Wood Mackenzie says green hydrogen cost reduction will boost energy transition
Green hydrogen created from the electrolysis of water using renewable energy has a tiny share of the global energy market, Wood Mackenzie said. The hydrogen boom is well under way but the real game-changer for the energy transition will come when the cost of green hydrogen production is reduced, according to a new report from Wood Mackenzie. Many countries are focusing on hydrogen production to cut emissions to limit global warming and protect the environment. “Green hydrogen – hydrogen created from the electrolysis of water using renewable energy – has a tiny share of the global energy market today,” Bridget van Dorsten, a research analyst from Wood Mackenzie’s hydrogen research team, said. “It is currently still largely uncompetitive against fossil-fuelled alternatives. However, the momentum behind net-zero ambitions means that investors are betting on its long-term potential.” Hydrogen comes in various forms including blue, green and grey. Blue and grey hydrogen are produced from natural gas, while green hydrogen is derived from renewable sources. Globally, the hydrogen project pipeline has grown sevenfold since December 2020 as the world focuses on energy transition, according to the study. But most projects are at an early development stage, with the bulk of new projects advanced during the second quarter of this year. “Until 2019, global estimated electrolyser manufacturing capacity was just 200 megawatts. By the midway point of 2021, that had jumped to 6.3 gigawatts of announced capacity, with 1.3GW added in the first quarter alone,” Ms van Dorsten said. “Now, as we reach the end of the fourth quarter, electrolyser manufacturers are dramatically expanding plans for gigawatt-scale factories.” Wood Mackenzie expects a significant drop in electrolyser capital expenditure by 2025, driven down by a variety of factors, including economies of scale, new entrants to the market and greater automation. “Capex reduction will help drive down the levellised cost of hydrogen production. Combined with cheap renewable PPAs [power purchase agreements] and good renewable utilisation in many markets, the potential for competitive green electrolysis-based hydrogen really starts to grow,” she said. Globally, the size of the hydrogen industry is expected to hit $183 billion by 2023, up from $129bn in 2017, according to Fitch Solutions. French investment bank Natixis estimates that investment in hydrogen will exceed $300bn by 2030. The UAE and other countries around the region have formulated plans to introduce hydrogen into the energy mix and tap into the clean fuel’s potential. State entities Adnoc, Mubadala and ADQ formed an alliance this year to develop a hydrogen economy in the UAE.
Oil Rises on Optimism Omicron Impact Will Be Limited on Fuel Demand
Oil prices rose on Monday, extending gains from last Friday, helped by growing optimism that the Omicron coronavirus variant’s impact will be limited on global economic growth and fuel demand. Brent futures climbed 53 cents, or 0.7%, to $75.68 a barrel by 0100 GMT, after rising 1% on Friday. U.S. West Texas Intermediate (WTI) gained 69 cents, or 1.0%, to $72.36 a barrel, following a 1% increase in the previous session. Both benchmarks posted gains of about 8% last week, their first weekly gain in seven. They have recovered more than half the losses suffered since the Omicron outbreak on Nov. 25. “Market sentiment has improved as the threat of the Omicron variant has receded,” said Toshitaka Tazawa, an analyst at Fujitomi Securities Co Ltd. “WTI will probably test its recent high of $73.34 and then try to rise towards $78, the level before the Omicron fears led to a sharp sell-off late last month,” he said. South African scientists see no sign that the Omicron variant is causing more severe illness, they said on Friday, as officials announced plans to roll out vaccine boosters with daily infections approaching an all-time high. Booster COVID-19 shots significantly restore protection against mild disease caused by the Omicron variant, the UK Health Security Agency said on Friday. Still, investors remained cautious on the U.S.-led coordinated release of crude reserve by oil consuming countries as well as tensions between Russia and Ukraine. The U.S. Department of Energy said on Friday it will sell 18 million barrels of crude oil from its strategic petroleum reserve (SPR) on Dec. 17, as part of a previous plan to try to reduce gasoline prices. On Sunday, the Group of Seven warned in a statement that Russia faces massive consequences and severe costs if President Vladimir Putin attacks Ukraine. U.S. intelligence assesses that Russia could be planning a multi-front offensive on Ukraine as early as next year, involving up to 175,000 troops. Meanwhile, Iraq’s oil minister said on Sunday he expected the Organisation of the Petroleum Exporting Countries (OPEC) at its next meeting to maintain its current policy of gradual monthly increases in supply by 400,000 bpd.
