The hydrogen economy has been a discussion in academia and with researchers for decades. The most substantial effort to bring it to reality occurred during high oil prices in the early 2000s, yet as with every previous effort, it ended with unprofitable projects and disappointed investors. As the climate change agenda has been pushed into the forefront, we are once again seeing a major movement towards bringing the hydrogen economy vision into reality. Governments around the world are spending massive amounts on infrastructure, and companies are raising record amounts of money to monetize this potential opportunity. What makes this effort so different? What indicates that this time the hydrogen economy may be viable? Sustainability in the opportunity is the answer. The opportunity is a compelling combination: The substantial reduction in the cost structure for the hydrogen economy and hydrogen industrial applications as a means of carbon-free energy storage. Hydrogen is the key to addressing a major challenge of a low carbon future; long-term energy storage and transmission. Unlike batteries, hydrogen can be transported in bulk, can be shipped on tankers, railcars or pipelines, and can be stored as a liquid, as a gas, or as ammonia. The industry most experienced with the challenges of hydrogen is the oil and gas industry, making them a key player in the hydrogen economy and the movement toward a lower-carbon future.

The movement toward a hydrogen economy is global. Large-scale projects for both blue and green hydrogen are being developed around the world. Global demand is growing for both fuel cells and electrolyzers, with China leading the way. The demand for electrolyzers capable of producing green hydrogen quadrupled in 2022 in China. Demand has been strong in the rest of East Asia as they look to produce more energy from domestic renewable energy. In the United States, Air Products announced a $4.5 billion blue hydrogen project that will be operational in 2026. Europe is engaged in a number of multibillion-dollar projects to combine wind and solar with electrolyzers for green hydrogen. This trend is not showing any sign of slowing, but, on the contrary, it is speeding up. In India, Reliance Industries is looking to invest $75 billion into green and blue hydrogen supply chains. The movement to hydrogen will be a boon to the oil and gas industry for decades to come.

Natural Gas

To understand the benefits of the hydrogen economy to the oil and gas industry, the significance of natural gas to the hydrogen process must be discussed. The increase in interest and investment in the hydrogen economy is only possible because of the existing supply and demand of hydrogen, which is derived from natural gas (grey hydrogen). Currently, hydrogen produced from natural gas is substantially cheaper than hydrogen produced from renewable energy (green hydrogen). The cost of hydrogen from natural gas is around $1.50 per kg. Even if carbon capture technology is included, the cost of hydrogen from natural gas is around $2.50 per kg (blue hydrogen). The cost of that same hydrogen from renewable energy using electrolyzers is currently $5.00 per kg (green hydrogen). That cost differential derives from the reality that an electrolyzer uses electricity to split water molecules into hydrogen and oxygen. That process currently is very expensive because of intense electricity needs and limited scale for that industry. Approaching scale will be accomplished over time which is why hydrogen from natural gas will continue to be a key player in the hydrogen economy for years. This is especially true in the United States, which has an abundance of low-cost natural gas available as feedstock for hydrogen. 

Even with a large amount of investment in green hydrogen production using electrolyzers running on renewable energy, it will be years before we reach cost parity. The cost of scaling up the technology will take tens of billions of dollars of investments; not only that but a continued decline in clean energy cost is needed as well. The path forward for both of these technologies is not entirely certain. Even if cost parity is achieved, it will take decades to get the volume to such a level as to displace hydrogen from natural gas. Finally, the path forward will be different depending on the amount of clean energy and freshwater that is available in different regions. In areas near the equator with freshwater, such as India, the path for green hydrogen makes more sense. But in areas with less clean energy potential and low-cost natural gas, it will likely be decades before blue hydrogen is challenged by green hydrogen.  This makes hydrogen from natural gas combined with carbon capture and sequestration a beneficiary of the transition to a lower-carbon future and the hydrogen economy.

Oil Field Service Companies

The need for oil and natural gas will not necessarily diminish as we decarbonize; instead, the usage may change. Blue hydrogen requires putting carbon back into the ground. Oil field service companies have spent decades streamlining the process of pumping oil out of the ground; this expertise will be needed to reverse the process and pump carbon into the ground. Oil field service companies will likely get a major boost from the usage of blue hydrogen. Much of the technology for sequestering the carbon already exists. From the prospecting of geology to see if it would be a good candidate for sequestration, to helping maintain the integrity of an injecting well, to the actual pumping of CO2 into the ground, all are opportunities for companies that specialize in this technology. This opportunity will also benefit offshore players as well since some of the best candidates for industrial-scale carbon sequestration are offshore oil fields. The biggest impediment currently is cost.

Carbon capture is still very expensive, but if a carbon capture tax credit of some kind is created, it could hasten the day that carbon capture is viable. The timing of when it will be economical is uncertain, but that day is getting closer. In the future, oil field service companies will not only be able to make money getting oil and natural gas out of the ground but also make money pumping CO2 back into the ground.

