The word is rapidly growing, most countries have started to accelerate actions for climate change mitigation. Reduction of harmful pollution, and growing concern about the sustainability of their economy’s supply chains is driving the political agenda. Climate change targets and air pollution concerns are leading governments and companies to seek decarbonising solutions, which differ in applications, scale and time frames. The transition to a cleaner energy system, diversifying the fuel mix, and improving energy security are all energy policy goals that can be addressed by Hydrogen.
Many oil and gas companies are entering the hydrogen market, according to a new report by DNV GL, hydrogen has surged up the priority list of many oil and gas organizations, taking a primary position in the decarbonisation sector. Also, the proportion intending to invest in the hydrogen economy doubled to 42 per cent in the year leading up to the coronavirus-induced oil price crash.
They key question for many energy companies is how to develop a viable business case around "green" hydrogen. Do we need an interim phase with “blue” hydrogen (produced by gas with pre-combustion CCS or CCUS) to scale up and develop the infrastructure before moving to large-scale green hydrogen? Could Hydrogen be the missing link in the global energy transition? If this turns into a reality, hydrogen could become a game-changer, the same way LNG linked previously disconnected regional natural gas markets.
In order to generate hydrogen, several domestic resources can be used, including water electrolysis (using renewables), fossils fuels, and biomass. In 2018, the majority of hydrogen (approx. 95%) was produced from fossil fuels and that was either by steam reforming of natural gas, partial oxidation of methane, or coal gasification, which generates significant carbon emissions. The type of hydrogen produced using hydrocarbons is known as “grey” hydrogen (Hydrogen and Syngas Production and Purification Technologies, 2009).
A cleaner version is “blue” hydrogen, for which the carbon emissions are captured and stored, or reused.
The latest added term relating to the ‘color of hydrogen’ is turquoise (Wood MacKenzie). This one is produced via pyrolysis from methane and solid carbon. Turquoise hydrogen is m relatively low in terms of emissions because the carbon can either be buried or used for industrial processes such as steelmaking or battery manufacturing. But recent research shows turquoise hydrogen leads to emissions from the natural gas and process heat required.
The cleanest one of all is “green” hydrogen, which is generated by using renewable energy sources without producing carbon emissions in the first place.
Grey hydrogen is the cheapest option - its price is estimated to be around €1.50 per kilo. IEA projects a structural rise in natural gas prices due to market forces. Moreover, grey hydrogen’s CO2 emissions carry a cost in an increasing number of jurisdictions around the world. In the European Union’s emissions trading system, the price of CO2 is in the range of €20 to €25 per ton. European Union countries want to establish a minimum CO2 price that will gradually increase to around €30 to €40 per ton over the next 10 years.
The price of "blue" hydrogen is also mainly influenced by natural gas prices. But its second-most important driver is the cost of capturing and reusing or storing the carbon emissions.
Different factors come into play for the price of "green" hydrogen. IEA put the cost of green hydrogen at $3 to $7.50 per kilo, compared to $0.90 to $3.20 for production using steam methane reformation. The first cost is the cost of electrolysis, the process through which hydrogen is produced from water using renewable energy. Most industry experts expect that a significant increase of electrolysis capacity will reduce costs by roughly 70% in the next 10 years.
The most critical factor for the cost of green hydrogen, however, is the price of the green electricity used in the electrolysis process. The cost of generating solar and wind energy has come down spectacularly in the past decade. That should prompt caution about what will happen to the cost of green hydrogen in the future. In countries and regions blessed with abundant sunshine and wind power – such as the Middle East, North Africa and Latin America – green electricity prices have come down to around 2-euro cents per KWh. Experts expect them to decrease even more in the near future. Former US Energy Secretary Steven Chu recently suggested the prices could soon go as low as 1.5 US cents (1.3-euro cents) per KWh. Electrolyser costs could fall by half by 2040, from around $840 per kilowatt of capacity today.
Green hydrogen can be used to replace the industrial hydrogen coming from natural gas, which amounts to around 10 million metric tons in the U.S. alone. Number of applications range from heating and long-term energy storage to transportation. The largest issue is storing and transporting the highly flammable gas with low density safely, reliably in terms of equipment use and compactly. Since other low-carbon fuels have limitations, and most of them require the production of green hydrogen as a precursor, it seems rational to focus on primary product at least in some cases.
