual readers in making (or not making) specific investment decisions. Penny Sleuth is an unregulated product published by Fleet Street Publications Ltd.
FREE - MoneyWeek's daily investment email
Our free daily email, Money Morning, is an informative and enjoyable analysis of what's going on in the markets. Written by our Editor, John Stepek, and guest contributors.
Sign up FREE to Money Morning here.