KELLAS MIDSTREAM: North Sea Game Changer

Teesside and Humber account for nearly half of carbon emissions from the UK’s industrial clusters.

And with industrial decarbonisation a centrepiece in the Government’s target of net zero emissions by 2050, these North East England powerhouses make the number one Hot Spot for low-carbon hydrogen production.

“There are many ways of reducing emissions, and we are eager to play our part in meeting this target, but when it comes to industrial use, hydrogen is the way to go,” says Andy Hessell, MD of North Sea energy innovators, Kellas Midstream.

IDEAL LOCATION

“And Teesside and the Humber make our terminal the ideal location to produce low-carbon hydrogen. We have the right asset in the right place. It’s a great opportunity.”

The Kellas Teesside operation receives pipelined gas from North Sea offshore production, distributing it to the industrial clusters in the North East and beyond.

The delivery stats are impressive. Its Central Area Transmission System (CATS) terminal and pipeline – operating since in 1993 and part of construction projects at the time second in size only to the Channel Tunnel – is now transporting over a quarter of the UK’s natural gas production for natural gas shippers.

Since its 2014 formation, the Aberdeen-headquartered company’s growing portfolio has seen the acquisition of the Esmond Transportation System – transporting gas from the Southern North Sea to Norfolk’s Bacton gas terminal – and the Humber Gathering System, a new platform and pipeline that will transport gas to the Easington terminal in East Yorkshire.

Now – under the new ownership of BlackRock and GIC, two of the world’s largest investors – it is targeting investment in H2NorthEast.

GROUND BREAKER

A ground-breaking strategic initiative to build a 1GW facility producing low-carbon, blue hydrogen, H2NorthEast will utilise North Sea natural gas already processed at the existing CATS Terminal.

Over 95% of the CO₂ produced will be captured and transported offshore for storage using infrastructure developed by the Northern Endurance Partnership.

“Located at our CATS terminal, the project will deliver low-carbon hydrogen to industries on Teesside and, when complete, the hydrogen volumes produced will be equivalent to heating over one million households.”

Already named one of the UK’s first carbon capture, usage, and storage developments as part of the Tees/Humber region East Coast Cluster, H2NorthEast is one of several hydrogen projects submitted to the Government’s Business, Energy and Industrial Strategy phase 2 Cluster Sequencing selection Process.

 “We cleared the first hurdle, and are waiting to find out whether we will be selected.”

ACE IN THE PACK

Converting to low-carbon hydrogen is the only realistic way to decarbonise those industries, and in doing so help the UK achieve its target of net zero emissions by 2050, says Hessell, former BP’s vice president commercial operations, North Sea and Angola, and with a 30-year oil and gas background specialising in commercial, planning, financial, strategy and business development.

“We believe H2NorthEast can play a leading role in delivering low-carbon hydrogen to industries on Teesside at a lower cost through synergies with our CATS facility, and by using existing distribution and storage infrastructure.

“Thanks to our unique location in proximity to industrial customers and existing expertise, we are in a prime position to facilitate the decarbonisation of industry on Teesside, at the same time creating 1,600 jobs and adding between £300 to £400m to the local economy.”

ENERGY SECURITY AGENDA TOPPER

With Putin’s invasion of the Ukraine putting energy politics and security back at the top of the UK’s and EU’s agenda, gas supply and security “are fundamental to what we are all about and what we are doing,” says the Kellas Midstream MD.

“Last year the UK consumed about 78 billion cubic metres of gas, but we only produced about 29 billion m³, and more than half was imported. So there really is a need for domestic sources of gas.”

In a bid to end reliance on Russia – in what some will see as a belated turnabout – the UK Government has announced a reopening of oil and gas projects in the North Sea, with Energy Secretary Kwasi Kwarteng insisting it will not bend to the pressure of street disrupters and others who “naively want us to extinguish production” of oil and gas in the North Sea.

“Doing so,” he said in an open letter to the industry, “would put energy security and British jobs at risk and simply increases imports, whilst not reducing demand.”

The letter is a strong show of support for continued and indeed accelerated oil and gas production in the UK North Sea.

BRITISH OFFSHORE SUCCESS

“We need to collectively show the British people how the success of our offshore oil and gas sector has a direct and enduring benefit to the British economy and people’s jobs and livelihoods. The North Sea has provided the UK with a stable domestic supply of oil and gas for the last 50 years and it has a bright future.

“This great national asset,” said Kwarteng, “has had the dual purpose of securing supply, and insulating the UK from developing a dependency on Russian hydrocarbons.”

Hessell backs this declaration, adding a further point. “If we decimate our domestic oil and gas industry, we will not have the supply chain and skills necessary to drive the energy transition.”

Confronting the ‘Just Stop Oil’ militants, he rolls out hard data: the UK derives 70% of its energy from oil and gas, 85% of homes use gas for heating and much of the cooking, while 40% of electricity is generated from gas.

“Oil and gas is here, and it’s simply not going to go away overnight. Everyone sees the need for the transition to clean energy, but even the most enthusiastic and optimistic can surely see there’s a lot of planning, designing, constructing, and investing in new infrastructure.  And it just cannot happen overnight.”

MANAGED TRANSITION A MUST

“The oil and gas industry is completely committed to net zero by 2050, or 2045 in Scotland. But it’s got to be a managed transition.

“If not, you can see what’s happening at the moment – price hikes for example, and massive disruptions of supply underpinned by the horrendous events in Ukraine.”

While hydrogen is recognised as the fuel to use to decarbonise on this scale in industry, says Hessell, “it has never really been done before. So there are a lot of opportunities, with the UK very much at the forefront in leading this transition to a hydrogen economy.”

As he awaits news of the H2NorthEast selection result, Andy Hessell underscores reasons for Kellas Midstream’s success.

THE KELLAS WINNING HAND

“Firstly, we have a very successful operation at CATS, and can build on that 25-year history. We’ve already reduced our carbon emissions by 25% – CATS now has the second lowest emissions of any terminal in the UK – and have projects in place to reduce by a further 25% over the next couple of years. And we have strong financial backing from two huge infrastructure investors.

“When it comes to industrial users, we have signed MOUs with several potential customers on Teesside, with some of whom we share several unique synergies. We also have a direct Grid connection, which makes us ideally placed for the whole of the UK.

“We are leaders in midstream infrastructure. We have the assets, the people and skills, and a strong customer centric approach. And now, with our new powerhouse of backers, we gain further strength and expertise

“It’s a big bang for your buck. And put together, almost a win-win win.”