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Oil companies invest billions on green hydrogen as the future of energy

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After years of experimentation, big oil firms are now considering the kind of large-scale investments that would make green hydrogen a significant industry.

They are pursuing a very specific vision of a low-carbon future, which involves multibillion-dollar developments that create massive concentrations of renewable electricity and turn it into chemicals or clean fuels that can be delivered around the world to power trucks, ships, and even airplanes.

According to Julien Rolland, head of power and renewables at commodities broker Trafigura Group Pte Ltd, “oil majors have been developing multibillion-dollar projects for eons.” This green hydrogen and green ammonia will constitute the new energy sector.

The proposal is well-suited to the corporations’ inherent skills in project management and their financial clout, but despite these advantages, they are placing a significant wager on an unproven technology that may not live up to its potential.

“I don’t believe any other firm has built anything on this scale,” said Gero Farruggio, head of Australia and global renewables at Rystad A/S.

BP Plc is leading the $36 billion Asian Renewable Energy Hub, a project that aims to install 26 gigawatts of solar and wind farms across 6,500 square kilometers (2,500 square miles) of Western Australia’s Pilbara region and use the electricity generated to split water molecules into hydrogen and oxygen. Once completely built, it would annually generate around 1.6 million tons of green hydrogen or 9 million tons of ammonia, which may be used to produce fertilizer.

TotalEnergies SE has joined the company of Indian billionaire Gautam Adani in a venture that aims to invest up to $50 billion in green hydrogen over the next decade. With an initial investment of $5 billion, 4 gigawatts of wind and solar power will be developed, of which about half will feed electrolyzers creating hydrogen utilized in the production of ammonia. By 2030, the business may produce 1 million tons of green hydrogen annually, fueled by 30 gigawatts of sustainable energy.

It is only a matter of time until Shell Plc launches its own megaproject, according to Paul Bogers, the company’s vice president of hydrogen. In an interview on the margins of the Financial Times Hydrogen Summit in London, he stated that Shell is seeking a location with sufficient wind and solar resources for a large-scale project that would capitalize on its capabilities.

“These initiatives are too large for a tiny startup to handle,” Bogers remarked. “It calls for deep pockets.”

Chevron Corp. is prepared to invest billions in a mixture of green and blue hydrogen that use a chemical reaction to divide natural gas and capture and store carbon dioxide. Trafigura is examining a variety of mid-sized green hydrogen projects, such as a 440-megawatt construction near Adelaide, Australia, as are other smaller oil market participants.

Rolland stated that despite the fact that the trading house does not have the balance sheet of an oil major, it intends to develop large-scale projects with several gigawatts of capacity, including one in South America, and then recruit a larger partner to build it.

Essential to the Future

The global supermajors continue to spend the majority of their money on oil and gas, but they are devoting an increasing part of their budget to low-carbon energy. This has involved substantial expenditures in sectors far apart from their core industry, such as offshore wind farms, solar plants, battery technologies, and electric vehicle chargers.

Analyst at BloombergNEF Meredith Annex stated, “Electrons do not require the type of infrastructure that oil giants specialize in.” Hydrogen, however, is a molecule, and these companies “understand molecules and infrastructure design based on molecules.”

Prior to recent developments, the majors’ hydrogen intentions were modest. At its Lingen refinery in Germany and its Castellon plant in Spain, BP is developing an electrolyzer to produce green hydrogen for use in those facilities. Shell inaugurated a 10-megawatt hydrogen production plant for its Rheinland refinery in Germany in 2017 and already has expansion plans.

Annex stated that the characteristics of hydrogen, including its complicated processing plants, pressurized pipelines and storage facilities, and the specialized tankers needed for delivery, made it “a lifeline into the future” for Big Oil.

Another natural synergy exists between corporations that have a long history of pursuing the largest concentrations of energy and the largest markets in the globe, as well as locating low-cost means to connect them.

Tom Ellacott, a senior vice president of the consulting firm Wood Mackenzie Ltd., stated that one of the most important characteristics of green hydrogen is the availability of very competitive renewable energy resources. TotalEnergies is in India because “low-cost ammonia is potentially a very large market,” but BP has gone to Australia because “you have a lot of sun.”

Long Game

Huge projects may represent the future of green hydrogen, but there is still a long way to go until their commercial viability is established, according to Pierre-Etienne Franc, CEO of Hy24, a joint venture between asset managers Ardian SAS and FiveT Hydrogen.

Franc stated, “You cannot go from 10 megawatts to gigawatts overnight.” First, it will be necessary to construct facilities with a capacity of hundreds of megawatts, which is ten times the size of the currently operational pilot projects in Europe. Those will boost the operational expertise and electrolyzer production capability required for scaling up, he said.

According to Rystad, the average size of a green hydrogen electrolyzer is between three and four megawatts. This should expand by a factor of 20 by 2025, leaving much groundwork for gigawatt-scale improvements.

Farruggio stated, “There is still a long way to go before one of these initiatives receives considerable capital commitment.” It may be difficult to foresee this occurring before 2030.

This is consistent with the established timelines for the full growth of the green hydrogen initiatives of BP and TotalEnergies, and is well within the 2050 goal for the corporations to achieve net-zero carbon emissions. Unproven as it may be, large-scale hydrogen could provide the best hope for the current generation of oil giants to stay as significant players in a climate-friendly energy market by the middle of the 21st century.

“At some point, oil and gas prices will need to begin falling in order to achieve the Paris-aligned trajectory,” stated Ellicott. Green hydrogen is the ideal candidate for a new low-carbon profit center since it is “such a large long-term growth market, it’s in the sweet spot for the majors in terms of synergies with their present industries.”

Nedim Husomanovic

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