Shares in UK Oil & Gas (AIM: UKOG) surged by over 20% in early trading after the company announced a "letter of support" from German energy giant RWE for its proposed hydrogen storage scheme in Dorset.
The news comes as UKOG seeks to secure government funding for its ambitious project, which involves developing a 1 billion cubic metre hydrogen-ready salt cavern gas storage facility at the former Royal Navy port in Dorset. RWE, with its own green hydrogen ambitions in the UK, has pledged to support the project's design and delivery, adding its name as a "supporting party" to UKOG's application for government funds.
RWE, a major player in the UK hydrogen market, has expressed its interest in the project, highlighting the potential benefits it could bring to its own green hydrogen initiatives. The company's letter, penned by Jeremy Smith, head of hydrogen business development for RWE UK, outlines how UKOG's hydrogen storage scheme could:
Enable RWE to offer firm hydrogen supply contracts and manage production outages.
Optimise electricity costs and electrolyser operating regime based on renewable generation capacity and wholesale market price fluctuations.
Allow for efficient sizing of its hydrogen production facility to meet anticipated demand from offtakers.
Smooth out hydrogen production profiles with the store acting as a buffer.
RWE has committed to working closely with UKOG to ensure the storage facility meets the needs of both itself and other potential industry users. The company has also given its permission for UKOG to reference RWE as a "supporting party" in discussions with government and its application for revenue support.
This letter of support comes just months after Japanese firm Sumitomo also backed UKOG's plans. The UK government has stipulated that applicants for hydrogen storage funding will need to provide such letters from identified users and financial backers. UKOG plans to use these letters as part of its application for government revenue support, which is due to open in the second half of the year.
While the letter of support from RWE is a positive development for UKOG, analyst Ashley Kelty from Panmure Liberum has cautioned that it does not offer any practical or financial support for the project. "It merely indicates that the project could be of interest to the likes of RWE if it was developed," she explained. "However, the Government is likely to see it as a positive â although it remains unclear how much money will be available and the type of support for each type of renewables project."
UKOG CEO Stephen Sanderson expressed his gratitude for RWE's support, stating: "Their recognition of the potential benefits our storage could bring to RWEâs green hydrogen projects further underscores our projectâs credentials and the significant impact they could have on the UKâs hydrogen economy and energy security." He believes the letters of support will bolster the company's application for government funding and reassure potential investors about the project's viability.
With its oil and gas assets in the Weald Basin and its subsidiary UK Energy Storage (UKEn), UKOG is positioning itself as a key player in the UK's burgeoning hydrogen economy. The company's hydrogen storage project, currently in the early engineering design stage, remains a cornerstone of its future strategy. However, it acknowledges that there is no guarantee of securing government funding, but remains committed to pushing the project forward.