INTERVIEW: Japan's ENEOS shifts into high gear for hydrogen as new landscape emerges

Japanese energy giant ENEOS Holdings intends to shift into high gear for the development of hydrogen supply chains with the first investment decisions expected in a few years as it sees hydrogen among key solutions to halve its carbon intensity by around 2040.

"We intend to lower [carbon intensity] from raising the share of our energy supply with low carbon intensity," Kotaro Sunaga, ENEOS Holdings senior vice president and managing executive officer, told S&P Global Commodity Insights.

"Of course, this can be done from [introducing] low carbon gasoline by modifying the current fuel but this would also be about raising the share of renewable energy, hydrogen and carbon-free hydrogen."

"The whole discussion of carbon intensity is not about carbon neutrality of individual companies but about what to do with our energy supply as a whole," Sunaga said in an interview at the company's head office in Tokyo.

"In that sense, this is about hydrogen and others to have a larger weight as a premise."

ENEOS Holdings, the parent of the largest Japanese refiner, aims to halve its carbon intensity in terms of its Scope 1, Scope 2 and Scope 3 greenhouse gas emissions to 44 g-CO2/MJ by fiscal year 2040-41 (April-March) from 87 g-CO2/MJ in FY 2025-26 as part of its carbon neutrality road map set in May.

"While we aim for Scope 1 and Scope 2 carbon neutrality by around 2040, we would only be able to cut our carbon intensity to around 75 [g-CO2/MJ] from about 90 even when we achieve carbon neutrality for Scope 1 and Scope 2," Sunaga said. "In other words, most [of our emissions] fall to Scope 3."

As part of its carbon neutrality efforts, ENEOS Holdings has mapped out its action plans to cut its carbon intensity in its energy segment in phases from such steps as boosting its supply of CO2-free hydrogen, sustainable aviation fuel (SAF) and renewable energy as well as providing carbon capture and storage (CCS).

The move by ENEOS comes as Japan set a goal of 12 million mt/year hydrogen use by 2040 as part of amendments to the national hydrogen strategy approved June 6, under which the country also sets new carbon intensity targets.

Japan will aim to achieve less than 3.4 kg-CO2e/kg-H2 of well-to-production gate carbon intensity for hydrogen and target less than 0.84kg-CO2e/kg-NH3 of gate-to-gate carbon intensity for ammonia by 2030.

Hydrogen ambition

"Speaking of hydrogen, with the government setting a target of 12 million mt/year use by 2040, we hope to supply 4 million mt/year [of hydrogen], a little less than half of the hydrogen demand scale," Sunaga said.

"While we say 2040, we target to develop [hydrogen supply chains] to a certain extent by 2030," he said of its efforts including initiatives supported by the government's Green Innovation Fund.

The company has been working to develop CO2-free hydrogen supply chains in Australia's Queensland and South Australia states, Malaysia's Sarawak, as well as in Saudi Arabia and the UAE.

"We have partners looking at producing hydrogen from using renewable energy in Australia, as well as considering blue hydrogen projects in oil producing countries," Sunaga said.

ENEOS Holdings now expects to make investment decisions in FY 2025-26 to start 250,000 mt/year of hydrogen supply from multiple projects, he said.

The company, which currently fulfills roughly half of domestic oil products demand with a combined 1.74 million b/d refining capacity in Japan, plans to start up its first 300,000-mt/year SAF production unit from around the second half of 2026, Sunaga said.

"The first unit to use HEFA [hydroprocessed esters and fatty acids] produced from used cooking oil," he said, adding the company was proceeding with securing HEFA feedstocks.

While exploring options for ensuing SAF production units, Sunaga said that the company is "considering investing in companies handling alcohol to jet technology."

Either way, ENEOS Holdings expects the need of importing SAF in the initial phase of introduction, having established its import capability at its facilities, Sunaga said.

Slashing GHG

ENEOS Holdings, which aims to be carbon neutral for its Scope 1 and 2 GHG emissions by FY 2040-41, expects emissions from refining operations to plummet as domestic oil products demand to be roughly halved by then, Sunaga said.

"Considering the current trend of decreasing fossil fuels demand, our emissions will decline in tandem with reducing our fossil fuels supply," Sunaga said.

"However, we still expect a certain amount of fossil fuels to be used in 2040 about roughly half of the current level so we need to think about ways to offset it basically."

ENEOS expects its Scope 1 and 2 GHG emissions to drop to less than 31 million mt/year by FY 2025-26 and to less than 19 million mt/year by FY 2030-31, compared with its baseline of 36 million mt/year in FY 2013-14.

With its upstream arm, ENEOS Holdings expects CCS to be a key solution for offsetting the remaining emissions, in addition to creating carbon credits from forest absorption in the long term, Sunaga said.

ENEOS Holdings' energy and upstream arms are part of one of seven CCS projects selected by the Japanese government in June targeting to store 13 million mt/year of CO2 in Japan and abroad by 2030. The CCS project covering the Kyushu offshore north and west aims to store 3 million mt/year of CO2 from refineries and thermal power plants in western Japan.

ENEOS targets to store 4 million-10 million mt/year of CO2 for CCS for other companies by FY 2040-41, when it expects to have a 50% domestic SAF supply share and a 6-8 GW renewables power generation capacity.