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Infrastrata buys Titanic builder

Gas storage developer takes the unusual step of purchasing a heavy engineering firm to work on its proposed UK project

AIM-listed gas storage firm Infrastrata entered the engineering market with its purchase of Belfast firm Harland & Wolff out of administration for £6mn in early October.

Infrastrata’s main focus is developing a salt cavern storage facility of up to 500mn m³ on the Islandmagee peninsula on Northern Ireland’s north coast. Northern Ireland’s gas grid is linked both to its southern neighbour the Republic of Ireland and the Great Britain (GB) gas market through the Scotland-Northern Ireland pipeline (Snip) interconnector.

Snip currently flows from GB to Northern Ireland, but Infrastrata submitted in June an application for a grant for studies from the EU's Connecting Europe facility (CEF) covering design and preliminary works on enabling reverse flow on Snip. Reverse flow would enable the storage facility to service the much larger and more liquid GB gas market.

Infrastrata completed a front-end engineering and design (Feed) study on Islandmagee in the fourth quarter of 2018. The storage site was designated a project of common interest (PCI) by the EU in its most recent third PCI list in November 2017 and has been under consideration for the fourth list, although the ongoing Brexit process may impact its eligibility. In June, Infrastrata struck a deal for the unit’s capacity to be sold to trading heavyweight Vitol.

The firm hopes to take FID on Islandmagee by the end of the year, ahead of first gas injections in the fourth quarter of 2022 and full commercial operations starting in the May 2023-April 2024 storage year. But it does not yet have the marine licence required to operate the plant.

Northern Ireland’s department of agriculture, environment and rural affairs (Daera) says the firm’s next step is to submit updated environmental assessments—which will then require a 42-day consultation with both the statutory authorities and the public—which may make FID by the end of the year look potentially ambitious. Infrastrata says it is working with Daera on obtaining the licence and discussions are “progressing nicely”.

There is a local protest group, mainly centring on the potential impact of brine from the salt caverns flowing out into the Irish Sea. Infrastrata acknowledges the local opposition but says its claims are “baseless” and “quote from other projects that are not comparable and are in countries that do not have the strict regulatory standards that the UK has”. 

Iconic purchase

And so, to the Harland & Wolff deal. The Belfast firm’s main focus is renewable energy projects, offshore rigs and ship repair and conversion. But, more than that, it is the company that built the Titanic and the “Yard”, as it is known locally, holds an iconic place in Northern Ireland’s folk memory of its proud industrial past. Its collapse into administration under former Norwegian owner Fred Olsen Energy was a collective blow to a region where the employment rate sits almost four percentage points below the UK average at 72.2pc—attracting media and political attention far outweighing its 79 employees.

The Harland and Wolff acquisition will, says Infrastrata, allow it to bring in-house a large part of the fabrication requirements for Islandmagee, as well as a proposed LNG floating storage and regasification unit project the firm is looking to develop in Cumbria, northwest England. The firm anticipates the deal reducing the capex of each of its projects by 10-15pc, while construction timelines are expected to be reduced by 3-5 months. Infrastrata CEO John Wood cites “deep operational synergies” between the two firms, expects to “significantly increase” the Harland and Wolff workforce, and sees an opportunity to create secondary revenue streams through the provision of services to the energy, maritime and defence sectors.

Infrastrata is “committed to using as much local expertise as possible” and does not want to “contract all the project work outside of the wider Islandmagee community”.

But, while Infrastrata says that the fabrication work that Harland and Wolff will undertake at Islandmagee is “not necessarily singularly unique to gas storage”, there remains no evidence that the Belfast company has ever done any work on gas storage before. It is also far from usual practice for a gas storage developer of any size to buy in an engineering firm to build much of its project, rather than issuing a competitive tender for the work. 

Deal scrutiny

When one puts together a firm needing government approval in the face of local opposition and the politically palatable rescue of a regional totemic business, a cynic could wonder about potential links between the two.

Both sides are adamant that is not the case. Daera says it “strictly follows due process in considering all marine licences”. “The marine licence application for the Islandmagee Project is at an advanced stage and has been progressing independently to the proposed acquisition of assets at Harland & Wolff,” says Infrastrata’s Wood.

Even Infrastrata’s opponents express confidence in the professionalism of the civil servants to follow guidelines, rather than succumb to any political leverage that the rescuer of Harland & Wolff might hope to bring to bear. Which would leave the deal—particularly given the risks of a delay to starting the very work at Islandmagee that is slated to occupy Harland and Wolff’s newly-acquired workforce—looking nothing more sinister than one that is simply difficult to rationalise. But it is a transaction that seems certain to continue to attract scrutiny going forward.

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