LONDON, Dec 5 (Reuters) – BP Chief Executive Bernard Looney is betting on hydrogen to power future low-carbon businesses as governments in major economies pile up funds to develop the fuel needed for decarbonisation .
Low-carbon hydrogen already has a large fan base and is expected to play a major role in reducing greenhouse gas emissions from heavy industries and some forms of transportation.
But it is expensive to produce and often requires government support to compete with fossil fuels.
The United States, for example, offers significant incentives for its production under President Joe Biden’s $430 billion Inflation Reduction Act (IRA).
BP (BP.L) reacted quickly and is in the early stages of planning the development of a large, low-carbon hydrogen hub around its refinery in Whiting, Indiana, new manager Tomeka McLeod of hydrogen from BP in the United States, told Reuters.
When Looney took office nearly three years ago, he pledged to reshape BP and cut carbon emissions by cutting oil and gas production and expanding renewable energy. He is preparing to update investors on February 7 on the state of affairs.
Hydrogen will have a prominent role alongside offshore wind, BP company sources told Reuters.
BP has reviewed its structure to create a division dedicated to hydrogen headed by Felipe Arbelaez which includes 150 people. It has also made several investments in major hydrogen projects, notably in Australia, Europe and Great Britain.
It is also exploring the potential for green hydrogen development in Oman, the company told Reuters, and is also exploring projects in Mauritania.
BP’s spending on low-carbon hydrogen remains modest but is expected to reach hundreds of millions by the end of the decade as projects get underway, company sources said.
BP has spent about a quarter of its $15.5 billion budget in 2022 on low-carbon ventures, including the $4.1 billion acquisition of U.S. biogas producer Archaea, according to calculations by BP. Reuters.
Anja-Isabel Dotzenrath, head of renewables at Looney and BP, will unveil a clean hydrogen production target for the first time in February, aiming to capture 10% hydrogen share in “core markets” by 2030. , the company’s sources said.
“Hydrogen will be a big priority and it’s moving much faster than we ever thought possible,” chief financial officer Murray Auchincloss told Reuters last month.
Most hydrogen is currently used in the oil refining and fertilizer industry and is usually made by heating natural gas, a highly polluting process, known as gray hydrogen.
But gray hydrogen becomes “blue hydrogen” if polluting emissions are captured. There is also “green hydrogen”, which is made by separating water using electrolysis powered by renewable energy.
To grow its blue hydrogen business, BP is relying on its oil and gas experience to build carbon capture and storage facilities, where carbon is injected into depleted reservoirs
It also plans to increase its renewable energy generation capacity to 50 gigawatts by 2030, which will be used in part to power electrolyzers.
BP declined to say whether it would set a hydrogen production target or on its hydrogen spending plans.
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BP’s project at its Whiting refinery will initially replace about 200,000 tonnes of gray hydrogen used by the refinery each year with blue hydrogen, McLeod said. The project could start operating by 2026-2027 and be extended to green hydrogen.
“Our focus in the United States, and it’s similar around the world, is how to decarbonize and reinvent our own assets,” she said.
The low-carbon fuel will later be used by other heavy industries in the region to reduce some 36 million tonnes of CO2 emissions there each year.
The project will rely on grants, highlighting the challenge of hydrogen in the face of competition from lower-cost fossil fuels.
The IRA offers a $3 per kilogram tax credit for clean hydrogen, bringing green hydrogen to the same level or even below the cost of gray and blue hydrogen, analysts say.
“With the hydrogen production tax credits that are now in place, this has … allowed green hydrogen to be much more competitive,” McLeod said.
The subsidies will initially allow green and blue hydrogen to compete with gray hydrogen, allowing consumers to switch to cleaner fuel, McLeod said.
“Growth in demand for new hydrogen applications will depend on cost competitiveness,” said Andy Brogan, global head of oil and gas at EY.
“There are material components of energy demand where hydrogen is the only obvious technologically viable alternative to carbon-intensive options,” Brogan said. “However, these are often price sensitive, so rapid acceleration will depend on cost.”
BP is already one of the biggest investors in hydrogen projects among the world’s biggest oil and gas companies, including Shell (SHEL.L), TotalEnergies (TTEF.PA), Repsol and Italy’s Eni (ENI .MI), according to Globaldata, a data provider company.
BP in June acquired a 40.5% stake in a 26 gigawatt renewable energy project in Australia that could produce green hydrogen. It is developing two projects in Britain where it aims to produce 1.5 gigawatts of blue and green hydrogen by 2030.
Reporting by Ron Bousso; Editing by Simon Webb and Jane Merriman
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