The last barrel

The environmental, social and governance (ESG) initiative is gaining momentum and will be a factor for energy producers for the foreseeable future. As exhibited by Shell, Equinor and BP, companies are embracing ESG initiatives to demonstrate leadership, anticipate new carbon-neutral legislation and change investor perceptions of our industry. However, with renewable/low-carbon energy resources battling for position, it’s imperative for the industry to focus its resources on the most viable candidates.

Wind, solar and hydrogen. With the enormous land requirements and close proximity obligations associated with wind and solar technologies, it appears hydrogen has a significant role to play in the renewable energy mix. It can help satisfy logistical/storage concerns and serve as a bridge fuel to achieve and maintain carbon-neutral targets going forward. Hydrogen is a near-zero-emission fuel that produces only water when consumed in a fuel cell. Hydrogen
can be produced from a variety of resources, but as of 2019, approximately 95% of all hydrogen was produced from steam-reforming of natural gas. Herein lies the rub. To reduce carbon emissions, the industry requires a cost-effective method of producing hydrogen without using hydrocarbons.

New production methods Recently, companies have been working to produce hydrogen using emerging technologies, which have been labeled “green hydrogen.” The process has the potential to drastically lower power-plant carbon emissions, while producing relatively cost-effective energy according to Peter R. Orszag, CEO of financial advisory Lazard (Bloomberg). For the first time, Lazard is including hydrogen in its annual analysis of the levelized cost of energy—measurements of how various renewables compare with conventional fossil-fuel generation. Over the last 11 years, costs/megawatt hour for newly built utility-scale solar power fell 89%, while onshore wind power declined 70%.

The development of hydrogen, which can be derived from other renewable energy generation, has significant potential to substitute for natural gas in energy production. In assessing the costs of hydrogen, Lazard distinguishes between “blue” hydrogen (produced by steam-methane reforming) and “green” hydrogen (produced with electrolyzer, powered from onshore wind and utility-scale solar generation), because the technologies make a difference in the extent to which the hydrogen can reduce carbon emissions. Using blue hydrogen in a combined-cycle power plant could reduce emissions 90%, compared to natural gas. And green hydrogen would eliminate carbon emissions entirely.

However, based on current technology, these carbon reductions entail a higher fuel cost than natural gas alone, given the higher cost to produce hydrogen. But as technologies for making hydrogen improve, the costs should fall. Hydrogen also can be stored effectively for many months, and can help address wind and solar’s intermittency problem. Hydrogen can, therefore, absorb excess generation during periods of high wind/solar energy generation and be available as fuel when renewables are operating at lower capacity. Hydrogen can stand in for expensive battery storage and fossil-fuel backup resource.

Sooner than expected? An analysis by IHS Markit suggests that the production of carbon-free or “green hydrogen” could be cost-competitive by 2030. The production of hydrogen fuel by splitting water—which can be carbon-free, provided the electricity used in the process is produced by renewables—could become cost-competitive with currently predominant methods that require the use of natural gas as a feedstock. The production of green hydrogen is rapidly developing from pilot to commercial-scale operation in many parts of the world. “Costs for producing green hydrogen have fallen 50% since 2015, and could be reduced by an additional 30% by 2025, due to the benefits of increased scale, more standardized manufacturing and falling costs for renewables said Simon Blakey, IHS Markit senior advisor.

New markets. Hydrogen production by methane reforming supplies product to the chemical and refining industries that make up the bulk of global hydrogen demand. However, “there is growing potential for hydrogen to be used in transport, heating, industry and power generation,” said Shankari Srinivasan, V.P., IHS Markit. Both green and blue hydrogen—coupled with carbon capture technology—are likely to play a role in the energy future, as demand expands. “Blue and green hydrogen are complementary,” Srinivasan added. If they are developed in parallel, hydrogen will be able to make a significant contribution to future energy demand, especially with the goals on carbon. Hydrogen’s overall share in the energy mix will ultimately depend on the extent of decarbonization that is desired.

Implementing/testing underway. In December, Daimler Truck, IVECO, Shell and Volvo launched a collaborative effort (H2Accelerate) to create the conditions for a mass-market rollout of zero-emission hydrogen trucks in Europe. The initiative is expected to create new industries, including zero-carbon hydrogen production facilities; large-scale hydrogen distribution systems; and a network of high-capacity hydrogen refueling stations along high-capacity European transportation corridors.

National Grid Plc is starting a hydrogen research project in Cumbria to test how the UK’s gas transmission network can be used to move hydrogen to heat homes or applied to industry, according to Project Director Anthony Green.

Unique capabilities. Hydrogen holds great potential in the transition to renewables. “In Europe, it’s agreed that electrification, alone, cannot deliver the desired level of emissions reductions,” said Catherine Robinson, IHS Markit. Hydrogen is a highly versatile fuel—both in terms of how it can be stored/transported and its potential end-use applications. The greater the degree of decarbonization, the greater the likely role of hydrogen in the energy future.

About the Authors

Craig Fleming

World Oil

Craig Fleming Craig.Fleming@WorldOil.com