The Hydrogen Economy
“Texas’s natural resources make it a natural fit for hydrogen energy and vehicles.” – Texas Monthly
- Why should there be an increased reliance on hydrogen?
- How has hydrogen as a fuel source been advanced?
- What will help further promote hydrogen use?
The energy industry continues to face growing energy demands from an increasing population, while also being called to reduce carbon emissions on a significant scale. Innovations in technology and process, including Carbon Capture, Utilization, and Storage, provide one pathway for an array of industries both to meet demand and to attempt to achieve carbon neutrality. Toward that end, industry and government are increasingly focused on the use of hydrogen, an energy source touted as an affordable, reliable, clean, and secure energy by the U.S. Department of Energy (DOE) and industry groups alike. The DOE has billed hydrogen as the fuel product that can “enable U.S. energy security, resiliency, and economic prosperity.”i As a key player in the oil and gas industry, Texas has the opportunity to lead the way in providing that energy stability and reliability, while also seeing the economic benefits of advancing the potential future of fuel.
Hydrogen is a one-hundred percent renewable, zero emission fuel that can be produced from various resources, including natural gas, nuclear power, biomass, and renewables, such as solar and wind power. In 2020, one percent of hydrogen production in the U.S. was from electrolysis, while 99 percent was from fossil fuels. “Fossil fuels are expected to continue as the main source of hydrogen through 2050 based on International Energy Agency projections driven by abundant supply, low cost, and expected development of large-scale carbon capture and storage.” ii
However, because it can be produced through diverse resources, it can be produced on a large scale. Hydrogen is an invisible gas, but it is classified in name by colors, from green to grey to blue, yellow, turquoise, and pink. While broadly all hydrogen is seen as a “clean” fuel, the three main variations of produced hydrogen, grey, blue, and green, each produced through different processes and with different carbon intensities:
Grey hydrogen, which is currently the most common, is derived from natural gas, and is most commonly used in the chemical industry to make fertilizer and for refining oil.iii
- Blue hydrogen utilizes the Carbon Capture, Utilization, and Storage process, repurposing generated carbon for reuse in the hydrogen manufacturing process or storing it for future use. Blue hydrogen can be used as a low-carbon fuel for generating electricity and storing energy, powering cars , trucks and trains. iv
- Green hydrogen is produced using electrolysis powered by renewable energy, such as offshore wind, and carries the benefit of producing zero carbon emissions. It can be used for manufacturing ammonia and fertilizers, and also in the petrochemical industry to produce petroleum products.v
Although green hydrogen is seen as the ultimate goal for zero emissions, it requires twice as much water as steam methane reformation to produce grey or blue hydrogen and can be two or three times as expensive to produce as grey or blue hydrogen, depending on the price of natural gas.vii The European Union has called for the increased use and focus solely on green hydrogen in order to meet the EU’s goal of net-zero emissions by 2050. In the U.S., however, the landscape holds a mix of gray, blue, and green hydrogen, as the industry weighs investment, demand, and regulation. Case in point: the Port of Corpus Christi (PCC), the US’s leading energy export gateway, is actively cultivating production of low-carbon hydrogen from diverse feedstocks to supply world-scale international demand. In public presentations, PCC leadership has stated that while the port has numerous commercial scale electrolytic (green) hydrogen projects in development, they are also recognizing that bringing hydrogen production to world scale will require using natural gas feedstock, at least for the next 8-10 years. To this end, PCC is partnering to develop scalable, centralized geologic storage for captured carbon, which will enable low-carbon hydrogen production from the regions abundant, affordable natural gas. The Center for Houston’s Future recently released a report outlining the ways in which Houston could become the epicenter of a global clean hydrogen hub, including the utilization of existing hydrogen production facilities and pipelines on the Gulf Coast, reliance on Houston’s industrial energy consumer base, and the renewable energy assets already in place. The report projects that a Houston-led clean hydrogen hub could reduce carbon emissions by 220 million tons by 2050. viii
In that report, the Houston Energy Transition Initiative (HETI), through their collaborative of the Greater Houston Partnership and Center for Houston’s Future, also forecasted that Texas could build a $100 billion hydrogen economy, with 180,000 jobs by 2050, through initiatives focused on policy, infrastructure, innovation, and talent. The report projects that clean hydrogen demand could grow from current 3.6 million tons (MT) to 21 MT by 2050, with 11 MT of local demand and 10 MT available for export. ix
On a global level, PricewaterhouseCoopers analyzed the green hydrogen market on a worldwide scale and released findings on potential demand growth. The report projected that through 2030, demand growth will maintain a moderate, steady growth through smaller application across industrial, transport, energy and building sectors. The growth is then expected to accelerate from 2035 forward, due to a decrease in production costs over time, technological advances, and economies of scale.x In 2020, GoldmanSachs projected that green hydrogen could supply up to 25% of the world’s energy needs by 2050 and become a $10 trillion market by 2050.xi
Other companies such as Sempra are seeking ways to support green hydrogen initiatives, with goals to support the expansion of electric grids, with increased flexibility, with low or zero carbon energy such as hydrogen. The Southern California Gas Company recently announced a green hydrogen energy infrastructure system, called The Angeles Link, to serve the Loas Angeles County with a hydrogen-ready, interstate pipeline system in an effort to decarbonize dispatchable electric generation.xii More innovative initiatives to use hydrogen in order to deliver reliable, affordable energy that is low or zero-carbon are sure to follow.