Doing nothing is the best oil producers can do right now
The OPEC+ meeting that began on Dec. 1 is still technically “in session” 11 days later. Remarkably, perhaps, it’s still short of being the oil producer group’s longest gathering — it has another week to go to beat the one held in October 1986. This time, of course, it is much easier to conduct a lengthy meeting. With the deliberations held by videoconference, ministers are free to conduct their normal duties until the chairman decides they need to reconvene. Thirty-five years ago, the ministers and their delegations were ensconced in Geneva hotel suites, far from their desks back home. Then, as now, they were grappling with a market that was slowly recovering from an unprecedented demand shock — although the trigger was very different. Right now, the OPEC+ group is doing most good by doing nothing. The meeting is “in session” in name only. Nonetheless, it is proving to be a very successful strategy to support crude prices in the face of uncertainty over the omicron variant’s impact on oil demand. The ministers convened amid widely held expectations that they would delay January’s planned output increase. Back in July they decided to add 400,000 barrels a day to supply each month until they restored all the production they’d agreed to cut back in April 2020. But forecasts of the oil market swinging from deficit to surplus by the year’s end had OPEC+ worried, as did the world’s five biggest oil-consuming countries outside the group coordinating a release of strategic stockpiles to ease inflation. None was more concerned than Saudi Arabia’s Prince Abdulaziz Bin Salman, who has consistently urged a cautious approach to boosting supply. To the surprise of many, the group agreed to go ahead with January’s planned output increase. That decision undoubtedly helped defuse tensions with the Biden Administration in the U.S. The strain was triggered by the producers’ earlier refusal to make a larger increase in production in December and then exacerbated by the announcement that the U.S. and other countries would release crude from emergency stockpiles. But keeping the meeting officially “in session” has sent a clear warning to oil bears that the producer group will step in quickly at the first sign of prices weakening, reducing any appetite to short crude. That move put a floor under crude prices, which had fallen by $13 a barrel, or 16%, since the new Covid-19 variant emerged just two days after Biden announced the stockpile release. Meanwhile, U.S. gasoline prices have eased, if only slightly, allowing Biden to quietly claim success for his strategy. But he can’t shout too loudly as prices are still the highest for the time of year since 2012. The release of strategic stockpiles is still going ahead, although they have yet to hit the market. The deadline for bids for the initial 32 million barrels of U.S. crude was Dec. 6, with contracts to be awarded on Dec. 14. Only then will we know the strength of buyers’ appetites. There’s no guarantee they will want all the oil on offer. Other countries that said they would join the U.S. — India, Japan, China, South Korea and the U.K. — are also yet to release oil from their reserves. With above-average uncertainty around both oil supply and demand, the producer group did what it could. It successfully reduced producer-consumer tensions by keeping January’s supply boost in place and went from a program of monthly meetings to one of perpetual meeting. That plan of keeping the meeting live while actually doing nothing is looking like a master stroke. After all, the world needs to digest the impact of both the omicron variant and the release of emergency stockpiles.
ONGC seeks minimum $4 for CBM gas, $3.5 for gas in North East
India’s top oil and gas producer ONGC is seeking a minimum price of USD 3.5-4 for the natural gas it plans to produce from coal seams in Jharkhand and a field in Tripura. Oil and Natural Gas Corporation (ONGC) has issued separate tenders seeking buyers of 0.02 million standard cubic meters per day of coal-bed methane (CBM) it plans to produce from the North Karanpura CBM block in Jharkhand and 0.1 mmscmd from Khubal field in Tripura. For the CBM gas, it asked buyers to quote a percentage equal to or higher than 8 per cent of Dated Brent Price, according to the tender document. “Floor price shall be the higher of the USD 4 per million British thermal unit or Domestic Gas Price notified by (government’s) PPAC for the period,” it said. The PPAC notified price for the six months beginning October 1 for gas from fields given to ONGC and Oil India Ltd on a nomination basis is USD 2.9 per mmBtu. ONGC has been complaining that the government-notified gas price is way below cost and the company incurs a loss of production and sale of natural gas from most of its fields. It says its cost of production ranges from USD 4.5 to USD 9 per mmBtu for gas from different sources/fields. For gas from Khubal field, it sought a mark-up over the domestic gas price +(plus) USD 0.5 per mmBtu. The floor or minimum price was set at USD 3.5 per mmBtu, according to the tender. Earlier this year in April, ONGC had sought bids for the sale of an initial two mmscmd of gas from its KG basin fields. It had sought bids indexed to Brent crude oil for the gas from the KG-DWN-98/2 or KG-D5 block, which sits net to Reliance Industries Ltd (RIL)-BP Plc-operated KG-D6 fields in the Bay of Bengal. Bids were sought at a minimum of 10.5 per cent of the three-month average Brent crude oil price. At Brent crude oil price of USD 70, the minimum price came to USD 7.35 per mmBtu. The tender was however scrapped as consumer consumers went to court against the bidding process. In the latest tender, ONGC has mentioned a 3 to 5-year sale tenure for CBM gas, with supplies commencing with immediate effect. ONGC owns 55 per cent in the North Karanpura CBM block in the Ranchi district of Jharkhand. Indian Oil Corporation (IOC) holds 20 per cent and Prabha Energy Pvt Ltd the remaining 25 per cent. For Khubal field, the gas supplies are to begin from April 2024 and bids have been sought for 3 to 5 years tenure. While ONGC is seeking a price benchmarked to Brent crude oil, RIL-BP sold about 13 mmscmd of new gas from KG-D6 at a price linked to Platts JKM (Japan Korea marker) – the liquefied natural gas (LNG) benchmark price assessment for spot physical cargoes. That tender of RIL-BP mandated the lowest bid at JKM minus USD 0.3 per mmBtu. The highest acceptable bid was JKM plus USD 2.01 per mmBtu.