Malaysia’s state-owned Petronas formed a hydrogen unit in 2020 as it looked to diversify its business in the face of fluctuating oil and gas prices and the global energy transition.

Hydrogen Economist talks to Adlan Ahmad, head of hydrogen business at the firm, about how he sees the landscape for the new fuel.

Tell us how Petronas came to set up its hydrogen unit?

Ahmad: As an oil and gas player in the energy transition, Petronas has embraced the need to transform the way we conduct and operate our businesses. While fossil fuels are forecast to remain the largest portion of the energy mix till 2040 and remain the firm’s core business for the foreseeable future, we continue to reshape and pivot our portfolio mix to place greater significance on advocating the use of cleaner sources of energy such as natural gas and renewables as well as hydrogen.

“We are an oil and gas player so blue hydrogen is a natural extension for us” Ahmad, Petronas

In late 2019, a few LNG customers in Japan approached us to look into collaborating on low carbon hydrogen production. When the pandemic hit and the oil price crashed because of the Opec+ crisis, it became very apparent that we need to diversify our portfolio and be more insulated from the ups and downs of the oil price. My hydrogen unit was formed in November 2020, and we immediately reached out to some of our LNG customers in Japan and South Korea.

What colour of the fuel are you looking at?

Ahmad: We are an oil and gas players, so blue hydrogen is a natural extension for us, but as we spoke to customers it became apparent that it will not be long before they are interested in green hydrogen.

But the customers are not yet ready to sign on the dotted line in terms of long-term contracts. They  are going through a testing phase where they can use grey hydrogen, which we already produce. So if you need some ammonia for testing, whether it is grey or low-carbon ammonia—we have got that. And if they want a bigger volume, we can modify our existing facilities to try to increase output.

When the demonstrations and pilots have proven to be successful and customers are ready to make a bigger commitment, then we are here to help them with that. But we do need a long-term contract in place to ensure that commercial-scale projects are bankable.

What projects are you looking at?

Ahmad: We have identified two blue hydrogen projects from gas and two green hydrogen projects from hydro. We will execute the blue hydrogen projects first, aiming for several thousand t/yr of blue ammonia production by modifying our existing petrochemical plants. For projects involving green hydrogen, our aspiration is to have production in Peninsular Malaysia by 2027 and then at Bintulu, Sarawak by 2028. This second project will have a several hundred MW electrolyser.

What end-uses are customers talking about?

Ahmad: Hydrogen can be used in many ways, across multiple industries such as mobility, power generation and chemical production. A big portion of the ammonia will go to coal combustion. That saves the trouble of converting ammonia to hydrogen.

Although our production will be in the form of ammonia predominantly, some of the hydrogen will be in the form of methylcyclohexane (MCH), a liquid organic carrier that can be used to decarbonise refineries. These refineries can be reconfigured to allow hydrogen to be extracted and used, and MCH can also be shipped on normal product tankers. It is a new alternative to liquefied hydrogen that can be easily transported. Some customers, especially in South Korea, are hopeful that this liquefied hydrogen technology will be commercialised soon—but let us see.

Do you see the market developing in a similar way to how the LNG market did 30 years ago?

Ahmad: In the early days of LNG, we formed special purpose vehicles, which brought the producers and buyers together on a project. Our Japanese customers even had shares in our first LNG project. We are using the same model to grow our hydrogen business because it is very important for us to have a long-term price agreement with the customer before we can take FID on a project. We start off by conducting  feasibility and engineering study with our partners, and if the outcome is positive, we can pursue the partnership further.

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Author: Tom Young