These waves of change are lapping at the shores of the emissions-intensive oil and gas (O&G) industry. Investors, shareholders, employees, and the public have high expectations and increasing scrutiny of the sector’s environmental, social and governance (ESG) standards, and the pressure is building for O&G companies to join the movement towards a lower-emissions future.
Now is the time for O&G companies to prepare for change and transform themselves into broader energy businesses, moving quickly to take advantage of emerging clean energy opportunities – such as green hydrogen – and demonstrating serious commitment to activating global energy solutions.
From brown and grey to blue and green – hydrogen isn’t the answer unless it is clean
When hydrogen is extracted from fossil fuels (like coal or natural gas) and the emissions are released to the air, it’s termed ‘brown’ or ‘grey’. A ‘cleaner’ alternative – termed ‘blue hydrogen’ — is hydrogen produced from natural gas with carbon capture and storage (CCS). But the real prize is ‘green hydrogen’ – produced through the simple, tried-and-true process of electrolysis, powered by renewable energy, requiring no more than the electrolyser and water. When powered by wind, solar, or hydropower, the resulting hydrogen is a truly clean energy source.
Green hydrogen production is a natural complement to wind and solar developments. It can act as a storage technology to avoid curtailment of generation when wind and sun are abundant and exceed demand. When the weather-dependent renewable generation is inadequate, hydrogen can fill the gaps. The electrolyser can act as a fast-ramping load to provide voltage and frequency regulation, stabilizing the grid. It can also be transported to where it is needed and used in applications that are otherwise difficult to decarbonize (such as long-haul travel by air, sea or road, or high-heat industrial processes).
Global demand for hydrogen is estimated currently at approximately 70 million tonnes, with 98% of that being filled with grey hydrogen. Although green hydrogen is currently significantly more expensive than grey hydrogen, this scenario is set to reverse during the next decade as the costs of wind and solar power plummet, electrolysers become cheaper, and financial penalties for emissions rise. Green hydrogen is set to boom from 2030 onwards (when it is predicted to become cost-competitive in most applications) and is projected to reach 500 million tonnes by 2050, displacing carbon-based fuels.
A European perspective
With the supply of wind and solar power in Europe set to triple in the next five years, there’s a massive growth opportunity for green hydrogen. In fact, it is now an extremely high priority in the EU’s energy transition. The EU recognizes that rapid large-scale deployment of green hydrogen will be needed if Europe’s ambitious climate and emissions goals are to be achieved, so plans are underway to scale up renewable hydrogen projects, with massive investment of billions of Euros through to 2050. Hydrogen investments in Europe are expected to soar massively in coming years, mainly thanks to the significant funding allocated by the EU under the ‘Next Generation’ funding scheme.
Many European nations are investing heavily in construction of electrolysis plants and other hydrogen infrastructure. However, it’s likely that Europe will take on a greater role as consumer and importer of green hydrogen than as producer, and there’s growing interest in developing closer relationships and partnerships with producers in the Middle East and Africa, with their abundant supply of wind, solar and hydropower energy resources.
Already, several projects are planned in Saudi Arabia and Oman, with plans to export green hydrogen to Europe. On the African continent, many West African countries are considered ideal locations for green hydrogen hubs due to their favorable proximity to Europe and existing facilities.
Mutual benefits can flow from collaboration between European and African nations on green hydrogen developments: Europe stands to gain access to sources of hydrogen for import, and African communities will benefit from the foreign investment, with economic development, training opportunities and local jobs, better living conditions and a pathway out of poverty.
The EU’s Hydrogen Strategy explicitly recognizes the potential for Africa to become a major source of supply, and there is momentum towards directing European investment into enabling African countries to pursue green energy developments.
The view from Australia
Australia has the potential to become one of the top global exporters of hydrogen. Blessed with an abundance of national resources, hydrogen presents an enormous opportunity for major O&G businesses to expand and diversify. By capitalising on the growing global interest in hydrogen, O&G companies can position themselves to be strong competitors and large exporters in the trending market.
For Australian businesses to capitalize on these emerging opportunities, efforts need to focus on developing clear and supportive regulatory policies and frameworks. A National Hydrogen Strategy was released in November 2019, and government funds are now earmarked for early-stage research and pilot projects, exploring new uses for hydrogen, opportunities to scale up and reduce costs of production, and potential for export into the booming centres of demand in nearby Japan, South Korea, Singapore, and China.
‘Megaprojects’ are now emerging in Australia, such as the $US36 billion Asian Renewable Energy Hub in the Pilbara region of Western Australia. Vast wind and solar generation facilities will be developed and will produce hydrogen for conversion into “green ammonia” which can be utilized as an alternative to traditional hydrocarbon fuel for export. Export of green hydrogen is also being embraced by the small island state of Tasmania, with its abundant hydropower and wind resources. Having already reached 100% renewable penetration, it is eyeing a target of 200% renewables by 2040, with some of that capacity dedicated to the production of green hydrogen for export. The Tasmanian Government announced funding in late 2020 to support feasibility studies for three large-scale hydrogen projects, with a goal to be producing and exporting green hydrogen by 2030.
Export isn’t the only driver, however, for Australia’s interest in green hydrogen. The Western Australian Asian Renewable Energy Hub and the Tasmanian projects will also explore the potential to use hydrogen to fuel the furnaces that could transform Australia’s sizeable iron ore supplies into ‘green steel’. In November 2020, Western Australian mining magnate Andrew Forrest announced his own ‘nation-building’ plans to invest billions in green hydrogen to drive the green steel industry in Australia.
Other domestic opportunities for green hydrogen include using it as a fuel in the transport sector, blending it into existing gas networks, and using it to stabilize and support remote, off-grid renewable energy systems. The Australian projects are mostly still in their concept and preliminary phases, so it will be some years until completion of financial approvals and construction.
Fuelling the next generation
What does this mean for the O&G industry? Green hydrogen presents an opportunity for O&G companies to evolve into Energy companies: to reduce their carbon footprint and to diversify with at least a partial transition from fossil fuels to renewables. A genuine commitment to clean energy solutions and lowering emissions will build ESG credentials which is critical to the future of the industry.
As hydrogen evolves over the next 10 years, it is important for O&G businesses to attract the next generation of the best and brightest young engineers, scientists, and other specialists to advance new solutions to the planet’s urgent challenges – solutions that are in step with the expectations of modern markets and communities.
Green hydrogen presents an exciting opportunity to fuel the future but will take vision and leadership to pursue. The wave is coming very fast. The greatest risk will be not moving quickly enough to capitalize on it.
About the authors
Andrea Chiampo is a Principal of the Turin office in Italy. He holds a B.Sc. in Hydrogeology from the University of Turin and a M.Sc. in Environmental Engineering from Imperial College of London, UK. Andrea has more than 25 years of professional experience and joined Golder, a member of WSP, in 1994, working mainly in the Oil & Gas Sector. He is currently the regional Account for ExxonMobil and our Energy Sector Leader for Europe and Middle East region.
Chris Rae is Oil and Gas Sector Leader for Golder, a member of WSP, for Australia and New Zealand. He works closely with our Global Oil and Gas team to develop first class services to our clients. Chris also coordinates our business development activities in Oil and Gas throughout Australia and New Zealand and supports colleagues with strategy and client relationships. Chris has over 15 years of combined client and consultancy project management experience in planning and delivering large and complex Energy projects specializing in Oil and Gas.
