Goldman Sachs: Hydrogen Generation Could Grow Into $1 Trillion Per Year Market
Hydrogen power has been on the market for decades but has never really been able to break the glass ceiling of mass-market appeal, mainly due to a host of technical and cost issues. But some experts now believe that the hydrogen economy is ready for take-off, with Goldman Sachs predicting hydrogen generation could eventually grow into a $1 trillion per year market. The EU has hatched a highly ambitious plan to install 40 gigawatts of electrolyzers within its borders and support the development of another 40 gigawatts of green hydrogen in nearby countries that can export to the EU by 2030. The EU has also pledged to cut Russian gas imports by two-thirds by the end of the year and has doubled down on green energy fuels by increasing renewable hydrogen production. And Citigroup analysts are now particularly bullish about one hydrogen sub-sector: fuel cells. Fuel cells are used in specialty vehicles such as forklifts and by energy consumers to complement electricity from the grid to smooth energy costs and ensure reliability. According to the analysts, the global fuel cell industry is a direct play on the green energy debate, and “reaching the part that batteries cannot.” “Fuel cells enable both de-carbonization and energy resilience, and we see them as crucial in harder-to-abate sectors like commercial vehicles and marine,” a Citi team told clients in a note on Tuesday, carried by MarketWatch. Citi’s base case sees the fuel cell market hitting 50 gigawatts (GW) and $40 billion by 2030, good for more than 35% CAGR in dollar terms, with further acceleration to 500GW/$180 billion by 2040. “The fuel cell equity story has had false starts before, but we see the impetus from emissions policy as well as announced hydrogen plans as creating attractive opportunities,” the analysts have said, highlighting policies such as the U.S. Inflation Reduction Act. Citi has picked U.K.-based Ceres Power (LSE: CWR), New York-based Plug Power Inc. (NASDAQ: PLUG), Belgium’s Umicore SA (EBR: UMI), and Japan’s Toyota Motor Corp.(NYSE: TM) as the bank’s buy-rated stocks with high exposure to the fuel-cell theme. What Is Holding The Hydrogen Boom Back? But for all the buzz surrounding the hydrogen economy, the sector has badly underperformed the market this year. Hydrogen and fuel-cell stocks have been pounded, losing about 70% YTD compared to -25.1% by the S&P 500. Even the leaders of the space have not fared much better: PLUG stock has returned -31.3% YTD while shares of peer FuelCell Energy, Inc. (NASDAQ: FCEL) have lost 45.7% over the timeframe. But it’s not been all doom and gloom, though: back in August, Plug Power signed a deal to supply liquid green hydrogen to Amazon Inc. (NASDAQ: AMZN) beginning 2025 to help decarbonize the ecommerce giant’s operations. As part of the deal, Plug will grant Amazon a warrant to acquire up to 16M common shares, with an exercise price for the first 9M warrant shares of ~$22.98/share, and for the rest a price equal to 90% of Plug’s 30-day volume weighted average share price when the first 9M shares are vested. Amazon would vest the warrant in full if it spends $2.1B over the seven-year term of the warrant across Plug products, including electrolyzers, fuel cell solutions and green hydrogen. Under the deal, Plug Power will supply 10,950 tons/year of liquid green hydrogen beginning January 2025, something the company has termed as a “growth opportunity” that is expected to help it reach its $3B revenue goal by 2025. On its part, Amazon says the contract should provide enough annual power for 30K forklifts or 800 heavy-duty trucks used in long-haul transportation. Despite the bright long-term outlook for the hydrogen sector, companies like Plug Power have been recording ballooning operating costs leading to widening losses. For Q2 2022, PLUG’s operating expenses increased 132% year-over-year to $114.44 million; operating loss widened 63.9% Y/Y to $146.91 million while net loss and net loss per share worsened 73.9% and 66.7% year-over-year, respectively. For the full year, PLUG has a consensus loss per share estimate of $0.94, good for 14.8% year-over-year increase. Meanwhile, FuelCell saw Its Q3 2022 loss for the period ended July loss from operations expand 164.5% year-over-year to $28 million while adjusted EBITDA loss widened 301.5% year-over-year to $20.77 million. The company’s consensus revenue estimate of $27.87 million for the fiscal 2023 first quarter indicates a 12.4% Y/Y decline. Varying Expectations These are still early days into the hydrogen boom, and analysts are saying that varying expectations around how financing and offtake deals are structured is one of the reasons why deals have been hard to close. Currently, there is no merchant market for hydrogen. For hydrogen projects to become financeable, they must have a bankable offtake scheme. But expectations around how financing and offtake deals will be structured vary widely, adding complexity to the contracting process, as Frank O’Sullivan, managing director at venture capital firm S2G Ventures, has told the ACORE Finance Forum. There’s also no shortage of investors interested in the hydrogen sector, but many are sitting on the sidelines and watching to see how the first round of deals pans out. “There isn’t a single model that defines, this is how the hydrogen play works. There will be several models, and those models have not emerged yet,” O’Sullivan has said. It’s a viewpoint reiterated by Greg Cameron, executive vice president and chief financial officer of hydrogen fuel cell maker Bloom Energy (NYSE: BE). According to Cameron, on one end, there’s the acquisition of energy needed to drive electrolysis. On the other end, there are the off-takers, who may come from diverse industries with different expectations for how a contract should be structured. Luckily, O’Sullivan says that the path to getting actual hydrogen infrastructure off the ground is relatively clear. The capital costs associated with electrolysis are declining, while access to renewable energy that’s cheap enough to generate hydrogen from water and still sell a cost-competitive fuel is on the horizon. Rachel Crouch, a senior associate at giant British-American multinational
