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Tariq Siddiqui's picture
COO, Upstream EP Advisors LLC

Oil & Energy | Business Development | Capital Projects | Offshore Wind -  Proven leader in offshore development and operations, with 25+ years’ expertise in managing business through cycles...

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  • Jul 6, 2021
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Many advocates for a hydrogen economy believe “green” hydrogen, which is produced through electrolysis using renewable energy, will eliminate the need to curtail wind and solar generation. However, there are many reasons why “blue” hydrogen, which is produced from natural gas while using carbon capture technology to reduce or eliminate greenhouse gas emissions, could be a better long-term option for hydrogen production.

KEY INSIGHTS

Now is not the first hydrogen (H2) revolution. Hydrogen produced from fossil energy is viewed as a bridge in energy transition, enabling the build-out of midstream infrastructure and downstream demand while the cost of renewably driven electrolysis of water to produce “green” hydrogen continues to fall. However, a 100% green hydrogen economy may fail to deliver on the potential for hydrogen or unnecessarily delay progress. 

COST CHALLENGES (GREEN VS BLUE HYDROGEN)

  • Hydrogen becomes the low-cost, low-carbon solution in a majority of potential end-use markets at $2/kilogram (kg) H 2.
  • Currently, fossil-based hydrogen without carbon capture, known as “gray” hydrogen, can deliver less than $1.50/kg H 2 costs while carbon capture can add $0.10/kg to $0.30/kg.
  • Green hydrogen currently delivers approximately $5/kg unit costs; these estimates are dropping expected to achieve $2.60/kg prices by 2030 and less than $1.50/kg by 2050.
  • However, in each case, blue hydrogen is at most a steppingstone to a green hydrogen market: a gray-to-blue-to-green transition. This strategy has three primary limitations that may be resolved through continued utilization of blue hydrogen. They are:
    1. Geographic variability of resource availability.
    2. Energy inefficiencies of electrolysis.
    3. Intermittent supply limiting build-out of constant demand end-uses.

WATER & ENERGY AVAILABILITY FOR GREEN VS BLUE HYDROGEN

  • Green hydrogen consumes at least 9 kg of water per kg of H 2 while gray and blue H 2 requires half as much (when produced via steam methane reforming).
  • Water is increasingly a limited resource, with complex and interdependent uses for energy, agriculture, and sanitation. In many regions across the world, often those with abundant renewable energy, water stress may not allow for production at the scale required to meet local demand
  • Green hydrogen requires approximately 11 times as much energy per unit H 2 produced compared to fossil-based routes (before carbon capture) and it needs to be cheap.
  • Greening the current global gray hydrogen supply would require nearly 3,900 TWh of electricity/yr, nearly 60% more (combined global wind and solar PV 

NATURAL GAS  INFRASTRUCTURE - LEVERAGE FOR BLUE HYDROGEN

The oil & gas companies have a critical role in energy transition, especially use of natural gas and its infrastructure in carbon-neutral natural gas for blue hydrogen production:

  • Utilization of shale gas reservoirs has dramatically expanded the geographic footprint of natural gas extraction.
  • Suitable geologic carbon dioxide (CO 2) storage capacity is also available and plentiful.
  • Infrastructure availability is also vastly different between blue and green hydrogen. The natural gas value chain is globally mature, and both financial and regulatory stakeholders understand its operation in detail; these “soft” infrastructures require development in an all-green hydrogen scenario.

CHALLENGES STILL EXIST WITH BLUE HYDROGEN

Despite current advantages of blue hydrogen, work is still needed to realize a hydrogen transformation.

  • These challenges center on the carbon intensity of existing gray hydrogen production designs and the relative immaturity of the carbon sequestration industry.
  • The predominant mode of gray hydrogen production, steam methane reforming with a water-gas shift reaction, will need to be retrofitted 

KEY RISKS WITH BLUE HYDROGEN

However, early leaders in the green hydrogen economy, such as Germany, with comprehensive regulatory and tariff support for renewables, have left little political room for blue hydrogen.

  • A substantial risk exists that a planned obsolescence of blue hydrogen will limit the participants in this ecosystem and lead to financing difficulties, particularly for new capacity.

BEST OPTIONS FOR BLUE HYDROGEN

  • Hydrogen is best suited to decarbonize difficult-to-abate sectors of the economy; heavy road freight, shipping, aviation, chemicals, cement, and iron and steel manufacturing.
  • These sectors account for a combined 30% of global greenhouse gas emissions and are challenging to electrify.
  • In contrast to load shifting of renewables, each of these sectors would have nearly continuous demand for hydrogen. Thus, those demand centers for which hydrogen has the best value proposition are least served by the capabilities of intermittent, green hydrogen or require additional costs associated with storage.

BOTTOMLINE

Taken together, there is a clear need for blue hydrogen to satisfy growing end-uses at affordable pricing and finance the necessary midstream infrastructure to sustain growth of the hydrogen economy. The ubiquity of shale gas plays, along with growing natural gas infrastructure and CO 2 storage sites, creates an opportunity for a geographically diversified hydrogen economy and rapid decarbonization that need to be balanced with challenges and associated risks.

 

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