BP plans big
hydrogen project at Whiting, Indiana refineryLONDON,
Dec 5 (Reuters) - BP chief executive Bernard
LONDON, Dec 5 (Reuters) - BP chief 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
decarbonise.
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 fossil fuels.
The United States, for
example, is offering large incentives for producing it under
President Joe Biden's $430 billion Inflation Reduction Act (IRA).
BP (BP.L) 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,
Tomeka McLeod, BP's newly-appointed head of hydrogen in the United
States, told Reuters.
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 Feb. 7 on where things stand.
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Hydrogen will have a starring role along with
offshore wind, BP company sources told Reuters.
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, the company told
Reuters, and is also looking into projects in Mauritania.
BP's spending on low-carbon hydrogen
remains modest but is expected to grow into the hundreds of millions
by the end of the decade as projects gets under way, the company
sources said.
BP spent roughly a quarter of its
$15.5 billion budget in 2022 on low-carbon businesses, when
including the $4.1 billion acquisition of U.S. biogas producer Archaea,
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
in "core markets" by 2030, the company sources said.
"Hydrogen will be a big focus and it is moving much
faster than we ever thought it would," Chief Financial Officer
Murray Auchincloss told Reuters last month. Most hydrogen is currently used in oil refining and
the fertilizer industry and is usually made by heating natural gas,
a highly polluting process, known as grey hydrogen. But grey hydrogen becomes "blue hydrogen" if the
polluting emissions are captured. There is also "green hydrogen",
which is made by splitting water using renewables-powered
electrolysis.
To expand its 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 is also planning to boost its renewables power
generation capacity to 50 gigawatt by 2030 which will be used in
part to power electrolysers. BP declined to comment on whether it will set a
hydrogen production target or on its spending plans for hydrogen.
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BP's project at its Whiting refinery will initially
replace around 200,000 tonnes of grey hydrogen used by the refinery
every year with blue hydrogen, McLeod said. The project could start
operating by 2026-2027 and be expanded to green hydrogen. "Our focus in the U.S., and it's similar around the
world, is how do we decarbonise and re-imagine our own assets," she
said. The low-carbon fuel will in a second phase be used by
other heavy industries in the area to reduce some 36 million tonnes
of CO2 emitted there every year. The project will rely on subsidies, highlighting
hydrogen's challenge in competing with lower-cost fossil fuels.
The IRA offers a $3 per
kilogramme tax credit for clean hydrogen, which brings green
hydrogen to par or even below the cost of grey and blue hydrogen,
according to analysts. "With the hydrogen production tax credits that are
now in place, it has ... allowed green hydrogen to be a lot more
competitive," McLeod said. Subsidies will initially allow green and blue
hydrogen to compete with grey hydrogen, allowing consumers to switch
to cleaner fuel, McLeod said. "Demand growth for new hydrogen applications is going
to be a function of cost competitiveness," said Andy Brogan, Global
Oil and Gas Leader 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 the rapid acceleration will be dependent on
cost."
BP is already one the biggest
investors in hydrogen projects among the world's top oil and gas
companies, including Shell (SHEL.L),
TotalEnergies (TTEF.PA),
Repsol and Italy's Eni (ENI.MI),
according to Globaldata, a data provider.
BP acquired in June a 40.5% stake
in a 26 gigawatt renewables project in
Australia that could
produce green hydrogen. It is developing two projects in Britain
where it aims to produce 1.5 gigawatt of blue and green hydrogen by
2030.
