The clean hydrogen sector will evolve through two distinct phases of development through 2030 and beyond, according to oil and gas company executives.

An initial ‘market-build’ phase will be heavily shaped by government incentives to support the scaling-up of supply and demand through to 2030 or 2035, followed by a second phase where projects will become exposed to far greater competition and scrutiny of returns on investment, they told Reuters’ ‘Oil and Gas Majors in Hydrogen’ event.

“We see the (clean) hydrogen markets developing in different phases,” said Shirley Oliveira, vice president, hydrogen and CCUS advisory services at BP.

“Between now and 2030 is really a sort of build-out of the market. And that is where the role of policy and incentives is so critical to help scale up more and larger projects to be developed and implemented. And this will lead to very different markets post 2030, 2035, where it is a much more competitive market.”

In the initial market-build phase, the pace of investment will depend on the incentives and supportive business models set out by governments, according to Henrik Solgaard Andersen, vice president, low-carbon technologies at Norway’s Equinor.

“Further ahead, [the hydrogen sector] will be driven by CO₂ taxes and so on. That will unlock these investments,” he said at the event.

“We need to be very prudent about what we are communicating so we are not overselling what we do” Andersen, Equinor

The UK is at the forefront of providing business model frameworks with its planned contract-for-difference scheme for hydrogen, Andersen adds.

The UK government, as part of its net-zero strategy, last month launched a consultation on a preferred business model for hydrogen which would be built on a similar premise to the contract-for-difference model used to support the expansion of offshore wind. The scheme is scheduled to start in 2023.

All speakers stressed the need for support for development across the entire value chain, rather than just the supply side, if clean hydrogen is to become properly established beyond niche applications.

“For us, it is really important to help shape this market. We see it as very dynamic. Helping to build demand is absolutely critical,” says Oliveira.

Overselling

Economies of scale will bring down costs, but the industry should be careful not to overpromise on its ability to achieve reductions, according to Andersen. “If we cannot deliver, then it will backfire on us and people will lose trust in us,” he says.

“We need to be very prudent about what we are communicating so we are not overselling what we do. Most initiatives, when it comes to demand, will cost more than the abated solution. I think we need to be honest about that.”

The main challenge in reducing costs for green hydrogen production will be the deployment of low-cost renewable power, according to Tomas Malango, hydrogen director at Spanish energy company Repsol.

“The deployment of the renewables system to support green hydrogen is one of the challenges of the hydrogen deployment itself,” he said at the event. “These are huge and significant investments.”

Malango points to Repsol’s work on developing hydrogen production technology, including a project with Spain’s Enagas to commercialise a process using solar energy directly without the use of electrolysis.

Speakers defended blue hydrogen against recent criticism around methane leakage and carbon footprint.

95pc – Capture rates now being achieved

BP aims to install methane measurement technology at all its major oil and gas processing sites by 2023.

“We will publish that data and then we will drive a 5pc reduction in the methane intensity of our operations,” says Oliveira. “But we recognise that this may not be sufficient from a [blue] hydrogen perspective because it depends where you source your gas from.”

To try to address the methane leakage issue more broadly, BP is working with other companies via international industry organisation the Oil & Gas Climate Initiative to achieve an average methane intensity target of 0.25pc by 2025 for upstream operations, she says.

In terms of carbon capture for blue hydrogen production, Oliveira points to 95pc capture rates now being achieved.

“There has been a big evolution and  that is important. High capture rates, lowering the use of energy in the processing—all of these things mean we think that blue hydrogen has an important role to play,” she concludes.

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Author: Stuart Penson