Here’s How Oil And Gas Companies Are Jumping On Hydrogen, But Is It Over-Rated

Originally published on on June 8, 2023

Hydrogen fuel is garnering lots of press and PR about an exciting new industry but investments are small, headwinds exist, and payoffs are uncertain.

Big oil logos

Jumping on hydrogen.

The production of hydrogen suits big oil and it fits with grandiose oil and gas projects of the past. The new vision is to spend big money on collecting renewable electricity and then converting it to liquid hydrogen energy that is portable and can be shipped around the world to provide clean green energy to power planes, ships, and trucks as well as empower industries that make steel and chemicals.

The hydrogen vision is well-suited to big oil’s strengths: multi-billions of funding dollars, extensive project management, and lots of workers to make things happen. Think of bp funding a $9 billion deepwater oil play called Mad Dog 2 in the Gulf of Mexico that is expected to produce 140,000 boepd (barrels of oil equivalent per day) from 14 new wells by 2024.

Hydrogen is a natural fit for oil and gas companies because of their vast experience in natural gas but also because they made enormous profits in 2022, and can afford to take a risk on new ventures.

ExxonMobil hydrogen

ExxonMobil set up in 2021 a company called Low Carbon Solutions to focus on reducing CO2 emissions by scaling up CCS and new fuels such as blue hydrogen. Blue hydrogen is formed by the decomposition of methane, CH4, while the byproduct of CO2 would be captured and buried (via CCS) beneath the ocean.

Spending will be about $2 billion in 2023, rising to $3 billion by 2025 and $6 billion by 2027.

ExxonMobil has advanced plans to build a 1 bcfd blue hydrogen and ammonia production plant linked with a 7 million tons per year CCS system at its refinery in Baytown, Texas. The hydrogen would be used for ExxonMobil’s olefins production plant where carbon emissions could be reduced by 30%.

The company is talking with potential customers to purchase surplus hydrogen and ammonia volumes in a 2027-2028 time frame.

The Baytown project would be ExxonMobil’s contribution to a larger joint venture with other partners, to establish a CCS hub in Houston. The target could be the disposal of 100 million tons of CO2 per year by 2040, which is roughly 2% of total current emissions from the U.S.

Altogether, such cross-disciplinary CCS and hydrogen projects were previously quoted as valued at up to $100 billion.

ExxonMobil refining and petrochemical complex at Baytown, Texas. Source: ExxonMobil
ExxonMobil refining and petrochemical complex at Baytown, Texas. Source: ExxonMobil

BP hydrogen.

 BP opened their hydrogen door at the industrial complex of Teesside in the UK which contributes 5% of the nation’s industrial emissions. The vision is for Teesside to become a major hydrogen hub for aviation, shipping, and heavy trucks – all sectors where it’s hard to use battery power – but also for hard-to-abate industries such as cement and steel making.

The original plan, called H2Teesside, was to generate blue hydrogen. The recent HyGreen addition would electrolyze water into green hydrogen and oxygen. This is more expensive due to the cost of electrolysis and clean electricity if that is used.

The Teesside projects of bp mesh with the goals of the UK government. Combined, HyGreen and H2Teesside could generate 1.5 Gw of hydrogen production and deliver 30% of the government’s target of 5 Gw by 2030.

bp is also involved in a multi-national scheme in the $36 billion AREH, an enterprise in the Pilbara iron ore region of Australia that will produce solar and wind energy and then use this to generate green hydrogen and green ammonia for use within Australia and for export to southeast Asia.

The end game is 26 GW of green power capacity, which compares with 0.6 GW for a typical coal or gas power plant. 26 GW is about a third of all electricity generated by Australia in 2020. The AREH project will also generate 1.6 million tonnes of green hydrogen or 9 million tonnes of green ammonia every year.

The numbers are impressive for a country that has only 26 million population, and where coal power is dominant and coal exports are huge.

Shell hydrogen.

Electrolysis of water for green hydrogen looks better now that green electricity from wind and solar is cheaper and more available. And new technology called solid oxide technology promises the process will be even more cost-effective because the technology doesn’t require an expensive catalyst.

In 2021 Shell launched the largest electrolyzer system in the EU – part of a plan to establish a green hydrogen network across the land.

In the same year, Shell put forth a hydrogen hub concept at a Texas conference on renewable H2, foreshadowing the U.S. government initiative to fund up to 8 hydrogen hubs in the US.

In a 1 Megawatt (Mw) demonstration project at the Shell Energy Transition Campus in Amsterdam, Shell plan to evaluate the solid oxide technology in four electrolyzer modules. When waste heat is used to generate steam, the technology should be viable when using 25-30% less electric energy.

