Why is the oil industry hyping blue hydrogen?

Despite claims of blue hydrogen as a climate solution, experts warn it has technical and economic problems.

Some of the largest oil companies in the world are heavily advertising their growing investments in hydrogen, positioning their new ventures as evidence that they are transitioning from fossil fuels into clean energy. While hydrogen holds tremendous promise for cleaning up very difficult-to-decarbonise heavy industrial sectors, experts warn that fossil fuel companies are attempting to lock in policies for a dirtier and expensive form of hydrogen produced by gas to prolong the lifespan of their existing assets.

Much of the hydrogen produced today is done by breaking up the hydrogen-carbon bond in methane, and releasing carbon dioxide without capturing it. This polluting process creates what is called “grey hydrogen,” and it is an important ingredient used to make fertilizer and refine oil, and is responsible for roughly 2 percent of global greenhouse gas emissions.

But with the world trying to move faster to slash emissions, the oil industry has played up the concept of “blue hydrogen,” which is simply grey hydrogen while also capturing the carbon emissions and storing them. The promise of blue hydrogen is that existing industrial processes can continue in a business-as-usual manner, only without the climate penalty.

The problem is, blue hydrogen doesn’t really work and it is incredibly expensive.

“Blue hydrogen has not been made successfully on a commercial scale due to the failures of carbon capture. Even if this were technically achievable now, the high price of the natural gas feedstock is why it wouldn’t be economically competitive even if it were possible to produce,” Justin Mikulka, a research fellow at New Consensus, a U.S.-based progressive think tank, told Gas Outlook.

Because blue hydrogen is still ultimately derived from natural gas, skyrocketing global natural gas prices means that the cost of blue hydrogen has also soared. With little relief in sight, blue hydrogen could remain prohibitively expensive for the foreseeable future.

In addition, the claims that blue hydrogen offer a large-scale climate solution also begin to fall apart on close inspection. “Even if the CO2 capture issues are addressed, methane emissions remain a huge problem,” Robert W. Howarth, an ecology and environmental biology professor at Cornell University, told Gas Outlook.

Howarth has authored groundbreaking research more than a decade ago that looked at the shale gas industry’s methane footprint, documenting the problem of methane leaks up and down the industry’s supply chain. Those findings were controversial at the time, but have been backed up in the intervening years. Methane seeps out at the wellhead, along the pipeline transmission and distribution system, beneath cities, and even right up into homes of customers.

“Industry likes to claim they can address this, and sometimes they even say that they have done so and greatly reduced emissions. But those claims are not supported by any independent, verifiable data. Rather, all evidence points to absolutely no decrease in [methane] emissions per unit of gas produced over the past decade. And it will be extremely difficult to make such reductions,” Howarth said.

Scaling up blue hydrogen, which would require a lot more gas infrastructure and storage, would potentially make these problems worse.

More recently, Howarth authored a peer-reviewed paper that finds blue hydrogen only has a marginal climate benefit over grey hydrogen, and blue hydrogen actually has a worse greenhouse gas emissions footprint than simply burning natural gas or coal for heat, largely because the process to make hydrogen requires even larger quantities of gas, thus resulting in higher methane leaks.

“So, fundamentally, blue hydrogen is just a bad idea,” he said.

Green hydrogen

Meanwhile, there has been swift progress in bringing down the costs of “green hydrogen,” which is an entirely different process that holds significant potential for decarbonizing heavy industry. Green hydrogen is not produced from fossil fuels at all. Instead, it is produced from electrolyzers that split water molecules into hydrogen from oxygen, all powered by renewable energy.

It wasn’t too long ago that the general consensus was that green hydrogen was many years, if not decades, away from becoming a large-scale commercial reality. But that’s rapidly changed in just the past year or two as costs plunge.

“Approximately 75% of the cost of green hydrogen is the renewable energy used to power the electrolyzers that split the water into hydrogen and oxygen. As these costs have fallen rapidly and are expected to continue to fall, green hydrogen’s economic argument continues to get stronger,” Mikulka said. The recent passage of climate legislation in the U.S., which include production subsidies for hydrogen with low emissions, could mean that “green hydrogen produced in the US could have the lowest costs in the world,” Mikulka added.