Hydrogen Economy Advancement
According to the International Energy Agency (IEA), the current largest consumer of hydrogen is in oil refining, followed by use in chemical production, ammonia production, and methanol production. Steelmaking consumed a minor amount of hydrogen in 2020, but demand in the iron and steel industry is expected to rise. In the transportation sector, hydrogen has been used in limited amounts, but as fuel cell electric vehicle development expands in the U.S. and Japan, increased use is expected as a motor fuel for both light and heavy duty vehicles.xiii The Texas-based company Hydron has begun the effort to bring hydrogen-powered, autonomous ready long-haul Class 8 trucks to the Texas roadway.xiv Hydrogen fuel cells offer several distinct advantages over battery electric vehicles in the heavy freight sector, with substantially longer range and lower refueling times.
A federal effort to further increase reliance on all hydrogen is already underway. DOE has put in place a major initiative to advance the production, transport, storage, and utilization of hydrogen in an affordable way, across multiple sectors.xv “H2@Scale,” the DOE initiative, is built on the idea that hydrogen as a fuel source carries many benefits. First, hydrogen contains the highest energy content by weight of all fuels and is seen as a critical feedstock for all chemical industry. Second, it can be a zero-emissions fuel, making it a critical part of many industry and government goals for reducing or eliminating emissions. Hydrogen can also be used as a ‘responsive load’ on the grid, enabling stability and energy storage and increasing utilization of power generators.
The DOE identifies the next steps in expanding the value proposition of hydrogen technologies as increasing infrastructure and seeking further opportunities for the use of hydrogen. Those other uses include “steel manufacturing, ammonia production, synthetic or electrofuel production (using CO2 plus hydrogen), and the use of hydrogen for marine, rail, datacenter, and heavy-duty vehicle applications.”xvi The H2@Scale program offers some incentive, focusing on early-stage research and development projects and facilitated through cooperative agreements with matching DOE funds. There remains a push, however, for a prominent role for the private sector in advancing hydrogen use: “[w]hile DOE’s role focuses on early-stage R&D, such as new concepts for dispatchable hydrogen production, delivery, and storage, reliance on the private sector for demonstration is critical.”
In October of 2021, Senator John Cornyn and others introduced a bi-partisan bill package to incentivize hydrogen infrastructure and adoption of hydrogen in certain sectors. The three bill initiative creates research and grant programs for advancements in hydrogen infrastructure, with the following three focus areas:
- Maritime: Creates a grant program for hydrogen-fueled equipment at ports and in shipping;
- Heavy Industry: Creates a grant program for commercial-scale demonstration projects for end-use industrial application of hydrogen, which includes the production of steel, cement, glass, and chemicals;
- Infrastructure: Creates a pilot financing program to provide grants and low interest loans for new or retrofitted transport infrastructure, storage, or refueling stations.
In this initiative, priority will be given to projects that will maximize emissions reductions. In February of 2022, the Port of Corpus Christi and Apex Clean Energy, Ares, and EPIC Midstream entered an agreement to explore development of gigawatt-scale green hydrogen production, storage, transportation, and export as part of PCC’s burgeoning hydrogen hub. This agreement builds upon an agreement from May of 2021 to work towards developing infrastructure to support green hydrogen production.
Major oil companies such as BP and Shell are pursuing hydrogen projects that may begin as blue hydrogen but will likely yield increasingly more green hydrogen as the electrolier marketplace matures. With this increased focus, BP projects that hydrogen could make up 16% of global energy consumption by 2050 if net zero carbon-emissions goals are to be met, where it is currently at less than 1%.xvii Currently, the United States produces more than 10 1million metric tons of hydrogen each year, which amounts to one-seventh of the world’s supply.xviii A move toward increased hydrogen production has been percolating in the Texas industry for years. In a 2017 Texas Monthly article, Michael Lewis, program manager for fuel cell vehicle research in the Center for Electromechanics, University of Texas at Austin, identified Texas’ unique ability to be a leader in hydrogen production. “Texas’s natural resources make it a natural fit for hydrogen energy and vehicles. Our natural gas resources are an economical feedstock for hydrogen production. Curtailed wind power in West Texas could power the production of hydrogen for use in vehicles and other applications. And miles of hydrogen pipeline already exist along the Texas coast, which would ease distribution.”xix With Texas holding the majority of 1600 miles of hydrogen pipeline infrastructurexx, Texas has an advantage in pursuing the advancement of hydrogen production.
