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Why low-carbon hydrogen should be considered as a decarbonization strategy

The global energy sector is moving toward a more decarbonized future due to multiple transformation drivers, such as an evolving regulatory landscape needed to meet Paris Agreement goals, local and international decarbonization targets, and changing expectations from society. Scope 1 and 2 emissions from oil and gas refineries account for around 15%¹  of total energy-related greenhouse gas (GHG) emissions globally. Under the IEA’s Net Zero Emissions by 2050 Scenario, the emissions intensity of these activities needs to drop by 50% by the end of the decade.

Thankfully multiple ways to reach this number exist for the industry = such as ceasing all non-essential flaring, addressing methane emissions, and introducing low carbon hydrogen – backed by carbon capture and storage (CCS) technologies into their operations as a part of the decarbonization strategy.

Traditional refining processes contribute to greenhouse gas emissions by using fossil fuels to produce hydrogen. However, by integrating low-carbon blue (and green) hydrogen production, refineries can significantly reduce their carbon footprint. This shift not only aligns with tightening environmental regulations but also helps refineries meet ambitious decarbonization targets, thereby maintaining their license to operate in a low-carbon future. 

Low-carbon hydrogen is a growing business

Hydrogen plays multiple key roles in refineries, such as in the hydrotreating and hydrocracking process. Hydrotreating, for instance, removes sulfur from crude oil fractions and helps produce cleaner fuels and meet environmental regulations. Hydrocracking, meanwhile, breaks down heavy oil into lighter, more valuable products like gasoline, jet and diesel, thus maximizing the yield of transportation fuels from crude oil.

By producing hydrogen in a low-carbon manner, refineries can ensure the hydrogen used in these processes lower emissions and meet current emission protocols. It can also help refineries meet future compliance standards, thus preemptively avoiding potential penalties and ensuring continued market access. Meanwhile, governments are increasingly implementing incentives to promote the use of low-carbon and clean energy, including hydrogen. Compliance with these regulations can result in financial benefits such as tax credits, grants, and subsidies.

Excess hydrogen as a revenue stream

But beyond its decarbonization benefits for refinery operations, low-carbon hydrogen also offers new business opportunities and potential revenue streams if more hydrogen is produced than is needed on site. And with low-carbon and clean hydrogen demand expected to skyrocket as we move toward 2050.

Currently, almost all hydrogen used globally is grey hydrogen, with an annual consumption of around 90 million tons (Mtpa). However, by 2050, the demand for low-carbon and green hydrogen could rise significantly, potentially comprising 73% to 100% of the total hydrogen market, with projected usage between 125 and 585 Mtpa (the latter figure corresponding to the Net Zero scenario)². Significant growth is expected.

Transition to a surplus hydrogen refinery operation offers new revenue streams and business models. Hydrogen can be used as a feedstock, fuel, or energy carrier, which means easy diversification of a refinery’s product portfolio. As the demand for low-carbon energy sources grows, refineries can capitalize on hydrogen's role in transportation, industry, and energy sectors globally. 

What to do with excess low-carbon hydrogen

Certain regions, such as the US and the Middle East, are well-positioned to produce low-carbon hydrogen due to their geographic advantages, such as low-cost natural gas and carbon capture and underground sequestration (CCUS) capability. Meanwhile, regions like Europe and Asia are likely to become significant net importers of low-carbon hydrogen as they work to decarbonize their economies. Hydrogen can be converted into (via the Haber-Bosch synthesis), and efficiently transported, as ammonia. This leverages ammonia's higher energy density and the fact that it is carbon free, while it can then be reconverted to hydrogen at the destination, using the industrially proven ammonia cracking procedure.

Ammonia cracking can be centralized, large- to mega-scale with hydrogen transported to the end-use in hydrogen pipeline systems, such as those planned in Europe. It can also be decentralized, large-scale and co-located with large hydrogen off-takers possibly via local hydrogen grids. Finally, it can also be small-scale and decentralized, for example at hydrogen filling stations.

This potential to be transported (and traded) as ammonia adds another dimension, facilitating its distribution to new markets. This flexibility positions hydrogen as a pivotal component in the evolving energy landscape, offering refineries a potential for both decarbonizing and for new, profitable revenue streams. The global market for ammonia is expected to increase triple-fold in over the next decades, with nearly all of the growth derived from low-carbon ammonia, according to S&P Global Commodity Insights³.

Ammonia as a maritime fuel

One potential growth math market for ammonia is in decarbonizing industries such as maritime shipping. This sector alone is responsible for nearly 940 million tons of CO2 emissions annually, accounting for almost 3% of global energy-related CO2 output. The pressing need for a sustainable fuel alternative is undeniable.

Currently, the maritime industry is advancing the development of ammonia-powered engines, with a clear plan to begin implementation by 2026. Ammonia stands out as the most viable marine fuel option, both during the transition to more sustainable shipping practices and as a scalable, long-term solution.

Given that ammonia is already extensively transported globally via trucks, trains, ships, and pipelines, infrastructure already exists. Furthermore, existing infrastructure is advantageous, with 120 ports worldwide equipped with ammonia terminals, many of which have their own storage facilities. This established network provides a robust foundation for ensuring ammonia fuel availability to ships that choose to adopt it.

Methanol offers a further opportunity

Another opportunity in hydrogen derivatives lies in the production of low-carbon methanol, which can be derived by combining hydrogen with carbon dioxide. Methanol is a multipurpose fuel with a broad range of applications, from its use as a standalone fuel to its employment in fuel cells or use in fuel blends. The methanol market size is projected to grow from 99.03 million tons in 2024 to 118.81 million tons by 2029, growing at a CAGR of greater than 3.5% . Methanol can be produced from natural resources and waste materials, or by using low-carbon or renewable hydrogen combined with recycled CO2, resulting in lower greenhouse gas emissions compared to methanol production from fossil fuels.

Conclusion: Adaption of low carbon hydrogen

The adaptation of low-carbon hydrogen is not just an environmental benefit but also a strategic business opportunity. By integrating blue and green hydrogen into their operations, refineries can significantly reduce their carbon emissions, align with tightening regulations. Additionally, the ability to produce excess hydrogen opens up new revenue streams, particularly as global demand for low-carbon energy sources, such as ammonia and methanol, continues to grow. This transition positions refineries not only to decarbonize but also to diversify and thrive in the evolving energy landscape.

¹ https://www.iea.org/reports/emissions-from-oil-and-gas-operations-in-net-zero-transitions

² https://www.mckinsey.com/industries/oil-and-gas/our-insights/global-energy-perspective-2023-hydrogen-outlook

³ https://press.spglobal.com/2023-07-11-Ammonia-Market-to-Triple-by-2050-with-Nearly-All-Growth-Coming-from-Low-Carbon-Supply