Hydrogen: The Multi-Billion-Dollar Question Shaping the Future of the Downstream Industry

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Is hydrogen the future? Three downstream leaders share the reality behind the hydrogen hype.

Examining the commerciality and sustainability of hydrogen as an energy source and its impact on refining & petrochemical operators

Is hydrogen the future? It’s the refining and petrochemical industries’ billion dollar question. 106 billion dollars to be exact: across the global energy market,  hydrogen generation value is set to cross USD 160 billion by 2026.

As governments, consumers and stakeholders up the stakes on sustainability, hydrogen is an attractive option for downstream operators adapting to the next stage of the energy transition. It’s accessible, renewable, fuel efficient, and low in emissions.

It’s a buzzword with a big budget. But here, three downstream leaders share the reality behind the hydrogen hype, how the pandemic is fuelling progress in the drive towards renewables,  and do governments, and businesses, have the right infrastructure to support a hydrogen future?

Crisis driving change

The economic shock of the pandemic, and fluctuating oil prices, has pushed energy companies to investigate alternative fuel sources. A recent survey of senior oil and gas professionals revealed over half expect hydrogen to become a significant part of the energy mix by 2030, with a fifth already active in the hydrogen market.

In the hydrogen race, Asia is eyeing pole position with 56% of oil and gas leaders confident that hydrogen will play an integral part of their energy sector within the next ten years, more than any other continent. But, according to Mok Thye Yee, Manager FEED Downstream at PETRONAS GTS, its big break has been quietly brewing in the background for years.

“Hydrogen is not just about the future”, he says firmly. “it’s been very important over the last 100 years”.

Since the term “hydrogen economy” was first coined in 1970, the gas has played a solid, but supporting role to fossil fuels. But COVID-19 has provided operators with an opportunity to reset and re-align business models towards resilience and long-term sustainability, and this is pushing hydrogen into the spotlight. High energy density and flexibility of production means that its role will continue to expand.

(Hydrogen) has the potential to grow 10 times between now and 2050,” said Giovanni Serio, Global Head of Research at Vitol Group, the world’s largest independent oil trader. “It could be the one to solve the problem of storing energy and also addressing later the demand from the transportation sector

Bursting the hydrogen bubble

Asian private and public sector are ploughing new energy into the hydrogen economy. Local governments in Japan are pioneering hydrogen bus initiatives, and hydrogen demand across the country is set to increase 56 fold over the next decade, with an estimated investment of more than 400 billion yen ($3.74 billion). South Korea has set ambitious targets to for 40% of total energy consumption across selected regions to be hydrogen powered by 2040. The second phase of the ASEAN Plan of Action for Energy Cooperation, set to be discussed at the ASEAN ministers’ meeting on energy in November this year, will include policy measures tackling innovations such as hydrogen and energy storage.

But as the hydrogen race accelerates, some Asian operators are warning that pace should come with pragmatism. As Green becomes glamourous, there’s a risk of greenwashing the gas: only a small amount of hydrogen is produced meeting low carbon thresholds (“blue hydrogen”) and only  5% is “green hydrogen”, produced from renewables, a cumbersome process.

“With hydrogen, the issue is basically creating hydrogen,” cautions Hasnor Hashim, Principal Engineer of PETRONAS’s  Project Delivery and Technology Division. “You need to create hydrogen from water and it takes a great deal of time…we need a lot of activity for the heterosis process”.

Generating hydrogen can be draining, not only in time, but also resources and finances. The electrolysis process used to generate green hydrogen at industrial scale is expensive, and keeps the cost of the clean gas high. As Surender Pandey, MD of Chennai Petroleum warns, “It’s going to be very challenging, because generating and transporting hydrogen… is costly and a challenge”.

Hashim agrees. “You want to  transport hydrogen safely, you want to build a hydrogen refuelling station, and enable a full solution, or partial transition to hydrogen fuel. All that needs to be in place, which, unfortunately, has costs”.

Finding the right framework

As the hydrogen economy grows, it is also important to make sure that the necessary framework exists to support it. Hashim agrees that “the infrastructure needs to be in place for hydrogen to become really sustainable as a potential source of energy”. He believes that government needs to set a clear direction for private sector to follow.

“I think the government needs to… subsidise, or basically have a strong aim for what we need to implement hydrogen infrastructure in our country, maybe in five to 10 years”, he explains. “And if you have that mandate, or that goal, I think the private sector can also play a role. At least they know there’s a clear direction from the government, and they will be more inclined to invest in developing that kind of infrastructure”.

In Hashim’s home country, the Malaysian government has identified hydrogen as a “priority research for development”, with an ambitious roadmap that has gained over RM40 million of R&D investment.  The framework aims to cut technology costs by up to 50% and place the country as a leader in clean energy and a global supplier of hydrogen based fuel.

Others warn there’s more to be done. Ben Gallagher, an expert on carbon and emerging technologies at Wood Mackenzie Power & Renewables, remarked earlier this year on the lack of clarity that persists across the hydrogen supply chain.

In a scenario where both natural-gas prices and carbon prices rise, and there is government support in place, green hydrogen might pencil out economically”, he reasons. “But as of today, the economic case is still not there”.

Steaming ahead towards a sustainable future

But times are changing, and in these times, they change fast. Energy demand is growing, and while fossil fuels still dominate the market, their demand is falling. Hydrogen is well placed to fill this growing gap in the market.

“I think in the future, we won’t have much option, other than to consider hydrogen” predicts Pandey. “It’s all going to depend on how economies work out…if we manage to make the prices cheaper, it will be more a more commercial option for operators”.

As new technologies emerge to bring the production cost of green hydrogen down, this commercial accessibility might be closer than we think. For Yee, innovation needs match the pace of wider economic and social progress.

“We cannot overnight change all the cars to hydrogen fuel cells…. technology can do that… (but) if you throw away the current infrastructure overnight or in a short period of time, then you will disrupt the economy. If you can make use of the current infrastructure and then slowly transition, that actually makes more sense…not only technical sense, but economically”.

Perhaps the debate is not whether hydrogen is “good” or “bad”, but how we can adapt our current infrastructure to make it work best: for consumers, corporations, and the climate. As Pandey cheerfully puts it:

“It should be a very exciting time in the next 20 years!​”