Geological storage of hydrogen is another topic that must be considered in the advancement of hydrogen use. Salt caverns have met current storage needs, which allow for fast withdrawal and injection rates but can be costly and have limited capacity. The Bureau of Economic Geology at the University of Texas (BEG) has identified two categories of storage reservoirs that could provide more available and advantageous storage: (1) depleted oil and gas reservoirs; and (2) saline aquifers, which have proven storage capabilities and are already supported by infrastructure. xxi The BEG has identified the need for an inventory of sites for use in order to make progress on hydrogen storage; the identification of such sites could also help further other low carbon initiatives such as CCUS, by locating storage that could be utilized for both long term sequestration and immediate term hydrogen storage.
Industrial adoption of hydrogen as a primary fuel could be accelerated by additional incentives. One proposal is to create “Hydrogen Development Zones” taking advantage of the Opportunity Zone Program, a federally approved program meant to spur economic development and job creation in distressed communities. The program offers incentives such as capital gains abatement when private businesses invest eligible capital into pre
qualified opportunity zone assets. A sustainable energy enterprise, earlier discussed as a company engaged in CCUS, and further here in hydrogen production, could potentially apply for the tax incentives when pursuing increased hydrogen production in a “Hydrogen Development Zone.” Tax relief could further be encouraged through the Governor’s Office of Economic Development and Tourism, with a directive for tax incentives to foster job creation and development of sustainable energy in Hydrogen Development Zones.
A statutory definition of hydrogen could be included, to include products derived from hydrogen or any other conversion technology that produces hydrogen from a fossil fuel feedstock. Another necessary action would be requiring Texas and its partners, including local governments, industry, and institutions of higher learning, to consider a number of factors in their duties to support the state’s Hydrogen Initiative. Relating to procurement, a state agency that seeks to purchase any item requiring the use of a power source, including but not limited to motor vehicles, material and cargo-handling equipment such as forklifts, harbor craft, generators, power systems, portable floodlights, microgrids, and telecommunications equipment, should include in the request for proposals provisions that allow for the consideration of items that are powered by Texas hydrogen.
The Legislature could also authorize state government, specifically the Office of the Governor and TCEQ, to consider investments in hydrogen fueling infrastructure and the production of sustainable hydrogen as a transportation fuel, and also define transportation electrification to include sustainable hydrogen used as a transportation fuel. Relatively small changes to Texas Emissions Reduction Program alternative fuel requirements could open underutilized funds currently allocated exclusively to compressed natural gas vehicles.xxii Finally, industrial revenue bonds for the purpose of achieving a Texas Hydrogen Development Zone goal could be authorized through the governor and the Legislature, along with permitting counties, municipalities and other political districts to bond for sustainable projects.
Although hydrogen prices have increased in line with other energy sources, due to increases in the natural gas markets, long-term growth projections still anticipate a reduction in hydrogen price as technology continues to advance and scale increases. xxiii Thanks to robust existing hydrogen infrastructure and frenetic commercial activity in the hydrogen value chain at Port Corpus Christi and other cornerstones of the global energy marketplace, Texas could easily become the leading producer of low-cost hydrogen in the nation. With an increased focus from the industry, along with support from state and local government leaders, Texas is in the best possible position to benefit from an increased reliance on this low to zero-emissions fuel.
- https://www.activesustainability.com/sustainable-development/what-is-green-hydrogen-used for/?_adin=02021864894
- Blue Vs. Green Hydrogen: Which Will The Market Choose? (forbes.com)
- https://www.mckinsey.com/~/media/mckinsey/business%20functions/sustainability/our%20insights/houston%20 as%20the%20epicenter%20of%20a%20global%20clean%20hydrogen%20hub/houston-as-the-epicenter-of-a global-clean-hydrogen-hub-vf.pdf?shouldIndex=false
- https://www.pwc.com/gx/en/industries/energy-utilities-resources/future-energy/green-hydrogen cost.html#:~:text=Through%202030%2C%20hydrogen%20demand%20will,form%20to%20develop%20hydrogen% 20projects.
- http://www.hydron.com/; https://hydrogen-central.com/tusimple-co-founder-mo-chen-launches-hydron producing-hydrogen-powered-autonomous-ready-freight-trucks/
- Big Oil Companies Push Hydrogen as Green Alternative, but Obstacles Remain – WSJ