An interesting twist is that these electrolyzers are reversible so they can be used to produce hydrogen or to use hydrogen to make energy a la fuel cells.

Chevron hydrogen.

Chevron, the second largest oil and gas company in the U.S. after ExxonMobil, has produced hydrogen — blue hydrogen that reforms methane or gray hydrogen that reforms coal. The company has retailed hydrogen via its traditional business since 2005, and now produces 1 million tons per year.

Chevron has joined with the US Department of Energy (DOE) to investigate renewable natural gas, meaning gas from landfills, etc, to generate hydrogen.

A larger vision is to build a green hydrogen facility in Indonesia that would make hydrogen and ammonia using renewable geothermal power of 250-400 Mw. The goal is 40,000 tons of hydrogen per year or about 110 tons per day. But this could be scaled up to 80,000 – 160,000 tons per year if the market is there.

TotalEnergies hydrogen

TotalEnergies had joined an Indian venture, the Adani group, that might invest $50 billion over 10 years to produce green hydrogen. In India, there is great demand for fertilizer meaning green ammonia should have a thriving market there.

The deal was announced in June 2022, and TotalEnergies was supposed to invest $5 billion which would amount to a 25% stake.

The Adani group had said its initial goal was to produce 1 million tons of green hydrogen per year or about 2,700 tons per day, before 2030. This is an enormous number that dwarfs all other production goals.

But the deal has been put on hold by Total Energies while awaiting the results of an audit initiated by Adani due to alleged financial irregularities.

Project NEOM in Saudi Arabia. Source: Youtube
Project NEOM in Saudi Arabia. Source: Youtube

NEOM hydrogen in Saudi Arabia.    

It’s well known that Saudi Arabia is a huge producer of oil, second only to the U.S., and for its leadership role in OPEC and OPEC + cartels.

Also well-known is the country’s financial power for funding special projects. One such special project is a 100-mile-long linear city called NEOM earmarked with a cost of $500 billion. The city is being built on a visionary approach to sustainability, clean drinking water, and climate change, by demonstrating the viability of such things in the heart of an extreme desert.

What’s unexpected, in a country where the local price of oil and gas is the cheapest in the world, is a huge project to produce green hydrogen in NEOM. By 2026, “it will produce an initial 600 tons of green hydrogen per day, which will be available for global export, saving as much as 5 million tons of CO2 emissions per year.” It will be the largest production of green hydrogen in the world – on a commercial scale.

The price is estimated at $8.4 billion for this new hydrogen facility, with 73% coming from other financiers inside and outside Saudi Arabia.

Surprisingly, one goal expressed by Energy Minister Prince Abdulaziz bin Salman is for Saudi Arabia to be a leading exporter of hydrogen to the world. A second goal is to support a global transition to clean and sustainable energy.

The volume of clean green hydrogen produced in NEOM could save up to 5 million tonnes of CO2 per year, according to the press release. This presumably means areas where hydrogen can replace fossil fuels in hard-to-abate applications such as aviation and shipping fuels, and steel and chemical industries. NEOM says green hydrogen could eventually make up 12% of the global energy consumption, but this 12% fraction is higher than the range of 5-7% estimated by Rystad Energy and DNV.

The 12% number is linked to a regional green hydrogen industry valued at up to $200 billion by 2050.

Is hydrogen overrated?

Despite widespread interest, hydrogen is only a small investment so far. Lots of press and PR about an exciting new industry but annual investments of a few billion dollars (max) per oil and gas major pales by comparison with global greenfield Capex of $200 billion earmarked for 2023.

But the oil and gas industry can portray their hydrogen investments as a serious contribution to meeting the Paris climate goals and thereby hope to reduce the climate focus on having to stop drilling and producing oil and gas.

On the other hand — while the oil and gas industry currently supplies about 57% of the world’s energy, it’s also responsible for 50% of global carbon emissions when oil and gas are burned. So even if the oil and gas industry were to provide all of the 7% hydrogen clean energy by 2050 (unlikely), it might save around 7% of global emissions from aviation, shipping, and steel and chemical industries. But this wouldn’t offset oil and gas emissions unless the oil-and-gas-burned 50% came down a lot between now and 2050 (meaning fewer oil and gas wells).

Broad market application of hydrogen, beyond a niche market of aviation and shipping fuel, and manufacture of metals and chemicals (fertilizers and plastics), seems uncertain and may be a case of too little too late and too expensive.

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