Oil 

The hydrogen economy offers opportunities for oil as well. This statement may come as a surprise to many since the hydrogen economy and decarbonization tend to indicate an end to oil. But in reality, oil is benefitted in many ways. This transition will take decades. Building out both a blue and green hydrogen ecosystem is an absolutely massive task that will involve countless countries and companies and hundreds of billions of dollars. That means it will be a somewhat slow process. In the meantime, oil will still be required to keep the economy running.

A future benefit will be from a rising amount of CO2 available from carbon capture for enhanced oil recovery.  This will be from capturing major sources of CO2 from the industry that will need to be sequestered underground. The other opportunity for oil is that the hydrogen part of the oil molecule has a lot of value even in a world that would be carbon neutral. The opportunity will be how to separate the hydrogen from the carbon in an economical way. Currently, this is an expensive and uneconomic process even without using carbon capture and sequestration. But that does not mean an opportunity does not exist. Testing has been done using fire-flooding in oil fields that has shown hydrogen as a byproduct of these activities. Some testing of a membrane that allows hydrogen but not CO2 to pass through is also being done. If that could be created, it would be a game-changer for hydrogen production and the longevity of an oil field.  If this or a similar process is able to separate the hydrogen in-situ, it could extend the economic life of an oil field for decades.

Midstream

The advantages of the hydrogen industry to the oil and gas industry is how it has a potentially positive effect on each sector of the industry. The hydrogen industry could be a boon for the midstream sector. The most obvious reason is that hydrogen is easily moved through pipelines. Currently, the U.S. only has about 1,600 miles of dedicated hydrogen pipelines, and they are heavily concentrated in the Gulf Coast region. But research by the DOE has shown that some oil and gas pipelines would be able to manage hydrogen at levels of up to 30% with limited modification.

Another area of opportunity will be in hydrogen storage. Decarbonization will require hydrogen storage, meaning any future in hydrogen is dependent on storage capacity. Hydrogen from clean energy is the only viable way to store intermittent and seasonal energy such as wind and solar. Electrolyzers creating green hydrogen will need huge underground storage facilities to store hydrogen for winter heating and power in colder climates.

As coal declines, which usually has large amounts of stored onsite energy, the only real way to make up for that declining stockpile in a decarbonizing world is using hydrogen. Midstream companies are the firms that have expertise in using underground storage facilities from natural gas, giving them an opportunity to move into the hydrogen economy. While the speed of the transition to a volume of hydrogen that will require modification is uncertain, the world is moving in that direction.

Downstream

 Hydrogen vehicles, unlike battery electric vehicles, will not be possible to charge at home. The risks are too great to dispense a flammable gaseous fuel in a garage or outside one’s house. This makes a fuel network for fleet operations an ideal use of the downstream resources that currently exist in fuel distribution companies. While passenger vehicles are currently dominated by EVs when it comes to zero-emission vehicles, the only viable way for heavy-duty trucks and large vehicles will be hydrogen.

Hydrogen is different from gasoline or diesel, but the best way to use hydrogen for transportation will involve the need for fueling stations. Already the technology exists for storing hydrogen for transportation and for fueling. That technology has been most developed by Plug Power with its network of hydrogen dispensers for the fuel cell forklifts that it sells. There are also a number of other major players, such as Shell, which have experience in the passenger vehicle fuel sales for hydrogen. As more heavy-duty applications are required to decarbonize, downstream applications will continue to grow and benefit the oil and gas industries.

LNG

 A major challenge for the hydrogen economy is how to move it between international markets. Just like natural gas, the location between the cheapest production and major areas of consumption can be substantial. That will require large tankers to transport the hydrogen. To maximize the transportation potential, the hydrogen will have to be liquified.  Liquid hydrogen is also being considered a likely way to deliver hydrogen to fueling stations. Delivering liquid hydrogen is the main way existing hydrogen dispensers for mobile applications around the country are refueled. The reason that this already exists is that similar technology has been developed for LNG transportation and distribution for mobile applications.

Both LNG and Hydrogen have to be chilled to extremely low temperatures. The technology for LNG is very mature and is done on a massive scale. This technology is incredibly complementary to hydrogen, and while some differences exist, hydrogen has benefited from the research. It is likely that hydrogen will follow in the footsteps of LNG as a major way to transport hydrogen both internationally and through certain over-the-road applications. This will benefit many LNG companies who already have products that, with some modification, will be used and are used to handle hydrogen.

The Future

The world is pushing toward a decarbonized future. That future will certainly see a change in how we store and distribute energy. A key part of that mix will be hydrogen from all sources. That is a major benefit for the oil and gas industry. The expertise and knowledge of almost every part of the oil and gas industry will be needed to take advantage of the opportunity hydrogen presents. While clean energy is often treated as a threat to the oil and gas industries, through hydrogen, it will also benefit the industry as well. The only way to store clean energy long-term or to transport it over far distances will be from hydrogen. The oil and gas industry will be an important player in the energy transition, and if the correct investment is made, it will be a major beneficiary of this transition.

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