New Energy Expert Insights: The Truth about Blue Hydrogen – a Necessity in the Energy Transition? Part II

In this two-part New Energy Expert Insights series, we sat down with Nicohan van der Merwe, Senior Process Engineer at GHD, to discuss the truth about blue hydrogen and explore the key role it has to play in the global transition towards clean, renewable energy. Nicohan has substantial experience in blue hydrogen projects and has been an engineer in the energy sector for over 10 years. GHD is a global professional services firm committed to solving the world’s biggest challenges in the areas of water, energy and urbanisation. It provides advisory, engineering, architectural, environmental and execution phase services. GHD is providing significant services for clients to support their decarbonisation journey, including the development of both green and blue hydrogen projects and believes that production via both routes should form part of the energy transition, given the complexity of challenges with transitioning energy systems globally.

In Part I, we discussed some of the obstacles facing the transition to a green hydrogen economy. In this Part II, we take an in-depth look into the specifics of blue hydrogen cost contributors, the challenges associated with its production and, how blue hydrogen is already well placed to facilitate the transition to a green hydrogen future.

Part II – Blue Hydrogen – The Specifics

The cost of blue hydrogen production is sensitive to the volatility of gas prices. Can blue hydrogen remain cost-competitive?

The most significant cost contributor to producing blue hydrogen is the cost of natural gas, which can rise and fall subject to the global supply and demand situation. The high global spot gas prices over the last few months, due to the Russian invasion of Ukraine, has demonstrated the risk of relying on volatile fossil fuel prices. However, projects like a new hydrogen plant would usually be established on long-term offtake agreements with predictable pricing, which does not fluctuate like the spot market price does.

The cost of green hydrogen production is mostly determined by the cost of electric power production from renewables, which is far less contingent on geopolitical conditions and fluctuations in spot natural gas prices. Green hydrogen price factors are stable, but requires typical power prices to significantly reduce to bring it in range with large scale blue hydrogen cost of production based on established long-term gas prices.

How does the CCS process work in the production of blue hydrogen? Are some CCS methods more effective than others?

CCS (Carbon Capture and Storage) describes the process of capturing the carbon dioxide (CO2) created during hydrogen production and then compressing and storing it underground. There are three main processes which can be utilised for hydrogen production from natural gas – Steam Methane Reforming (SMR), Partial Oxidation (POX) and Autothermal Reforming (ATR). Without carbon capture, these processes produce grey hydrogen, which is the status quo today. ATR, POX and optimised SMR are all now capable of achieving much higher than 90% capture rates, while an SMR plant used without optimisation can capture about 55% of the total CO2 produced.

Once the CO2 has been captured, it needs to be processed and compressed for transportation to the sequestration site. Depleted oil and gas reservoirs that previously stored the natural gas for millions of years are typically used to store the CO2. The Gorgon facility is sequestering into a saline aquifer, and whilst this introduces more complexities, it opens up significantly more capacity for CO2 storage than just using depleted oil and gas reservoirs. Chevron have that project up and running and are overcoming the challenges. This is now one of the largest operational CCS facilities, joining several other projects globally, sequestering approximately 40 Mta of CO2. It is expected that we will see global CCS capacity increasing rapidly once CO2 abatement is consistently valued and project developers are properly incentivised, through schemes and regulations implemented by countries to drive them towards net zero targets.

How do we know that the use of blue hydrogen will support the rapid decarbonisation?

This is a really important question. There is no point in supporting major investment that does not deliver genuine and deep lifecycle decarbonisation. I have personally undertaken a deep investigation into the lifecycle emissions from the production of blue hydrogen from gas. This includes accounting for the upstream fugitive emissions of methane which actually has a very significant impact. It is clear to me that if the project is carefully specified and the upstream fugitive emissions are minimised, a blue hydrogen project can deliver very significant lifecycle emissions reduction when compared with the sale of natural gas. Encouragingly, the Royal Society of Chemistry released a very detailed study late last year which corroborated my findings.