India to diversify oil imports as OPEC cartel aims to hike prices
As OPEC (Organization of the Petroleum Exporting Countries) Plus members gear up to cut production from November, India is aggressively looking to diversify its oil procurement sources. The OPEC Plus has decided to cut production by 2 million barrels a day. Petroleum Minister Hardeep Singh Puri has, however, assured the country that there will be no fuel shortage. India has also continued to purchase oil from Russia despite facing intense pressure from the West to scrap economic relations with Moscow after its invasion of Ukraine. An insider also said that with inflationary pressures rising, India will be guided by its own interest and strategic autonomy to ensure that prices are contained in the domestic markets. While imports from Russia have increased, India may look to expand inbound shipment further with pricing favours. India imports about 85 per cent of its total oil requirements and an increase in global price, therefore, has a direct impact over its import bills. As per the International Energy Agency (IEA) estimates, India will contribute a quarter of the growth in global energy consumption in the coming two decades. Oil and gas major BP estimated that India’s energy demand will double, while natural gas demand is expected to grow five-fold by 2050. The third largest consumer of oil, India’s net import bill for oil and gas was $14.9 billion in July 2022 compared to $8.0 billion in July 2021. India is importing Russian oil at a price significantly cheaper than Saudi Arabia.
Tax on windfall profit on crude oil, export of diesel, ATF hiked
The government on Saturday hiked windfall tax on domestically produced crude oil by more than a third while doubling the rate on export of diesel and re-introducing the levy on overseas shipment of jet fuel (ATF) in line with rise in international oil prices. The tax on crude oil produced by firms such as state-owned Oil and Natural Gas Corporation (ONGC) was increased to Rs 11,000 per tonne beginning October 16 from Rs 8,000, a government notification showed. In the fortnightly revision of windfall tax, the government doubled the rate on export of diesel to Rs 12 per litre from Rs 5 a litre. The levy on jet fuel, which was brought down to nil at the beginning of this month, was re-introduced at Rs 3.50 a litre. The levy on diesel includes Rs 1.50 per litre road infrastructure cess (RIC), the notification showed. The hike reverses the reduction in two previous rounds in September. This follows the rise in international oil prices. The basket of crude oil that India imports has risen to USD 92.91 per barrel in October from an average of USD 90.71 in the previous month. The basket had averaged USD 116.01 in June which was used as a base to introduce the levy for the first time from July 1.When the levy was first introduced, a windfall tax on export of petrol alongside diesel and ATF too was levied. But the tax on petrol was scrapped in subsequent fortnightly reviews. While the windfall profit tax is calculated by taking away any price that producers are getting above a threshold, the levy on fuel exports is based on cracks or margins that refiners earn on overseas shipments. These margins are primarily a difference of international oil price realised and the cost. The international price of petrol, which was used as reference for the levy of windfall tax on exports, was USD 148.82 per barrel in June but has since declined to USD 91.37 this month. It had averaged USD 93.78 a barrel in September. In contrast, the international price of diesel has firmed up to USD 133.35 per barrel in October from USD 123.36 in the previous month. The rate was USD 170.92 per barrel in June. International oil prices have fallen to pre-Ukraine war levels last month but have risen this month as producers cartel OPEC and its allies cut production. While private refiners Reliance Industries Ltd and Rosneft-based Nayara Energy are the principal exporters of fuels like diesel and ATF, the windfall levy on domestic crude targets producers like state-owned ONGC and Oil India Ltd as well as private players such as Vedanta Ltd. India first imposed windfall profit taxes on July 1, joining a growing number of nations that tax super normal profits of energy companies. At that time, export duties of Rs 6 per litre (USD 12 per barrel) each were levied on petrol and aviation turbine fuel and Rs 13 a litre (USD 26 a barrel) on diesel. A Rs 23,250 per tonne (USD 40 per barrel) windfall profit tax on domestic crude production was also levied. The duties were partially adjusted in the previous rounds on July 20, August 2, August 19, September 1, September 16, and October 1. The adjustments, while still ad hoc, highlight the producer oil price cap of around USD 75 per barrel and profitability of USD 20-22 a barrel.