The rapidly improving economics have unlocked real, substantial investments, and even some oil majors are getting into the act. In June, BP announced a $36 billion investment in a green hydrogen project in Western Australia. Around the same time, TotalEnergies announced a deal with India’s Adani Enterprises Limited to build a massive green hydrogen facility, using 30 gigawatts of new renewable energy. Shell is building Europe’s largest hydrogen plant.

“Shell could have built a blue hydrogen facility, but it chose green,” Mikulka wrote in an article for The Intercept, a US-based non-profit website, in July.

The potential for green hydrogen as a climate solution is real. It could replace coal to make “green steel,” and crucially, it could displace fossil fuels in the production of fertilizers to clean up global agriculture. Simply cleaning up all the areas where industry currently uses grey hydrogen, amounting to around 2 percent of global emissions, would be an enormous contribution to global climate action.

However, experts caution that green hydrogen has a set of narrow applications mainly in heavy industry – fertilizers, steel, cement, and even perhaps aviation. Beyond that, it gets murkier. For electricity, home heating, and most forms of passenger transportation, it would be easier and cheaper to simply turn to renewable energy and electrification. Hydrogen of any form would face technical and economic challenges in those sectors, and would mostly serve as a distraction.

In the race for which form of hydrogen will win out, green hydrogen should prevail over blue simply on the economics, Mikulka said. But even as some companies invest in green, the oil industry is simultaneously lobbying governments for policies and incentives to force blue hydrogen into reality.

Despite the enormous obstacles for blue hydrogen, corporate lobbying has helped secure incentives from western governments. In Europe, a flurry of lobbying helped put in place Covid-19 recovery funds for blue hydrogen in Italy, Spain, Portugal and France, according to a 2021 report published by the European Network of Corporate Observatories and Fossil Free Politics, coalitions of environmental and corporate watchdog groups. The EU had aspired to use Covid relief funds for a “green recovery,” but industry pressure led to wins for blue hydrogen.

In the U.S., intense lobbying helped secure funding for hydrogen “hubs” as part of the bipartisan infrastructure law passed last year, which could help establish both green and blue hydrogen facilities. Added subsidies for carbon capture could help blue hydrogen. West Virginia and the Gulf Coast loom as potential blue hydrogen hubs.

As the FT reports, Shell, BP, and ExxonMobil are on the board of the Clean Hydrogen Future Coalition (CHFC), a new lobbying outfit promoting “clean” hydrogen – using the word “clean” in an apparent attempt to conflate blue hydrogen with green hydrogen. A long list of other oil, gas, pipeline companies and utilities sit on the CHFC board, including TC Energy, Sempra Energy, Williams Co., Equinor, and Chevron.

Mikulka says the aim is to maintain their core business for years to come, which is selling oil and gas.

“The efforts to promote the use of blue hydrogen are being driven by a network of companies that are currently in the natural gas business — from production of the gas, to distribution to burning it for power generation,” he said. He gave the example of Saudi Arabia, which is aiming to use its gas reserves to create blue hydrogen. With the energy transition now well underway, Riyadh will see declining demand for its oil and gas in the years ahead. Blue hydrogen offers a way to stay in the game.

“Getting the world to use blue hydrogen made from natural gas gives the oil and gas industry a way to lock in decades of natural gas demand via blue hydrogen,” Mikulka said.

Even with all the promotion and lobbying, it isn’t even clear that the oil and gas industry will make large-scale investments in blue hydrogen given the headwinds. ExxonMobil is running advertisements promoting its blue hydrogen unit, and says it “plans to build” a “world-scale” blue hydrogen facility in Baytown, Texas, although it has not made a final investment decision.

But if they and others move forward, helped along by government support, it could delay the energy transition and lock in more oil and gas production, and ultimately more methane emissions.

Howarth called blue hydrogen an “invention” by the oil and gas industry, similar to the argument from years ago that shale gas could be a climate solution because it offered climate benefits over coal.

“It is the replacement for the ‘bridge fuel’ idea for natural gas promoted by the industry earlier in this century,” he said. The argument that gas was a “bridge” to a renewable energy future was conventional wisdom for a period of time, but that notion “was killed by objective data on the problems with methane,” Howarth said.

Now, the industry has cooked up the concept of blue hydrogen “as their last hurrah to keep natural gas in production,” he said.

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