As the governments of major economies put money into the development of the fuel to decarbonize, BP CEO Bernard Looney is placing his bet on hydrogen to power future low-carbon industries.
There is already a sizable following for this low-carbon fuel. The prediction is it will contribute significantly to the decline in greenhouse gas emissions from transportation and some heavy sectors.
However, it is expensive to develop and frequently requires government assistance to be competitive with fossil fuels.
For instance, the $430 billion Inflation Reduction Act proposed by President Joe Biden provides significant incentives for its production in the United States (IRA).
BP plans to construct a H2 hub in the U.S.
According to Tomeka McLeod, BP’s recently hired head of H2 in the United States, the company reacted quickly and is already in the early phases of planning to construct a sizable, low-carbon fuel hub around its Whiting, Indiana refinery.
When Looney assumed office over three years ago, she vowed to transform BP and reduce carbon emissions by cutting back on oil and gas production and increasing renewable energy. On February 7, she plans to provide investors with an update on the situation.
According to BP business sources who spoke to the media, offshore wind and H2 would both play prominent roles.
BP’s newly created division already makes investments
BP’s newly created dedicated green fuel division employs 150 people. Felipe Arbelaez is the head of the division. Additionally, it made a number of investments in significant hydrogen projects, including ones in Australia, Britain, and Europe.
The corporation also told the media that it is investigating projects in Mauritania and the possibility of creating the green version of this fuel in Oman.
As projects get underway, BP’s low-carbon fuel investment is anticipated to increase into the hundreds of millions of dollars by the end of the decade, according to corporate sources.
The math and the money
When accounting for the $4.1 billion purchase of American biogas manufacturer Archaea, BP spent over a fifth of its $15.5 billion budget on low-carbon ventures in 2022, according to some calculations.
According to business insiders, Looney and BP’s head of renewables Anja-Isabel Dotzenrath will introduce a clean hydrogen production objective in February with the goal of capturing 10% of the H2 market in “key markets” by 2030.
Murray Auchincloss, the chief financial officer, told the media last month that hydrogen would be a major priority and that it was going much more quickly than we had anticipated.
BP gets deep into the hydrogen business
Most of the H2 is now produced by heating natural gas, a highly polluting method known as grey hydrogen, and is mostly employed in the fertilizer and oil refining industries.
However, when harmful emissions are caught, grey hydrogen turns into “blue hydrogen.” Additionally, “green hydrogen” is produced by electrolyzing water with renewable energy sources.
BP plans to create carbon capture and storage plants where carbon is fed into depleted reservoirs in order to grow its blue hydrogen business.
Additionally, it intends to increase the amount of renewable energy it can produce to 50 gigawatts by 2030. Some of which will power electrolysers.
Regarding whether it will establish a target for H2 production or its financial plans for hydrogen, BP is still silent to the public.
Benefits of replacing grey hydrogen
According to McLeod, BP’s effort at its Whiting refinery will initially switch out the 200,000 tons of grey hydrogen the refinery currently uses each year for blue hydrogen. By 2026–2027, the project might be operational and expanded to include green hydrogen.
In a subsequent phase, the low-carbon fuel will power additional heavy industries in the region. It means cutting down the 36 million tons of CO2 already emitted there annually.
The project will depend on subsidies, demonstrating how difficult it is for H2 to compete with cheaper fossil fuels.
According to analysts, the IRA offers a $3 per kilogram tax credit for clean H2, bringing the price of green hydrogen on pace with or even below that of grey and blue hydrogen.
Green hydrogen is now much more competitive thanks to the tax credits for hydrogen generation that are already in effect. Green and blue hydrogen will initially be able to compete with grey hydrogen thanks to subsidies, allowing consumers to switch to cleaner fuel.
According to data source Globaldata, BP is already one of the biggest investors in H2 projects among the leading oil and gas firms in the world, including Shell, TotalEnergies, Repsol, and Italy’s Eni.