Wood Mackenzie reports refining demand for low-carbon hydrogen

The potential demand for low-carbon (green or blue) hydrogen from the worldwide refining industry might reach 50 million metric tons per year by 2050, according to Wood Mackenzie.

In 2020, the oil refining industry will be one of the main markets for hydrogen, accounting for around 32 million tpy, or 30 to 35 percent of worldwide hydrogen consumption. Hydrotreating and hydrocracking are the most important refinery operations, requiring more than 90 percent of hydrogen in the refining business, and are used to remove sulfur from final products and enhance the yield of transport fuels, respectively.

Nonetheless, more than 65 percent of hydrogen demand in refining is satisfied by hydrogen produced as a byproduct of catalytic reformers and ethylene crackers; this is unlikely to be replaced by low-carbon hydrogen. In the event of a hydrogen deficiency, on-purpose production from gas-based steam methane reforming (gray) and coal (brown), which together account for around 32 percent of refinery hydrogen demand, are used to make up the difference.

Sushant Gupta, head of research at Wood Mackenzie, stated, “Low-carbon hydrogen has the potential to replace on-purpose hydrogen as a feedstock if low-carbon hydrogen becomes cost competitive and governmental support evolves over time. Potential global market size for low-carbon hydrogen in this category might reach 10 million tpy by 2050, resulting in a decrease of 10 percent or 100 million tpy in total Scope 1 and 2 global refinery carbon emissions.

“However, substituting fossil fuels in combustion applications to create heat and steam is the real game-changer. This will result in a larger market for low-carbon hydrogen in refining, with a potential market size of up to 40 million metric tons per year by 2050 and up to 300 million metric tons per year, or a 25 percent reduction in carbon emissions. Therefore, the potential demand for low-carbon hydrogen in refining might reach 50 million metric tons per year by 2050.”

Refiners will need to investigate other low-carbon technologies, such as electric heating, carbon capture and storage (CCS) on major carbon emitting units, and biomass gasification, for further decarbonization. Refiners will be required to utilize renewable energy and low-carbon inputs and outputs. These solutions must be combined in order to solve this complex challenge.

Both decreased costs and high carbon pricing are required to make low-carbon hydrogen competitive with hydrogen derived from fossil fuels. Hydrogen generation accounts for 10 to 25 percent of variable OPEX incurred by refiners, making cost a crucial factor. In addition, a high carbon price and the associated emissions penalty might become the primary driver of the transition from hydrogen derived from fossil fuels to low-carbon hydrogen. At present high and fluctuating gas/LNG prices and in the context of the Russia-Ukraine conflict, green hydrogen is less expensive than grey hydrogen derived from fossil fuels. Therefore, there is a market potential to diversify the sources of hydrogen supply in order to reduce emissions and promote energy security.

Higher heating value and reduced emissions make low-carbon hydrogen an interesting choice for combustion applications. Although combustion provides a larger market, low-carbon hydrogen must reach a significantly lower cost or a considerably higher carbon price in order to compete in the combustion industry. In the early 2030s, a carbon price of $100/t to $150/t would be necessary to make low-carbon hydrogen competitive in the refinery combustion sector, assuming that commodity prices recover to levels driven by fundamentals over the long run. Alternatively, the cost of green hydrogen must be less than $1.50 per kilogram to compete with gas and fuel oil combustion in the long run.

Gupta stated, “In addition to lowering costs for low-carbon hydrogen, greater carbon prices, financial incentives, and more regulatory support will be required to expedite adoption in the refining sector.” Dedicated country hydrogen roadmaps will increase the penetration of low-carbon hydrogen in a variety of sectors.

“From a cost and emissions standpoint, it is more likely that, in the long run, the refining industry will make the transition from blue to green hydrogen. However, nations with inexpensive gas supplies and CO2 sequestration capabilities will be able to enter the blue hydrogen market. Replacement economics for low-carbon hydrogen are highly dependent on coal, gas, carbon, and renewable energy costs, and are hence highly refinery site- and country-specific.”