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The Surging Hydrogen Economy That Oil And Gas Companies Are Tiptoeing Into.


As reported two years ago, Rystad Energy said that liquid hydrogen would find a place as a niche fuel for cement and metal industries, aviation, and seagoing vessels. But these sectors would add up to only about 7% of the global energy market.

But then bp opened the door with its Teesside hydrogen project, a massive venture in the UK where both green and blue hydrogen will be generated and used to fuel heavy industries in the area, long-haul trucks, and even add to natural gas pipelines to fuel homes and businesses.

This was followed recently when bp acquired a 40% stake in AREH (Asian Renewable Energy Hub) in the massive iron-ore mining region of Pilbara in Western Australia. bp will be the operator for 26 GW of green power capacity, which is about a third of all electricity generated by Australia. The project will also generate 1.6 million tonnes of green hydrogen or 9 million tonnes of green ammonia each year.

US Congress pushes hydrogen.

Lots of funding dollars and tax breaks have appeared in two bills approved by the US Congress:

First, the Infrastructure Investment Act (IIA) in 2021 provided $9.5 billion for hydrogen development and a big chunk of this, $8 billion, was to build 4 hydrogen hubs across the US. There was also $1.5 billion for R&D projects. My state, New Mexico, are joining with Colorado, Utah and Wyoming to propose a regional hub.

Second, the Inflation Reduction Act (IRA), that was signed in August 2022, has $370 billion for investment in clean energies and includes funding and tax breaks for hydrogen and for carbon capture and sequestration (CCS) which is needed to dispose of the CO2 biproduct of blue hydrogen.

Two new federal tax credits plus one subsidy could make a difference also. A production tax credit offers up to $3 for each kilogram of hydrogen that’s produced with near-zero carbon emissions (e.g. green hydrogen) but the credit is lower for non-zero emissions (e.g. blue hydrogen without CCS).

An investment tax credit of 30% will be available for investing in clean hydrogen.

Last, an almost doubling of the CCS subsidy, from $45 to $85 per metric ton of CO2 that is sequestered.

With the biggest tax breaks going to the cleanest hydrogen production, this will improve the economics of generating green compared to blue hydrogen.

Surging across the world and the US.

One observer speculated that green hydrogen and ammonia will become the new energy industry.

bp is taking the lead in the $36 billion AREH, an enterprise producing solar and wind energy then using this to generate green hydrogen and green ammonia for use within Australia and for export to southeast Asia.

TotalEnergies has joined an Indian venture that may invest $50 billion over 10 years to produce green hydrogen. In India, there is great demand for fertilizer and green ammonia should have a thriving market there.

Chevron
CVX
is getting ready to produce green and blue hydrogen, and to spend billions of dollars to do it.

Shell are looking for a big hydrogen project, according to an insider.

In the US, Amazon has a deal with Plug Power
PLUG
to provide green hydrogen to power 800 long-haul trucks or 30,000 forklifts beginning in 2025. Other examples from that report include:

Air Products will produce green hydrogen in Casa Grande, Arizona, to the tune of 10 metric tons per day.

Libertad Power announced a deal with Hyundai — they will produce green hydrogen from a new plant in Farmington, New Mexico. Diesel Direct will distribute the fuel to trucking fleets along an east-west corridor between Los Angeles and West Texas.

An international business, Universal Hydrogen will invest over $250 million to produce green hydrogen in a new facility in Albuquerque to provide aviation fuel.

Tallgrass Energy is aiming to convert a coal-fired power plant into a blue hydrogen generating facility. The Escalante plant near Grants, New Mexico, was closed in 2020. Tallgrass wants to obtain methane feedstock from the local San Juan basin and dispose of the CO2 biproduct into underground layers of the same basin.

BayoTech is a company that actually produces hydrogen fuel in New Mexico. The BayoGas Hub has a smaller and more efficient generator that makes hydrogen cheaper. Feedstocks can be clean natural gas or other renewable biogas sources that can make hydrogen that is carbon-zero or even carbon-negative.

Three hydrogen hubs are being deployed in the US in 2022, with plans to expand the network into the UK and globally. Each of the hydrogen hubs in BayoTech’s network produces 1-5 tons of hydrogen each day. Hydrogen is delivered locally in high-pressure transport trailers carrying gas cylinders.

The capstone for BayoTech is that the giant manufacturer Caterpillar
CAT
upped the company’s investment to hundreds of millions of dollars.

“We’re seeing tremendous demand for hydrogen, especially with the IRA and last year’s infrastructure bill,” a spokesman said. “We’re operating now in a very big-growth environment.”

Hydrogen is not efficient.

Hydrogen fuel burns to water so is emissionless – a huge advantage where batteries are too large to store energy such as planes, ships, and long-haul trucks.

But hydrogen production is inefficient because, first, green hydrogen requires green electricity that drives an electrolysis process that breaks down water into hydrogen and oxygen. But electrolysis is only 55-80% efficient according to Shell.

Second, blue hydrogen requires very hot steam to break down methane into hydrogen, and methane is a fossil fuel that is associated with leaks in wellheads, pipelines and storage tanks. Methane is many times more warming in the atmosphere than CO2. Further, the biproduct is CO2 that has to be disposed of by injecting deep underground. Blue hydrogen is a zero-emission energy source that is squeezed in its production between two heavy emitters – methane and CO2, so blue hydrogen is not truly zero-emission.

Third, hydrogen can be burned like natural gas to heat homes and offices. bp have suggested some of the hydrogen that will be generated at Teesside in the UK could be added to pipeline gas that is used by customers for heating and cooking.

But how does hydrogen fuel compare with heat pumps, which the government is offering to replace fossil fuel boilers with along with a subsidy of £5,000? A new report looked at over 30 separate studies that concluded hydrogen was much less efficient and more costly.

It takes a lot of energy to create solar or wind electricity and then convert it to hydrogen and then burn it to heat a home. A lot more energy than using the same amount of electricity to run a heat pump – six times more energy according to the report.

Takeaways.

Hydrogen has one big advantage: the energy is contained in a dense form. But there is one main drawback — it is inefficient.

But as Rystad Energy predicted, liquid hydrogen in 2050 will find a place as a niche fuel for aviation, ocean vessels, and cement and steel industries.

Hydrogen is well-suited for manufacture by large oil and gas companies because they already know how to produce and distribute natural gas, and they have deep pockets.

Despite the limited scope, clean hydrogen could be a silver bullet for major oil and gas companies wanting to provide Rystad’s 7% global energy market for hydrogen by 2050. The oil and gas industry could exhibit their reach for Paris climate goals, and without having to stop drilling.

On a smaller scale, hydrogen production is surging – from school buses to long-haul trucks and from forklifts to airplanes. One commercial enterprise is setting up hubs across the US to deliver hydrogen fuel in transportable trucks on a scale much smaller than existing big production units at refineries.



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