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Oil companies will struggle to make blue hydrogen economical: Nel CEO

Highlights

Sees green H2 costs of below $1.5/kg by 2025

CCS has role in decarbonizing fossil fuel power

Carbon tax helps but is not essential

London — Blue hydrogen production, promoted by oil companies, will not be economical beyond the short term as green hydrogen costs fall rapidly, electrolyzer producer Nel Hydrogen's CEO, Jon Andre Lokke, said May 6.

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Nel Hydrogen has outlined a road map to reach commercial production of green hydrogen -- produced by electrolyzing water -- at costs of below $1.5/kg by 2025, making it competitive with fossil fuel-derived "grey" hydrogen, and outcompeting blue hydrogen, produced via steam methane reforming with carbon capture and storage.

"When it comes to blue, I really don't think from a cost perspective that blue has a chance, to be honest," Lokke said at an online Rystad energy transition event.

"I think it is pushed very much by the big oil companies because they don't have a choice, and they're afraid of losing power and the oligopoly position," he said. "But I think with green renewable hydrogen, the cost is going to go down much faster than the analysts think. Look at what happened in wind."

The 2025 target of $1.5/kg assumes electricity prices of $20/MWh.

"That's already competitive with fossil," Lokke said. "If I add then the $1/kg-plus in cost which I need to capture the CO2, I'm not going to be competitive. I'm already out."

Lokke, however, noted that CCS had a role to play in decarbonizing conventional fossil fuel-powered power generation.

Decentralized renewable generation

Green hydrogen production costs will depend on the price of renewable electricity, but Lokke sees decentralized renewable power generation as a game-changer.

"I think the more relevant question is not the price of electricity, but the cost of electricity," he said. "There is a huge difference between the cost and the price.

"Sometimes that's due to an imperfect market. Sometimes it's because you need to connect to the grid. So you will find off-grid solutions in more and more locations. Disconnected from the grid, or using mini-grids, making you independent of the oligopolies controlling the grids, controlling the power, controlling the energy."

Platts assessed the cost of producing hydrogen via alkaline electrolysis in the Netherlands (including capex) at Eur3.94/kg ($4.75/kg) May 5. PEM electrolysis production was assessed at Eur4.99/kg, while blue hydrogen production by steam methane reforming (including carbon, CCS and capex) was Eur2.11/kg.

A carbon tax was welcome, but "fundamentally, our business case does not rely on any form of support or subsidies to help this fly," Lokke said. "We have to be able to compete with fossil fuels on our own merit."

A carbon tax, capex and operational expenditure support would all help kick-start the industry, accelerating production at scale, he said.

Battery boost

The CEO of lithium-ion battery producer Freyr, Tom Jensen, agreed.

"You cannot build a business relying on incentives from the government," he said at the same event.

"But they will definitely help in accelerating the energy transition," Jensen said. "So if governments want that to be accelerated, they should implement very heavy CO2 taxes. If you want something to be accelerated, put your money where your mouth is."

Jensen noted that high carbon prices in Europe were translating into incentives for battery cell producers.

EU carbon allowance futures contracts for December 2021 delivery on the ICE Futures Europe exchange closed at Eur49.45/mt May 5, having risen above Eur50/mt for the first time May 4.

"It can mean around a 5% cost benefit if you actually have a battery that is CO2-free, relative to what the global average is today," Jensen said.