Low bidders’ interest: BPCL on ‘wait and watch’ mode for strategic disinvestment
The government has indicated that the disinvestment of Bharat Petroleum Corporation Limited (BPCL) is still on its priority agenda, said a senior government official. Earlier in May, the government called off the disinvestment process citing lack of bidders’ interest. “BPCL is on ‘wait and watch’ mode for strategic disinvestment. Decision on timing depends upon improvement in geo-political situation,” the senior government official told BusinessLine. However, he admitted that the current geo-political situation are not conducive and bidders’ interest are low. In addition to owning 52.98 percent of BPCL, the Centre also controls its management. The government on November 20, 2019, gave in-principle approval for strategic disinvestment of government’s shareholding in BPCL excluding BPCL’s shareholding in Numaligarh Refinery (NRL). Further, as per the above approval, BPCL’s shareholding in NRL has to be divested to a Central Public Sector. BPCL has already sold the entire investment in equity shares of NRL to a consortium of Oil India and Engineers India and to the government of Assam during FY2020-21 at a total consideration of ₹98.7596 billion. Earlier, the government issued an Expression of Interest (EoI) for selling its stake along with management control. The Department of Public Asset and Investment Management (DIPAM) said multiple EoIs were received and they also initiated due diligence of the company. Covid-19 impact However, on May 26 this year, it said that the multiple Covid-19 waves and geo-political conditions affected industries globally, particularly the oil and gas sector. Owing to prevailing conditions in the global energy market, most of the Qualified Interested Parties (QIPs) have expressed their inability to continue in the current process of disinvestment of BPCL. “In view of this, based on decisions of the Alternative Mechanism (Empowered Group of Ministers), the government of India has decided to call off the present EoI process for strategic disinvestment of BPCL and the EoIs received from QIPs shall stand cancelled,” said DIPAM, while adding that decision on the re-initiation of the process will be taken in due course of time. New PSE Policy The disinvestment of BPCL also needs to be seen from the point of view of the new Public Sector Enterprises (PSE) Policy. The policy has listed petroleum in one of the four groups known as ‘Strategic Sectors’. It has been said that the Central Public Sector Enterprises (CPSEs) in the Strategic Sector/Non-Strategic Sector are to be taken up for privatisation, merger, subsidiarisation with another CPSE or for closure. “Only a bare minimum presence of CPSEs in the Strategic Sector is to be maintained,” it said. As on date, the petroleum sector is dominated by CPSEs such as ONGC, Indian Oil, BPCL, GAIL, Oil India, etc. which shows why BPCL disinvestment is important for the government.
Russia Will Terminate Natural Gas Supplies If A Price Cap Is Implemented
Any decision to impose a price cap on Russian natural gas exports would result in the suspension of said exports, the chief executive of Gazprom, Alexei Miller, said in response to reports the EU is considering such a move. “Such a one-sided decision is of course a violation of existing contracts, which would lead to a termination of supplies,” Miller said on Russian TV, as quoted by Reuters. Russian gas deliveries to Europe have already declined substantially since the Ukraine invasion as the EU rushed to diversify its sources of the commodity and Gazprom reduced flows via the Nord Stream 1 pipeline before it got blown up last month. The European Union has been hard at work trying to find a way to reduce its gas bill, with price caps among the most actively promoted options. However, there is no agreement yet on the kind of price caps to be implemented. A group of 15 members has called on the Commission to implement price caps on all gas imports, both from Russia and from countries such as Norway, Algeria, and the United States. The Commission and some other EU members including Germany and the Netherlands, however, have warned against such a move as it would put the security of supply at risk. The Commission has instead proposed a price cap on Russian gas supply only, prompting a reaction from the Russian side. EU leaders are meeting again at the end of this week to discuss their options, with the Commission expected to make its official proposal on the issue. “Impatience is growing with member states,” an unnamed EU diplomat told Reuters this weekend. “So we changed gear and put everything that is being floated… on the table. It is a way of putting pressure on the Commission to come up with the most concrete possible proposals.”