To be confident that a global blue hydrogen industry is achieving the reduction in greenhouse gas emissions that are required to meet climate change commitments, we need globally agreed and accepted guarantee of origin schemes that will guide energy producers and users. As mentioned in Part I, some countries have started introducing carbon intensity thresholds for low-carbon hydrogen. It appears that the International Partnership for Hydrogen and Fuel Cells (IPHE) may become the leading body for implementing a globally standardised approach.

What are the key challenges of scaling up the production of blue hydrogen?

Producing blue hydrogen with large scale production plants is already possible with mature technologies.  Many of the challenges to scaling up blue hydrogen are also challenges for green hydrogen. Both are capital intensive and requires offtake agreements to implement at scale.  In addition to financial considerations, several other elements need to be progressed for a hydrogen economy to become viable, including certification, regulatory standards, development of production, transportation and use technologies as well as the training of skilled people who understand hydrogen and its specific properties. Many of these learnings and efficiencies can be developed and implemented by blue hydrogen and will help to accelerate the scaling up of a green hydrogen industry.

The main challenges that are unique to blue hydrogen include that it requires sound knowledge of CO2 sequestration and may have more work to do to achieve community acceptance than green hydrogen.

How important is it to get community on board?

Building community understanding and trust in why hydrogen is needed and how it can play a safe, reliable and sustainable part in the energy transition, regardless of the technology used for production, is critical. But additionally, because of the very large amount of hydrogen needed for it to play its role in decarbonising hard-to-abate sectors and the pressure that that will put on the renewable power sector, we should also be explaining the need to support the production of low carbon hydrogen from fossil fuels and helping to get the community on board. Incidentally, a healthy blue hydrogen industry would have very significant knock-on benefits to global decarbonisation by highly incentivising the fossil fuel industry to further decarbonise their operations and address fugitive emissions.

It is imperative that community acceptance of hydrogen is established. To do so, we need to ensure communication is clear and consistent about the risks, costs and benefits associated with hydrogen.

Which industries do you think will be early adopters of low carbon hydrogen?

The low-hanging fruits are the areas where grey hydrogen is already being used and to replace the grey hydrogen. This can be done with blue hydrogen where there are immediate opportunities at scale and with green hydrogen wherever economical and sufficient renewable power can be made available. Examples are oil refineries, petrochemicals and fertiliser production plants.

The transportation sector is the second-largest producer of CO2 emissions, after electricity and heat generation, but one of the hardest to decarbonise due to its distributed nature. Hydrogen is expected to play a bigger role in the heavy vehicle sector than in passenger vehicles in Australia. This is because hydrogen has a very high energy content on a mass basis, but it does not have a high energy content on a volume basis. On a mass basis, hydrogen has four times the energy content of petrol or kerosene. On a liquefied volume basis, the energy content is about one-quarter of that of petrol or kerosene, and to get hydrogen to a liquefied state it needs to be stored at -253 degrees Celsius – a very energy-intensive process.

Where does blue hydrogen sit in the decarbonisation of energy systems?

There is a common misconception that pursuing blue hydrogen will impede the adoption of green hydrogen at scale. However, the progressive development of the green energy transformation needs to be kept in mind. Given the various obstacles to scaling green hydrogen production in the short to medium term, blue hydrogen can be a bridging technology supporting the uptake of hydrogen infrastructure and hydrogen end-use applications and significantly accelerating global decarbonisation. Blue hydrogen projects can be progressed without saturating the global ramp-up of green hydrogen supply. As both blue and green hydrogen will play important roles, policies and regulations should support both options in order to maximise the ability to decarbonise the global energy systems with hydrogen.


The Hamilton Locke team advises across the energy project life cycle – from project development, grid connection, financing, and construction, including the buying and selling of development and operating projects. For more information, please contact Matt Baumgurtel.

KEY CONTACTS

Special Counsel

Senior Associate