UK's Neptune Energy in new push for gas spec change to boost Cygnus volumes

London-based Neptune Energy is seeking an easing of UK gas quality standards to boost supplies from its Cygnus gas field, one of the largest sources of UK gas production, at a time of surging prices and falling domestic output.

Neptune says Cygnus, located in the southern part of the North Sea off the English coast, is capable of meeting 6% of UK gas demand and could have produced 13% more gas in the last 12 months, or an additional 10.7 Bcf, if the company had not had to blend in gas from third-party fields in order to meet UK energy content requirements.

It says a 1% reduction in the minimum energy content of gas entering the UK grid would enable direct Cygnus supplies without blending, and potentially enable new projects in the area.

"Cygnus is an early-life asset, and one of the most carbon-efficient in the UK North Sea. It plays an important role in supporting UK energy security... reducing our reliance on higher-cost, higher-carbon and less secure imports," Neptune told S&P Global Platts.

Talks on an easing of standards on the energy content of upstream gas come as Neptune has faced setbacks at Cygnus, one of the largest UK gas developments in recent years, with 18 Bcm of reserves at time of startup in 2016.

On Oct. 19 the government rejected a bid for support for a carbon capture and storage project known as Delphynus that is expected to make use of the Cygnus facilities and is intended to "decarbonize" industries in the South Humber area; the authorities awarded "Track-1" status to two rival projects, led by BP and Italys Eni, in the northeast and northwest of England respectively.

Neptune, which is chaired by former Centrica chairman Sam Laidlaw and owned by private Chinese and US investors, argues additional supplies of unblended gas from Cygnus would have no detrimental effect on consumers and would reduce reliance on carbon-intensive LNG imports.

It is seeking a reduction in the minimum energy content requirement from 47.2 megajoules/cubic meter to 46.5 MJ/cu m, allowing direct access for Cygnus gas, which measures 46.6-46.8 MJ/cu m on the industry's Wobbe Index.

Neptune has had difficulties obtaining richer blend gas due to shortfalls at the nearby Elgin-Franklin complex operated by France's TotalEnergies, which has faced issues with pipeline availability in 2021. Without the reliance on third-party gas, Cygnus could have produced some 91 Bcf in the last 12 months, up from 80.4 Bcf actually delivered, Neptune says.

Elgin-Franklin has been repeatedly shut down due to its reliance on the Forties pipeline for transporting the liquids component of the wet gas the complex produces, underlining the interdependence of North Sea infrastructure. Parts of Forties were out of action for seven weeks over the summer for refurbishment and the system underwent an unplanned shutdown earlier in the year.

Neptune says supplying Cygnus gas directly into the grid would not impact consumers given the amount of higher quality gas supplied from other sources, noting that an increased share of LNG in the UK system compared with historical levels has lifted the overall energy content of UK supplies.

UK gas production was down 29% on the year over the seven months from January to July 2021, at 193 TWh, contributing to recent massive price spikes.

Industry consultation

An industry consultation on the proposed change has already been held, with no negative responses, and a public consultation is due to start by year-end. However, the change could occur sooner on an emergency basis, given recent supply shortfalls, if the authorities gave approval, Neptune says.

The proposed changes "have been developed by industry over many years and were the subject of extensive technical safety review by [regulator] the Health & Safety Executive. They could be enacted quickly, at no cost and would unlock greater volumes of gas that would help alleviate cost pressures today and in the future," Neptune said.

Cygnus, Neptune says, has an important role in "safeguarding UK continental shelf infrastructure and jobs that are vital to deliver hydrogen and Carbon Capture and Storage developments." Operational emissions from Cygnus are among the lowest in the industry, at 1.3 kg/barrel of oil equivalent produced, strengthening the rationale for investment in the field as the UK plots its net-zero emissions course.

Neptune argues there are other nearby fields that could be developed if the quality requirement was eased. A study commissioned by Neptune from consultancy IHS Markit estimates 28% of remaining hydrocarbons in the southern North Sea fall into the "off-spec" category and the proposed lowering of the content requirement could yield an additional 500 Bcf of production in the longer term.

Neptune, with partner Spirit Energy, a subsidiary of utility Centrica, plans to take a final investment decision in the first quarter 2022 on the nearby Pegasus West field, with reserves of 2.3 Bcm, although energy content levels are not thought to be an issue at that field.