Leading oil majors are already rethinking hydrogen. Shell puts joint efforts with energy company Eneco to create a hydrogen cluster in the Netherlands. A green hydrogen plant powered by 1.5 gigawatts of wind and solar capacity could be developed by BP’s affiliate company in Australia. Portugal shared a national hydrogen strategy in 2020 to be worth $7.7 billion up to 2030.
Green hydrogen currently accounts for less than 1 percent of total annual hydrogen production. From 2000 to 2020 over 250 MW of green hydrogen projects have been implemented. The number of green hydrogen electrolyser projects nearly tripled this year up to 8.2 gigawatts, in the next 5 years an increase in those can be over 1,200%! Investments in green hydrogen to date exceed $300 mln. which is relatively small amount compared to other renewable sources.
Pilot projects and national strategies might compensate substantial CAPEX decrease this year, although there is still a path to competitiveness of the fuel in terms of costs. According to research, companies think the virus situation will have less impact on hydrogen R&D budgets than for digitalization, CCUS and electrification.
Some experts saw hydrogen cars as possible competitors to EVs, helping reduce CO2 emissions and displacing over 17 mln. barrels per day of oil demand by 2040. Toyota was working on hydrogen fuel-cell vehicles, but as the EV market has boomed, the prospect of hydrogen being a serious contender has faded from view. At least in the passenger vehicle segment, especially taking into account recent accidents at hydrogen stations in Norway, that fueled safety concerns of hydrogen use. As a middle step for development of hydrogen industry, it can be used in synthetic fuel production that gained popularity recently in Europe.
HSBC bank says that investors need to consider small- and mid-cap pure play stocks in growing companies. These are largely a mixture of fuel cell and electrolyser manufacturers.
The major goal for this industry now is scaling up. Mitsubishi Hitachi Power Systems are now trying to scale up electrolysis to utility levels, taking robust and mature platforms and replicating them 10, 20, 50 times to apply at scale. A $5bn facility to produce green ammonia in Saudi Arabia’s Neom project, with contracts signed by Air Products and ACWA Power in early July, is scheduled to be onstream by 2025.
Air Products, a supplier of industrial gases, and thyssenkrupp Uhde Chlorine Engineers, a developer of solutions for large electrolytic plants, have signed a cooperation agreement on green hydrogen projects. Under the agreements reached by the parties in July 2020, thyssenkrupp will provide its patented technologies, engineering, process and technical services for water electrolysis plants to be built and then operated by Air Products. The plants will have a minimum capacity of 1 gigawatt.
Thyssenkrupp, together with E.ON, has already tested an existing water electrolysis plant operating within the Carbon2Chem project in Duisburg.
In order to speed up the implementation of projects and reduce the capital expenditure on them, thyssenkrupp supplies its electrolysers in modular design. They say the company has implemented more than 600 projects around the world. Hydrogen and fuel cells are not the same; they can either be deployed in combination or separately. Fuel cells can fully operate on natural gas, which avoids combustion and thus 90% of airborne pollutants. Hydrogen can be burnt in engines and boilers with no CO2 and near-zero NOx emissions. When used together, hydrogen fuel cells are zero-emission at the point of use, with overall emissions dependent on the fuel production method as mentioned previously. Energy providers are beginning to merge fuel cells and BIO GAS in a number of exciting applications. Shell for instance, is developing hydrogen fuel stations in California and across Germany and the UK, as well as developing and supplying a range of other future fuels like LNG (Liquefied natural gas) and biofuels. Shell is developing a nationwide network of 400 hydrogen fuelling stations in Germany as part of a joint venture. In the US, Shell is working with Honda and Toyota to grow California’ hydrogen fuelling system.
So, across the oil & gas industry, most companies are looking to transition from conventional fossil sourced fuels. This challenging transition is driven by emerging stakeholder demand for affordable low-carbon energy sources. In the United Kingdom, the introduction of hydrogen into the energy mix is a potential solution and could form an important part of the UK’s low carbon future. However extensive work will be required to prove that the introduction of hydrogen will not compromise the safety and integrity of the gas network and that there is no increase in risk to the public either directly or indirectly.
Euro Petroleum Consultants is a technical oil and gas consultancy with offices in Dubai, London, Moscow, Sofia and Kuala Lumpur. Euro Petroleum Consultants also organises leading conferences worldwide including ESF 2021 – Energy & Sustainability Forum - which is going virtual on 31 May–2 June 2021. For further details please visit esf.europetro.com.
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