The Truth Behind European Big Oil’s Bet On Hydrogen
Back in 2020, the European Union set out its new hydrogen strategy as part of its goal to achieve carbon neutrality for all its industries by 2050. The regional bloc outlined an extremely ambitious target to build out at least 40 gigawatts of electrolyzers within its borders by 2030, or 160x the current global capacity of 250MW. The EU also plans to support the development of another 40 gigawatts of green hydrogen in nearby countries that can export to the region by the same date. The EU also aims to have at least 6 gigawatts of clean hydrogen electrolyzers installed by 2024. But it appears European oil majors are only willing to dance to their own tune. A new study on behalf of Transport & Environment (T&E) has revealed that whereas Shell Plc (NYSE: SHEL), BP Plc (NYSE: BP), TotalEnergies SE (NYSE: TTE), ENI S.p.A (NYSE: E) and Repsol SA (OTCQX: REPYY) are actively investing in hydrogen, the lion’s share of their green investments are aimed at lowering the carbon intensity of their refinery operations rather than developing green transport fuels. Indeed, the study has found that of the refining sector’s €39 billion in planned investments in alternative fuels till 2030, nearly 75% will go towards increasing biofuels production. New advanced biofuels (HVO) plants will receive €2 to €3 billion in investments, doubling production capacity to 10 megatonnes by 2030, with the T&E analysis saying that’s 4 times higher than what can be sustainably sourced in the EU. “Oil producers are promoting hydrogen as their big bet for the future, but in reality their investments in green hydrogen are pitiful. Instead they are focusing their new refining capacity on biofuels which cannot sustainably supply the world’s transport needs. This is not an industry pushing the boundaries of clean technology,” Geert Decock, electricity and energy manager at T&E, has said. The oil refining industry is one of the key consumers of hydrogen right now, but most refineries are using “gray hydrogen”–derived from fossil fuels, rather than clean, green hydrogen. The T&E study says that oil companies plan to invest around €6.5bn in so-called ‘low carbon’ blue hydrogen to clean up their production processes, double what they are spending on the production of green hydrogen and e-fuels. “Where oil producers are investing in hydrogen, most is going towards replacing dirty gray hydrogen operations with blue hydrogen, which still uses polluting fossil gas. Instead of wasting their time on easy, short-term solutions, oil refiners should switch to producing green hydrogen and e-fuels for ships and planes today,” Geert Decock has concluded. Betting On Hydrogen Still, European governments are betting increasing amounts of cash on a hydrogen revolution in a bid to reduce carbon emissions and meet its industrial ambitions. European Commission President Ursula von der Leyen recently promised a €3 billion investment vehicle, dubbed a hydrogen bank, that will “help guarantee the purchase of hydrogen” by spurring demand using money from the EU Innovation Fund. The continent has already seen €13 billion in state aid approvals for national and cross-border projects so far. These include €5.4 billion for Hy2Tech, a cross-border initiative that aims to perfect hydrogen technology; €5.2 billion for Hy2Use which will invest in applications in hard-to-decarbonize sectors such as cement, steel and glass; more than €2 billion for German projects in steel; €220 million for a Spanish plant and €194 million for a Romanian plant. The EU hydrogen strategy comes with a hefty price tag estimated at $430B. The European Commission has set a target to boost hydrogen’s share to 14 percent of the EU’s final energy demand by 2050. Last year hydrogen accounted for a mere 2.5 percent of the world’s final energy demand. Good news for natural gas companies: Although Brussels clearly favors “green” hydrogen produced by renewable energy, it has signaled that it will also encourage the development of “blue” hydrogen that is produced from natural gas paired with carbon capture and storage (CCS). The EU has said that hydrogen will play a key role in helping decarbonize manufacturing industries and the transport sector. The organization says it will support blue hydrogen during a “transition phase,” although it has not mentioned it in its topline targets. The bloc plans to invest €18 billion in blue hydrogen projects. The decision by European policymakers to support blue hydrogen came after years of hard lobbying by more than 30 energy companies including ExxonMobil, ENI, Shell, Total, Equinor ASA (NYSE: EQNR) and other European natural gas companies which called for a ‘‘technology-neutral strategy’’ arguing that renewables such as wind and solar cannot grow fast enough to power the “clean hydrogen” sector to meet decarbonization goals. The signatories have claimed the green hydrogen industry is currently too small to spark the growth of a large-scale European hydrogen economy in the space of just a decade.
