BP has withdrawn from the $55b Australian Renewable Energy Hub (AREH) mega-project in the Pilbara region, in a blow to Western Australia’s green hydrogen ambitions.

The oil major is the operator and biggest shareholder in AREH, one of the world’s largest projects, with a 63.57% take, alongside developer InterContinental Energy with a 26.39% holding and Serbia-based CWP Global with a 10% interest.

BP said its exit from the project—which envisages green hydrogen production of 1.6mt/yr with 26GW of renewable power capacity – reflects it recent change in strategy.

The company, which is under pressure to boost profitability by selling assets and to prop up its sliding share price, announced in February a major strategic review, backtracking on clean energy investments and slashing annual capex on the energy transition to $1.5–2b/yr from $7b/yr.

“This decision reflects BP’s recent strategy reset, which will see bp grow its upstream oil and gas business, focus its downstream business, and invest with increasing discipline into the transition” BP

“BP has advised the [AREH] partners of its intention to exit the project as operator and equity holder,” said a company spokesperson.

“This decision reflects BP’s recent strategy reset, which will see bp grow its upstream oil and gas business, focus its downstream business, and invest with increasing discipline into the transition.”

“While AREH no longer aligns with BP’s strategy, it continues to present an important opportunity for Western Australia to decarbonise the Pilbara. BP will work with its AREH partners to ensure a safe and efficient transition of operatorship,” it added.

InterContinental did not reply to an email seeking comment about BP’s pullout. The oil major’s decision to walk away raises questions over the project’s ability to reach FID in the near term.

AREH’s first phase is likely to be around 1GW of electrolysers, with FID expected in 2027 and offtake likely to be secured as early as this year, InterContinental CEO Alex Tancock told Hydrogen Economist in an interview prior to BP’s decision.

It would be “ideal” if InterContinental could start building phase two in 2030–31, with an eye on serving the local iron industry in the northwestern Pilbara region, he said.

“If you took all the AREH production, if it were hydrogen for green iron, that would only be 4–5% of all iron ore exports of Pilbara turning to green iron,” said Tancock. “With all of our projects, we are looking at how we can develop local demand as well, whether its electrons or molecules in order to get these [projects] moving.”

Western hub

Elsewhere in Australia, InterContinental is also developing the Western Green Energy Hub (WGEH). It holds a 51% stake in the project, alongside CWP Global (39%), and Mirning Green Energy (10%).

FID for the first phase, which is likely to be 2–3 GW of electrolysers, will be before 2030. The whole project, envisaged to produce 28mt/yr from 70GW of electrolysers, is likely to be built in 35 phases over three decades, said Tancock.

First green hydrogen production is likely to start in 2032–33 and will be geared for export markets, he added.

“We are not competing with the H2Global crowd,” said Tancock. “We are in conversations with long-term, more strategic buyers who have increasing volumes over a long period of time.”

InterContinental, which counts Singapore’s sovereign wealth fund GIC and French clean energy investment fund Hy24 as minority shareholders, expects a levelised cost of hydrogen (LCOH) of $3/kg for WGEH by 2033.

“With the government incentives schemes, you can bring down costs even further over time,” said Tancock. “Below $3/kg will not be in phase one, but in phase two maybe.”

Australia’s LCOH is forecast to drop to $2.5/kg in 2030 from $3.9/kg in 2023, while the levelised cost of green ammonia is projected to decline to $610/t from $876/t over the same period, according to a 2024 report by consultancy Alvarez & Marsal.

“Ultimately, if we cannot produce a cheaper product over time, the green molecules will never happen,” said Tancock.

Upcoming regulations by the International Maritime Organization imposing penalties on ship operators if they do not meet GHG intensity limits, starting in 2028, will help boost demand for green ammonia, said Tancock.

“If 50% of the shipping community changes to green ammonia by 2060, you are talking about 300mt of ammonia per year,” he said.

Even with the expected future demand for green hydrogen and its derivatives from the shipping sector and other hard-to-abate industries, projects such as WGEH will need financial support to take off, said Tancock. Even NEOM Green Hydrogen Co, the developer behind the world’s biggest green hydrogen project located in Saudi Arabia, is able to move ahead only because it was “pushed” by the government, he added.

Saudi Arabia’s ACWA Power, in which the sovereign wealth fund has a stake, US-based Air Products and the state-owned NEOM mega company are the JV partners in the project, which is envisaged to produce up to 600t/d of hydrogen by the end of 2026.

“I do not think you are going to see projects at the scale of WGEH that are driven purely by the private sector,” said Tancock. “It would be quite inconsistent and quite naive to think that the hydrogen industry, which is even more complex than the renewable energy industry, will be driven by the private sector and financed by banks, in the early days.”

Oman and Shell

Separately, InterContinental is working with oil major Shell in a major green hydrogen project in Oman. The developer has a 21.16% stake in Green Energy Oman (GEO), where Shell is an operator with a 35% stake, alongside the country’s state-owned OQ and Kuwait’s EnerTech. The project is ultimately targeting 1.8mt/yr of green hydrogen production and 25GW of renewable power capacity.

“Oman is a very important market for Shell,” Tancock said. “At this stage, we are confident they are remaining in this project.”

Shell is the biggest foreign shareholder in Oman LNG and Petroleum Development Oman, the country’s largest energy producer. Shell told Hydrogen Economist there is no new update about the project.

GEO’s first phase is “not so strongly defined” because it depends on the offtake talks, which are unlikely to be concluded before 2026. Oman’s Hydrom, the state entity in charge of managing auctions for green hydrogen projects, has targeted 2027 as deadline for FID and first production to start by 2030–31. In general, any offtake agreements should be ten years as a minimum, said Tancock.

“In the project in Oman, they are looking to extend a little bit when they expect to reach FID,” said Tancock. “There is a readjustment taking place, not just in Oman, but everywhere.”

Green hydrogen production from GEO is likely to cater to the domestic market, where the government is eyeing the decarbonisation of the refining industry and the development of green iron projects, the CEO said. Brazil’s mining giant Vale produces iron ore pellets in Oman.

“If the government is successful in bringing [hot briquetted iron] producers to Duqm, then that would be a pure hydrogen supply,” said Tancock. “There is a strong possibility we will see local first because the complexities for the local area is a bit less than export for some projects.”

Oman’s cost of producing renewable hydrogen could be as low as $1.6/kg, which would be below prices in the US and Australia, and it is projected to have a levelised cost of green ammonia of $400/t by 2030, the IEA said in a 2023 report.

---

Author: Dania Saadi