Big-Oil Lands On Huge Hydrogen Hub In Australia, But How Viable Is Hydrogen Really.

In 2020, bp sat down as an oil and gas company and looked in the crystal ball. After a lengthy review of lots of data they came up with three scenarios for the future. In the main one, oil and gas consumption would be 36% of total global energy in 2050 (down from 57% in 2020) and renewables would be 45%.

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

bp is integrating rapidly.

Let’s dig a little deeper into this integrated energy company by examining bp’s recent investments in the UK and the US.

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

bp has established solar and wind projects in the US. They have added 9 GW of solar energy, and anticipate financial returns of 8-10%. bp’s goal 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 numbers can be compared with typical energy of a new coal- or gas-fired power plant (0.6 GW).

The most recent big leap by bp was the industrial complex of Teesside in the UK. The vision is for Teesside to become a major hydrogen hub for aviation, shipping, and heavy trucks – all sectors where it’s hard to use battery power – but also for hard-to-abate industries such as cement and steel making. The plan is to develop a mix of blue hydrogen and green hydrogen.

bp joins with AR AR EH in Pilbara.

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

The Asian Renewable Energy Hub (AREH) is an enterprise that integrates solar and onshore wind power with green hydrogen/ammonia. The shaded AREH region in the map is about 70 miles across.

AREH goals are to use renewable electricity to generate green hydrogen and green ammonia both for domestic use and for export overseas. 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 hard-to-abate aviation, shipping, long-haul trucking, and factories making steel and chemicals. AREH is taking aim at Japan and South Korea, for example.

The oil major bp recently agreed to acquire a 40.5 per cent equity stake in AREH. They will become the operator of AREH, which seems like an enormous challenge, although the company has taken on many such challenges in the past 30 years. It’s an impressive signal to other oil majors that haven’t yet embraced alternative energies.

The end game is 26 GW of green power capacity, which compares with 0.6 GW for a typical coal or gas power plant. 26 GW is about a third of all electricity generated by Australia in 2020. The AREH project will also generate 1.6 million tonnes of green hydrogen or 9 million tonnes of green ammonia every year.

The numbers are almost mind-boggling in a country that has only 26 million population, and where coal power is dominant 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 great leap forward for AREH, for bp, and for Australia in the pursuit of large-scale operations to reduce carbon emissions within Australia as well as southeast Asia.

What can hydrogen decarbonize?

One answer is emissions that are hard to abate using green electric power. Long-haul trucks, ships, airplanes, steel and chemical factories.

However, Rystad Energy has argued that by 2050 these energy needs amount to only 7% of total global energy that needs to be decarbonized. It represents a niche market, but an important one because 7% of global energy is still an enormous number.

Green hydrogen is the color of hydrogen earmarked for the Pilbara project. Although its more expensive, because electrolyzing 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 hydrogen produced today is blue hydrogen because its much cheaper than green hydrogen. But it’s a false premise when offered as a carbon-free solution to fuel or energy storage.

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

Second, the hydrogen generated has a biproduct, carbon dioxiode, which itself is a principal greenhouse gas (GHG) that has to be disposed of.

Big-oil is loving on hydrogen.

The production of hydrogen suits big-oil and it fits with grandiose oil and gas projects of the past. This new vision is to spend billions of dollars on collecting renewable electricity then converting it to energy that is portable and can be shipped around the world to provide clean green energy to power planes, ships and trucks as well as empower industries that make steel and chemicals.

The vision is well-suited to big oil’s strengths: multi-billions of funding dollars, extensive project management, and lots of workers to make things happen. Think of bp purchasing shale properties from BHP in 2018 for $10.5 billion. Or funding a $9 billion deepwater oil play 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 will become the new energy industry.

bp is taking the lead in the $36 billion Asian Renewable Energy Hub, as described above. But other majors are jumping in.

TotalEnergies has joined an Indian venture that may invest $50 billion over 10 years to produce green hydrogen. In India, there is great demand for fertilizer and green ammonia should have a bustling market there.

Chevron CVX is getting ready to produce green and blue hydrogen, and to spend billions of dollars to do it.

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

Oil and gas companies are aware that global numbers of EVs (electric vehicles) are growing exponentially. This portends a shift away from gasoline and a correlated decline in production of crude oil.

Large-scale clean hydrogen could be the magic wardrobe for major oil and gas companies to step into an energy future that is compatible with climate predictions and goals such as the Paris agreement of 2016.

Takeaways.

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

AREH will provide renewable electricity, and part of this will electrolyze water to make green hydrogen. Both of these products can be used to lower carbon emissions from mining operations.

AREH may become one of the largest green hydrogen hubs in the world. Lots of sunshine and wind to corral for clean electricity to produce green hydrogen. And lots of markets nearby in southeast Asia.

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