December 08, 2022 • Paul Rodden • Season: 2022 • Episode: 170
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In episode 170, BP continues to double down on the hydrogen economy. I'll dive into what they're doing on today's hydrogen podcast.
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BP continues to double down on the hydrogen economy. I'll dive into what they're doing on today's hydrogen podcast.
So the big questions in the energy industry today are, how is hydrogen the primary driving force behind the evolution of energy? Where is capital being deployed for hydrogen projects globally? And where are the best investment opportunities for early adopters who recognize the importance of hydrogen? I will address the critical issues and give you the information you need to deploy capital. Those are the questions that will unlock the potential of hydrogen, and this podcast will give you the answers. My name is Paul Rodden, and welcome to the hydrogen podcast.
In an article in reuters.com, Ron Bousso writes BP doubles down on hydrogen as fuel of the future BP executive Bernard Looney is betting on hydrogen to power future low carbon businesses, as the governments of major economies stump up cash to develop the fuel to decarbonize low carbon hydrogen already has a big fan base, and is forecast to play a major role in reducing greenhouse gas emissions from heavy industries and some forms of transport. But it is expensive to produce and often needs government support to compete against hydrocarbons. The United States, for example, is offering large incentives for producing it under President Joe Biden's $430 billion inflation Reduction Act, or the IRA.
BP has been quick to react and is in the early planning stages to develop a large low carbon hydrogen hub around its whiting Indiana refinery this according Tomeka McLeod, BPS newly appointed head of hydrogen in the United States. When Looney took office nearly three years ago, he pledged to reshape BP and cut carbon emissions by reducing oil and gas output and growing renewables. He is preparing to update investors on February 7, on where things stand, hydrogen will have a starring role along with offshore wind this according to BP company sources, BP has overhauled its structure to create a dedicated hydrogen division led by Felipe Arbelaez, which includes 150 staff. It also made several investments in large hydrogen projects, including in Australia, Europe, and Britain. It is also exploring the potential for developing green hydrogen in Oman. This again according to the company to Reuters and is also looking into projects in Mauritania. BP spinning on low carbon hydrogen remains modest, but is expected to grow into the hundreds of millions by the end of the decade as projects get underway.
Again, according to company sources, BP spent roughly a quarter of its 15 and a half billion dollar budget in 2022. On low carbon businesses, that's when including a $4.1 billion acquisition of us biogas producer, Archaea again according to Reuters calculations, Looney and BP's head of renewables, Anja-Isabel Dotzenrath will unveil In February a clean hydrogen production target for the first time aiming to capture 10% share of hydrogen and quote unquote, core markets by 2030. In a quote from BP CFO, Murray Auchincloss, hydrogen will be a big focus and it is moving much faster than we ever thought it would. Most hydrogen is currently used in oil refining and in fertilizer industry, and is usually made by heating natural gas highly polluting process known as gray hydrogen, but grey hydrogen becomes blue hydrogen, if the polluting emissions are captured. There's also green hydrogen, which is made by splitting water using renewables powered electrolysis. To expand his blue hydrogen business, BP is counting on its oil and gas experience to build carbon capture and storage facilities where carbon is injected into depleted reservoirs. It's also planning to boost its renewables power generation capacity to 15 gigawatts by 2030, which will be used in part to power electrolyzers. Now BP declined to comment on whether it will set a hydrogen production target or on its spinning plans for hydrogen. But what about tax credits? BPs project at its whiting refinery will initially replace around 200,000 tons of gray hydrogen used by the refinery every year with blue hydrogen? This again according to McLeod, the project could start operating by 2026 to 2027 and be expanded to green hydrogen. She is quoted as saying our focus in the US and its similar on the world is to how do we decarbonize and reimagine our own assets.
The low carbon fuel will in a second phase be used by other heavy industries in the area to reduce some 36 million tons of co2 emitted there every year. The project will rely on subsidies highlighting hydrogens challenge and competing with other lower cost hydrocarbons. The IRA offers a $3 per kilogram tax credit for clean hydrogen, which brings green hydrogen to par or even below the cost of gray and blue hydrogen. This according to analysts. Now I want to pull away here for a second and note that the IRA doesn't denote between green and blue hydrogen, but as extensively relying on the carbon intensity levels of the technology involved. Now to get back to the article, McLeod is continued to say, with the hydrogen production tax credits that are now in place it has allowed green hydrogen to be a lot more competitive, and that is true. Again, according to McLeod subsidies will initially allow green and blue hydrogen to compete with grey, allowing to consumers to switch to a cleaner fuel.
Now according to Andy Brogan, global oil and gas leader at Ernst and Young, demand growth for new hydrogen applications is going to be a function of cost competitiveness. Brogan continues to say there are material components of energy demand where hydrogen is the only obvious technologically viable alternative to carbon intensive operations. However, these are often price sensitive so the rapid acceleration will be dependent on cost. BP is already one of the biggest investors and hydrogen projects among the world's top oil and gas companies, including shell total energy's Repsol and Italy's Eni. According to Global Data, which is a global data provider, BP acquired in June a 40.5% stake and a 26 gigawatt renewables project in Australia that could produce green hydrogen is developing two projects in Britain where it aims to produce 1.5 gigawatts of blue and green hydrogen by 2030. Okay, so some interesting insight from the UK and Reuters as to what BP is currently doing, and to what they could potentially be doing in the next decade. Now, with what was outlined in this article, I can only imagine that the other super majors in Europe are looking at similar solutions as to what BP is doing.
Now, it's not a big surprise to see that BP is focusing heavily on investing in the US right now. Especially with them looking to mix blue and green projects, they're going to find that the United States has a much better mix of preferable regulations, and better economics. And I can only imagine that it will remain that way. Until Europe has a change of heart regarding how they view carbon intensity levels and the different technologies involved with making hydrogen. It's also very interesting to see that their primary target for utilizing this hydrogen is internally and decarbonizing their own operations with a secondary application of decarbonizing nearby heavy industry.
Now, it's something that I would be interested to see as a further analysis is comparing the investments of specifically BP, but also the other European oil and gas majors, like Total, and ENI compared with the US super majors, such as Exxon and Chevron. Now, Exxon has historically remained quite quiet on what they're doing on the hydrogen front. But I can assure you from personal knowledge that they are very interested in the space. Now Chevron, on the other hand, has been very public about how much they're interested in the hydrogen economy with multiple MOU's coming out over the last year. But one thing that this article does highlight that I really do like is the fact that BP did take that 40.5% stake in the 26 gigawatt renewables project in Australia.
And I would be curious to see if other super majors started investing in these renewable projects with the focus of developing electrolytic hydrogen. And I wonder if this could be a way that they're foreseeing an opportunity to diversify a hydrogen portfolio. Now those of you who know legacy oil and gas know that operators would diversify their portfolio of operations between natural gas and oil assets. And I'm wondering if this could be the future of diversifying a hydrogen portfolio within a company by breaking their internal investments into different technologies that would make a lot of sense considering how much money these companies are looking to invest in the hydrogen economy in the next 10 years.
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