Ceraweek: Big Oil on hydrogen: forget the rainbow, just make it profitable (updated)

NextEra Energy

08/03/2023 22:07

(Adds file photos available, no other changes)
    By Stephanie Kelly
       HOUSTON, March 8 (Reuters) - Governments worldwide need
to simplify rules around hydrogen supply to attract investment
and scale it up to become competitive enough to substitute
fossil fuel use in heavy industry, energy executives said this
week. 
    Hydrogen as a potential alternative to natural gas, coal or
oil burned in heavy industry or shipping is seen as key to
reducing emissions in industries in which electrificaiton is not
practical. Hydrogen is often described by color and many in the
industry call it a "rainbow renewable" but the most important
color for executives at the conference was green -- as in cash.
    Hydrogen can be made in many ways, some cleaner than others.
Among methods that produce what is known as green hydrogen are
electrolysis to split water into hydrogen and oxygen using power
from renewables. Hydrogen can also be made from natural gas.
When carbon emissions from the process are captured and stored,
it is known as blue hydrogen.
    The industry is still in a nascent stage and the fuel is
relatively expensive to produce, so governments worldwide are
seeking ways to facilitate rapid development to make it an
economic alternative to fossil fuels in industry. 
    Provisions in U.S. President Joe Biden's signature Inflation
Reduction Act (IRA) and legislation in the European Union have
incentivized the development of hydrogen but need further
clarification, and government mandates may be required to
encourage industries such as steel and shipping to embrace
hydrogen, energy industry executives said at the CERAWeek energy
conference this week in Houston.
    "The market for hydrogen and people's willingness to pay a
premium for low-emissions fuels I think hasn't quite taken off
yet," Exxon Mobil Corp  XOM.N  Chief Executive Darren Woods
said.
    Though the IRA is incentivizing production of green and blue
hydrogen, Woods said the associated costs are making it
difficult for Exxon's partners to sell either into Europe and
Asia. 
    Discussions and rules around classifying hydrogen made from
renewable fuels or natural gas should be secondary to making the
fuel affordable for consumers, said Colin Parfitt, vice
president of Midstream for Chevron Corp.
    "There is way too much conversation about if it is blue or
green," Parfitt said. "The challenge is how do you create
hydrogen as a business."
    Transporting hydrogen is currently not commercially viable
nor affordable for consumers, Parfitt said.
    The technology for shipping hydrogen is still in early
stages of development, said Chevron's vice president of hydrogen
Austin Knight. 
    
    DEMAND FOR HYDROGEN
    The most obvious and near-term demand for hydrogen is in
industries that currently use so-called grey hydrogen that is
produced from fossil fuels, Spanish energy producer Cepsa SA
 CPF.GQ  Chief Executive Maarten Wetselaar told Reuters. Grey
hydrogen is currently consumed by fertilizer, refining, and iron
and steel units. 
    About 30-35% of the total energy system will need hydrogen
to decarbonize, he said. 
    For industries such as shipping, government mandates are
needed to make hydrogen cost competitive with cheaper
petroleum-based fuel oil, Wetselaar said. 
    By 2030, Cepsa plans to produce 125,000 tons per year of
green ammonia, produced using hydrogen made from renewable
energy, for green marine fuel and begin green ammonia exports by
2027. Cepsa could begin selling green ammonia to ships by 2026,
Wetselaar told Reuters.
    Meanwhile, low-carbon hydrogen fuels used for transportation
need more infrastructure, such as refueling stations, to support
and scale the market, said Plug Power Chief Executive Andy
Marsh.
    
    ADDED COMPLEXITIES
    Green hydrogen could quickly be brought to market with the
right rules around production, said CEO John Ketchum of the
world's top renewable power generator NextEra.
    NextEra is working with the U.S. Treasury on rules that
govern what can be considered green hydrogen, he said. The
process is complicated by the variability of renewable power
supply from wind and solar, he said.
    If power from those sources dropped, then an electrolyzer
producing hydrogen would need to switch to power from the grid,
which may or may not be renewable, he added. If hydrogen
producers could no longer classify hydrogen as green and had to
switch off electrolyzers, the cost of producing the fuel would
go up and make it uneconomical. The solution would be to offset
the use of non-renewable power with carbon credits, he said.
    Otherwise, "we will have an out-of-the-money product," he
said.
    More regulation, certifications and standards are needed for
handling hydrogen, along with supply contracts to access
infrastructure and new ideas on transporting hydrogen, company
officials said Wednesday.
    "The IRA has not been fully implemented yet in the U.S., so
after that contract terms and clear standards will have to be
tackled," said Juancho Eekhout, vice president of business
development at Sempra Infrastructure.
    Further, the trade of hydrogen also has complexities that
will need to be addressed, said Margaux Moore, head of the
Energy Transition Research Group at Trafigura.
    Depending on how hydrogen is produced, the fuel has
different carbon intensity scores in different countries, she
said. 

 (Reporting by Stephanie Kelly; additional reporting by David
French, Sabrina Valle and Marianna Parraga; Editing by Simon
Webb and David Gregorio)
 ((Stephanie.Kelly@thomsonreuters.com; 646-223-4471; Reuters
Messaging: stephanie.kelly.thomsonreuters.com@reuters.net))