August 3, 2022

Big-Oil lands on massive hydrogen hub in Australia, but just how viable is hydrogen really?

In 2020 bp sat down as an oil and gas company and stared into the crystal ball. After a long review of lots of data, they came up with three scenarios for the future. In the main, oil and gas consumption would represent 36% of total global energy in 2050 (compared to 57% in 2020) and renewable energies 45%.

Thus, by 2050, oil and gas would still represent more than a third of the market, with renewables not quite representing 50%. bp decided to become an integrated energy company.

bp integrates quickly.

Let’s take a closer look at this integrated energy company by looking at bp’s recent investments in the UK and US.

In the United Kingdom, bp’s portfolio includes an offshore wind project in the Irish Sea estimated at 3 GW (Gigawatts or billions of watts), the installation of 16,000 charging stations by 2030, and the hydrogen of Teesside.

bp has established solar and wind projects in the United States. They have added 9 GW of solar power and expect financial returns of 8-10%. bp’s target is 50 GW of global renewables of all types by 2030. That’s a stretch, but knowing bp’s vision and resilience, you wouldn’t want to bet against it.

To give some context, these figures can be compared to the typical energy of a new coal or gas-fired power plant (0.6 GW).

bp’s most recent big leap was the Teesside industrial complex in the UK. The vision is for Teesside to become a major hydrogen hub for aviation, shipping and heavy trucks – all areas where it is difficult to use battery power – but also for challenging industries to be reduced, such as the cement works and the steel industry. The plan is to develop a mixture of blue hydrogen and green hydrogen.

bp joins AR

AR
EH in Pilbara.

The project in Western Australia is close to Pilbara, the largest iron ore mining region in the world, and located close to Port Hedland (see map). A map showed 25 different mines in the area. Western Australia is the world’s largest iron ore producer and exporter, with mining dominated by Rio Tinto, BHP and Fortescue Metals.

The Asian Renewable Energy Hub (AREH) is a company that integrates solar and onshore wind power with green hydrogen/ammonia. The shaded region of the AREH on the map is approximately 70 miles in diameter.

The objectives of AREH are to use renewable electricity to generate green hydrogen and green ammonia both for domestic use and for export abroad. Green electricity will be delivered to the Pilbara mines.

Using Pilbara hydrogen as fuel and ammonia as fertilizer will help Australia and Southeast Asian countries decarbonize aviation, shipping, long-haul trucking and factories steel and chemical manufacturing. The AREH targets, for example, Japan and South Korea.

Oil major bp recently agreed to acquire a 40.5% stake in AREH. They will become the operator of AREH, which seems like a huge challenge, although the company has faced many such challenges over the past 30 years. This is an impressive signal for other oil majors that have yet to embrace alternative energy.

The end game is 26 GW of green power capacity, which compares to 0.6 GW for a typical coal or gas-fired power plant. 26 GW represents approximately one-third of all electricity produced by Australia in 2020. The AREH project will also generate 1.6 million tonnes of green hydrogen or 9 million tonnes of green ammonia each year.

The numbers are almost staggering in a country of just 26 million people, where coal power dominates and coal exports are huge. Australia actually resisted any declaration of a net-zero emission date, such as 2050, until recently.

This looks like a big leap forward for AREH, for bp and for Australia in pursuing large-scale operations to reduce carbon emissions in Australia as well as South East Asia.

What can hydrogen decarbonize?

One answer lies in emissions that are difficult to reduce using green electrical energy. Long-haul trucks, ships, planes, steel and chemical plants.

However, Rystad Energy argued that by 2050, these energy needs would only represent 7% of the total global energy to be decarbonized. It’s a niche market, but important because 7% of the world’s energy is still a huge figure.

Green hydrogen is the color of hydrogen for the Pilbara project. Although it is more expensive because the electrolysis of water into hydrogen and oxygen is inefficient, it is cleaner than blue hydrogen.

Blue hydrogen is an alternative form made from methane gas. 99% of the hydrogen produced today is blue hydrogen because it is much cheaper than green hydrogen. But that’s a false premise when offered as a carbon-free solution for fuel or energy storage.

First, methane gas is used as a feedstock in the process of making blue hydrogen. Methane comes from the drilling and fracturing of gas or oil wells, where gas flaring and methane leaks in wells and pipelines can contribute significantly to global warming.

Second, the hydrogen generated has a by-product, carbon dioxide, which itself is one of the primary greenhouse gases (GHGs) that must be removed.

The big oil companies love hydrogen.

Hydrogen production is suitable for big oil companies and fits with the grandiose oil and gas projects of the past. This new vision is to spend billions of dollars collecting renewable electricity and then converting it into portable, shippable power around the world to deliver clean green power to planes, ships and trucks, as well as the empowerment of industries that produce steel and chemicals. .

The vision is well suited to the strengths of big oil: multi-billion dollars in funding, deep project management and plenty of workers to make things happen. Think of bp buying shale properties from BHP in 2018 for $10.5 billion. Or financing a $9 billion deepwater oil field called Mad Dog 2 in the Gulf of Mexico that is expected to produce 140,000 bopd (barrels of oil per day) from 14 new wells by 2022.

One observer speculated that green hydrogen and ammonia would become the new energy industry.

bp takes the lead in the $36 billion Asian renewables hub, as described above. But other majors are getting started.

TotalEnergies has joined an Indian company that could invest 50 billion dollars over 10 years to produce green hydrogen. In India, there is a high demand for fertilizer and green ammonia is expected to have a bustling market.

Chevron
CLC
is about to produce green and blue hydrogen, and spend billions of dollars to do so.

Shell is looking for a big hydrogen project, according to an insider.

Oil and gas companies are aware that the global number of EVs (electric vehicles) is growing exponentially. This portends a move away from gasoline and a corresponding decline in crude oil production.

Large-scale clean hydrogen could be the magic wardrobe for big oil and gas companies to enter an energy future compatible with climate predictions and goals such as the 2016 Paris Agreement.

Take away food.

The Pilbara project in Western Australia is a large iron ore mining region that is energy intensive and spews out large amounts of greenhouse gases.

AREH will supply renewable electricity, part of which will electrolyze water to produce green hydrogen. Both of these products can be used to reduce carbon emissions from mining operations.

AREH could become one of the largest green hydrogen hubs in the world. Lots of sun and wind to corral for clean electricity to produce green hydrogen. And many nearby markets in Southeast Asia.

When fully developed, AREH will help bp achieve its goal of capturing 10% of global hydrogen markets.