Pricey hydrogen still attracts oil companies looking to future
As the world moves away from fossil fuels, hydrogen is piquing the interest of oil companies looking to diversify and expand into alternative energy sources.
Oil executives speaking virtually during CERA Week by IHS Markit said they are confident that hydrogen, the most abundant element on earth, can be harnessed to store and deliver a tremendous amount of energy for transportation, power generation and industrial uses.
“Hydrogen as a fuel has significant opportunity,” said Lorenzo Simonelli, chief executive of Houston-based oil field services firm Baker Hughes. “We think hydrogen is a fuel for the future.”
Simonelli was speaking during a virtual session of the energy conference held by Cambridge Energy Research Associates, an IHS Markit company. The weeklong gathering of energy executives, government officials and analysts is usually one of Houston’s largest every year. It’s being held online this year after the coronavirus pandemic forced cancellation of last year’s event.
Hydrogen is among the confer
ence’s hot topics this year because of its appeal in a world increasingly concerned about greenhouse gas emissions. Fuel cell vehicles powered by hydrogen release no smog, only water vapor.
For oil companies, hydrogen has another major draw. It has properties similar to oil and natural gas, and can be transported through pipelines and distributed through existing fuel station networks with some adjustments.
Hydrogen today, however, is too expensive to produce in vast amounts and much of it comes from fossil fuels, primarily natural gas, which nullifies its environmental advantage over solar and wind. There are ways to produce hydrogen from renewable energy sources, but it’s two to three times as expensive as producing it from natural gas, experts said.
Hydrogen could play a key role in powering economies in the future if oil companies can lower costs, increase demand and use renewable energy to produce it, executives said. IHS Markit,
the global energy research firm, estimates that hydrogen costs $200 to $250 per barrel to produce, as much as five times the cost to produce as a barrel of oil.
“The technology is expensive,” Exxon Mobil CEO Darren Woods said. “Frankly, to do the job that’s required to help society get to net-zero (emissions), we’re going to need more advances and lower costs associated with that. Driving some of those costs down is going to be critically important to finding an effective role and scalable role for hydrogen in the economy.”
Still, many oil companies are researching and investing in hydrogen projects. IHS Markit believes that energy companies will invest $5 billion to $10 billion in the fuel over the next five years, helping to develop breakthrough technologies that will reduce its cost.
Saudi Aramco, the Saudi Arabian state oil company, last year shipped 40 tons of ammonia, a compound of hydrogen and nitrogen, to Japan, where it is used without emitting carbon dioxide. Iberdrola, a Spanish oil company, is investing in 50 hydrogen projects around the world, including one
that provides it for Barcelona’s public transportation system.
“Hydrogen has huge potential going forward in transportation and power generation,” Saudi Aramco CEO Amin Nasser said. “Hydrogen fuel cells are likely to compete with electric vehicles in the future and hydrogen-sourced electricity could provide a backup generation for wind and solar.”
Oil executives warn that hydrogen as a fuel source is far from being widely adopted. In the early 2000s, California sought to create a “hydrogen highway,” a network of hydrogen fueling stations, but the effort hasn’t taken off.
Mike Wirth, the CEO of California-based Chevron, said the company had installed several hydrogen fuel stations along the hydrogen highway. For hydrogen to gain traction, it requires consumer demand, Wirth said.
“As an industry, we can’t give the market what it doesn’t want,” Wirth said. “We’ve got to find a way to work across the value chain in order to create that pull through for hydrogen into the right markets and the right uses that make sense
for our customers.”
Ultimately, oil executives said hydrogen may need incentives from policymakers and bold investments from industry to rival fossil fuels.
Shell CEO Ben van Beurden said that momentum behind hydrogen has grown and slowed, but that he believes companies are on the verge of a technological breakthrough that could propel it into a major business for oil and gas companies. Shell said it has customers who have shown significant interest in making hydrogen transportation fuel a reality, but van Beurden acknowledged it won’t happen soon.
“(Hydrogen) is a very small business at this point in time and it will take a long time before it is a business that is large enough to start making a real difference on sort of a planetary scale,” van Beurden said. “But it is absolutely essential for the energy mix of the future. Without hydrogen, I do not believe we can aim to be a net-zero economy by 2050, so we better get our skates on and make sure that in the next 30 years, it really grows up.”