Hydrogen as fuel seems to be the latest bet for the future of fuel for British Petroleum (BP) CEO Bernard Looney as he expects hydrogen to be the low-carbon businesses for the future for the company. The move is seen to be synchronized with moves of major economies investing in the development of the decarbonizing fuel.
Low-carbon hydrogen is already popular, and it is expected to play a significant role in reducing greenhouse gas emissions from heavy industries and some modes of transportation.
However, it is costly to produce and frequently requires government assistance to compete with fossil fuels.
The United States, for example, is providing significant incentives for its production through President Joe Biden’s $430 billion Inflation Reduction Act (IRA).
According to Tomeka McLeod, BP’s newly appointed head of hydrogen in the United States, BP has been quick to react and is in the early stages of developing a large, low-carbon hydrogen hub around its Whiting, Indiana refinery.
Looney took office nearly three years ago, promising to reshape BP and reduce carbon emissions by reducing oil and gas output and increasing renewables. On February 7, he plans to provide an update to investors on where things stand.
According to reports citing BP company sources, hydrogen will play a prominent role alongside offshore wind.
BP has restructured its organization to create a dedicated hydrogen division led by Felipe Arbelaez, which employs 150 people. It also invested in large hydrogen projects in Australia, Europe, and the United Kingdom.
According to the company, it is also investigating the possibility of developing green hydrogen in Oman and is looking into projects in Mauritania.
According to company sources, BP’s spending on low-carbon hydrogen is still modest, but it is expected to grow into the hundreds of millions by the end of the decade as projects get underway.
According to media reports, BP spent roughly a quarter of its $15.5 billion budget in 2022 on low-carbon businesses, including the $4.1 billion acquisition of US biogas producer Archaea.
According to company sources, Looney and BP’s head of renewables, Anja-Isabel Dotzenrath, will unveil a clean hydrogen production target for the first time in February, aiming to capture a 10% share of hydrogen in “core markets” by 2030.
“Hydrogen will be a big focus and it is moving much faster than we ever thought it would,” Chief Financial Officer Murray Auchincloss said last month.
The majority of hydrogen is currently used in the oil refining and fertilizer industries, and it is typically produced by heating natural gas, a highly polluting process known as grey hydrogen.
However, if the polluting emissions are captured, grey hydrogen becomes “blue hydrogen.” There is also “green hydrogen,” which is created by splitting water with renewable energy electrolysis.
BP is relying on its oil and gas experience to build carbon capture and storage facilities, where carbon is injected into depleted reservoirs, to expand its blue hydrogen business.
It also intends to increase its renewable energy generation capacity to 50 gigatonnes by 2030, which will be used to power electrolyzers in part.
BP made no comment on whether it will set a hydrogen production target or its hydrogen spending plans.
According to McLeod, BP’s project at its Whiting refinery will initially replace around 200,000 tonnes of grey hydrogen used by the refinery each year with blue hydrogen. The project could begin operations in 2026-2027 and eventually expand to green hydrogen.
“Our focus in the U.S., and it’s similar around the world, is how do we decarbonise and re-imagine our own assets,” she said.
In a second phase, the low-carbon fuel will be used by other heavy industries in the area to reduce the 36 million tonnes of CO2 emitted there each year.
The project will be subsidized, emphasizing hydrogen’s difficulty competing with lower-cost fossil fuels.
According to analysts, the IRA provides a $3 per kilogramme tax credit for clean hydrogen, bringing green hydrogen on par or even below the cost of grey and blue hydrogen.
“With the hydrogen production tax credits that are now in place, it has … allowed green hydrogen to be a lot more competitive,” McLeod said.
Subsidies will allow green and blue hydrogen to compete with grey hydrogen at first, allowing consumers to switch to cleaner fuel, according to McLeod.
“Demand growth for new hydrogen applications is going to be a function of cost competitiveness,” said Andy Brogan, Global Oil and Gas Leader at EY.
“There are material components of energy demand where hydrogen is the only obvious technologically viable alternative to carbon intensive options,” Brogan said. “However, these are often price sensitive so the rapid acceleration will be dependent on cost.”
According to Globaldata, BP is already one of the largest investors in hydrogen projects among the world’s top oil and gas companies, including Shell (SHEL.L), TotalEnergies, Repsol, and Italy’s Eni.
In June, BP acquired a 40.5% stake in a 26 gigatonne renewables project in Australia that could generate green hydrogen. It is developing two projects in the United Kingdom with the goal of producing 1.5 gigatonnes of blue and green hydrogen by 2030.
(Adapted from Reuters.com)