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Cluff Natural Resources looks to unlock UCG potential in UK

World Coal,

Cluff Natural Resources is targeting the UK’s offshore coal as the company looks to unlock the vast energy potential located in coal seams just off the British Isles. The company will convert the coal into syngas in order to address the UK’s energy needs.

Underground coal gasification (UCG) could potentially unlock the huge, untapped and indigenous coal resources in the UK, thereby securing the country’s energy supply for future years against a current backdrop on increasing reliance on imported gas (something that the recent Ukrainian crisis has shown to be inherently associated with risk and a lack of energy security).

Analysts at Panmure Gordon have released their initiation of coverage report on Cluff Natural Resources, and have identified the company as being a good target for investors.

Panmure’s Jack Allardyce said: “we believe that Cluff Natural Resources is well placed to deliver significant value accretion. We initiate coverage with a Buy recommendation and 13p Target Price.”

Analysts at Panmure noted that UCG is yet to be widely implemented on a commercial scale, but said that the technology is well understood and has been developed through numerous worldwide trials over a number of years. In its report, the company said that UCG “allows the exploitation of otherwise non-mineable coal resources and has significant environmental benefits over conventional mining, as well as lending itself to carbon capture and storage.”

Coal resources in the UK have been estimated at 17 billion t3 onshore, with significantly more offshore.

To date, Cluff Natural Resources has secured five near-shore deep UCG licences in close proximity to potential customers around the UK (with further UCG and conventional oil and gas opportunities being evaluated), which contain total estimated coal resources of 1.75 billion t3 of coal. In terms of scale, using very conservative assumptions, Panmure said its analysts believe that this acreage could yield the energy content of approximately 3 trillion ft3 of natural gas.

UCG: a game changer

Panmure said that it sees UCG as a potential game changer for energy supply in the UK. This reasoning is based on a number of commercial and environmental advantages that UCG has over conventional coal mining – which has suffered on a long and drawn out decline over the past several decades in the UK.

According to Panmure, the advantages of UCG include exploitation of otherwise non-mineable coal seams, reduced emissions and by-products and lower surface impact. Additionally, the technology lends itself to the adoption of Carbon Capture and Storage processes, which is a key current area of focus for governments across the EU in meeting CO2 emissions targets.

Cluff’s large asset base

In it’s analysis, Panmure said that Cluff Natural Resources’ initial intention will be to sell produced syngas as a raw fuel (post clean-up) “at the fence”. Panmure said that the resource company’s Kincardine and North Cumbria licences, in particular, will afford it early opportunities to prove up the UCG process, with potential customers already nearby.

At Kincardine, both the Grangemouth refinery and the Longannet power plant could provide offtake routes, while the Cumbrian licence offers various different users.

With an eye to the future, and considering the recent consolidation of unconventional opportunities in the UK by TOTAL, Centrica, GDF and Igas respectively, it makes sense to continue to build an early UCG position. To this end Cluff Natural Resources has three applications pending and are researching deeper offshore potential in the UK.

In conclusion, Panmure said that the potential scale of the resource within the Cluff’s current licences (with additional applications outstanding) is huge for a company of its size, and potentially strategically important to the UK.

Edited by Sam Dodson

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