The booming hydrogen economy that oil and gas companies are tiptoeing into.

As announced two years ago, Rystad Energy said liquid hydrogen would find a place as a niche fuel for the cement and metals industries, aviation and seagoing vessels. But these sectors would only account for around 7% of the global energy market.

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

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

The US Congress is pushing hydrogen.

Lots of dollars in funding and tax breaks 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 large portion of that amount, $8 billion, was to build 4 hydrogen hubs in across the United States. There was also $1.5 billion for R&D projects. My state, New Mexico, joins Colorado, Utah and Wyoming in offering a regional hub.

Second, the Inflation Reduction Act (IRA), which was signed into law in August 2022, has $370 billion to invest in clean energy and includes funding and tax breaks for hydrogen and for carbon capture and sequestration (CCS) which is required to remove the biproduct CO2 from blue hydrogen.

Two new federal tax credits and a grant could also make a difference. A production tax credit offers up to $3 for each kilogram of hydrogen produced with near-zero carbon emissions (e.g., green hydrogen), but the credit is lower for non-zero emissions ( for example, blue hydrogen without CSC).

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

Finally, a near doubling of the CCS subsidy, from $45 to $85 per metric ton of CO2 sequestered.

With the largest tax breaks given to the cleanest hydrogen production, this will improve the economics of green hydrogen production compared to blue hydrogen.

Expanding worldwide and in the United States.

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

bp takes the helm of $36 billion AREH, a company producing solar and wind energy then using it to generate green hydrogen and green ammonia to be used in Australia and exported to the UK ‘South East Asia.

TotalEnergies has joined an Indian company that could invest 50 billion dollars over 10 years to produce green hydrogen. In India, demand for fertilizer is strong and green ammonia is expected to have a booming market there.

Chevron
CLC
is about to produce green and blue hydrogen, and spend billions of dollars to do so.

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

In the United States, Amazon has an agreement with Plug Power
PLUG
provide green hydrogen to power 800 long-haul trucks or 30,000 forklifts from 2025. Other examples from this report include:

Air Products will produce green hydrogen at Casa Grande, Arizona at 10 metric tons per day.

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

A global company, Universal Hydrogen will invest more than $250 million to produce green hydrogen at a new facility in Albuquerque to supply aviation fuel.

Tallgrass Energy aims to convert a coal-fired power plant into a blue hydrogen production facility. The Escalante plant near Grants, New Mexico was shut down in 2020. Tallgrass wants to get the methane feedstock from the local San Juan Basin and remove the CO2 biproduct into the subsurface layers of the same basin.

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

Three hydrogen hubs are being rolled out in the US in 2022, with plans to expand the network across the UK and globally. Each of the hydrogen hubs in BayoTech’s network produces 1 to 5 tonnes of hydrogen per day. The hydrogen is delivered locally in high pressure transport trailers carrying gas cylinders.

The keystone of BayoTech is that the giant manufacturer Caterpillar
CAT
brought the company’s investment to hundreds of millions of dollars.

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

Hydrogen is not effective.

Hydrogen fuel burns in water and is therefore emission-free – a huge advantage when batteries are too large to store energy like airplanes, ships and long-haul trucks.

But hydrogen production is inefficient because, first, green hydrogen requires green electricity which 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 associated with leaks in wellheads, pipelines, and storage tanks. Methane warms the atmosphere much more than CO2. Additionally, the by-product is CO2 which must be removed by injecting it deep underground. Blue hydrogen is a zero-emissions energy source that is wedged in its production between two heavy emitters – methane and CO2, so blue hydrogen is not truly zero-emissions.

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

But how does hydrogen compare to heat pumps, which the government is offering to replace fossil fuel boilers with a £5,000 grant? A new report looked at more than 30 separate studies that found hydrogen to be much less effective and more expensive.

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

Take away food.

Hydrogen has a great advantage: the energy is contained in a dense form. But there is a major drawback: it is inefficient.

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

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

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

On a smaller scale, hydrogen production is increasing – from school buses to long-haul trucks and from forklifts to airplanes. A commercial company is setting up hubs across the United States to deliver hydrogen fuel in transportable trucks on a much smaller scale than existing large production units at refineries.

About Wilhelmina Go

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