RBI sees need for ‘oil-proofing’ economy amid global shocks
The Reserve Bank of India has in a new report underlined the need to achieve energy security amid the global uncertainties impacting oil supplies and prices. “The need for oil-proofing the Indian economy – its financial and real sectors, from shocks or adverse geopolitical events cannot be overstated. This also points to the need for a policy for promoting energy security and sustainability…It would also be prudent on the part of regulators to be vigilant of the potential contagion from global crude oil price movements given their wider implications for systemic financial stability,” the report said. Meanwhile, insiders said that India has already aggressively started looking at ways which could boost energy security by enhancing use of alternative fuels. The country’s domestic demand for fuel has seen a steady jump of 3 per cent, which is higher than the global average of around just 1 per cent. Currently India, which consumes five million barrels of petroleum daily, imports about 85 per cent of its total crude requirements. Petroleum Minister Hardeep Singh Puri has said that measures are afloat to facilitate switching to gas and hydrogen. The minister said that India was able to navigate through the most formidable energy crisis the world has seen since the 1973 oil crisis due to its four-pronged energy security strategy — diversification of energy supplies, increasing exploration and production footprint, using alternate energy sources, and meeting energy transition through the gas-based economy, green hydrogen and EVs. The Narendra Modi government has laid the emphasis on increasing production of ethanol from various items such as sugar molasses, sugarcane and other materials which have sugar content. India has already reached the set target of blending 10 per cent ethanol with petrol. The target is to touch 20 per cent blending by 2025. It was only 1.53 per cent in 2013-14. The increased use of ethanol will boost India’s renewable energy segment while leading to a huge saving of foreign exchange.
India’s Russian oil imports top 1 mn barrels a day in December
Russia supplied 1.19 million bpd of crude oil to India in December alone. Russia’s crude oil export to India surged to a new record in December 2022. Moscow has remained the top oil supplier of India for consecutive months. According to data from energy cargo tracker Vortexa, India imported crude oil from Russia 1 million barrels per day for the first time in December. Russia supplied 1.19 million bpd of crude oil to India in December alone. This was higher than 909,403 bpd crude oil India imported from Russia in November and 935,556 bpd in October 2022. The previous record for most crude oil imports from Russia was in June 2022 when India bought 942,694 bpd, according to Vortexa. Russia, which in October 2022 for the first time surpassed traditional sellers Iraq and Saudi Arabia to take the No.1 spot, now makes up for 25 per cent of all oil imported by India.
The good times may be over for liquefied natural gas, for now
Liquefied natural gas is no longer shaping up as the hot commodity for 2023, with prices plummeting and supply seen outpacing new demand in 2023, Avi Salzman wrote in Barron’s this week. LNG producers likely will add 20M metric tons of LNG capacity to the market this year while annual demand grows by just 10M tons, according to Morgan Stanley analyst Devin McDermott. Chinese demand for LNG fell ~20% in 2022 amid strict COVID lockdowns, and even as demand started to crawl back late last year as China began to reopen, analysts do not see it returning to previous levels until late in 2023, with lower cost sources of energy taking priority, which may limit spot LNG demand; demand may actually decline in India, as the power and industrial sectors switch to cheaper fuels. The drop in prices likely will hurt earnings of companies in the industry, McDermott said, expecting Cheniere Energy to earn just $8B in EBITDA this year, compared to Wall Street consensus of $9.8M, while New Fortress Energy likely will make $1.2B in EBITDA, vs. expectations for $1.8B. Several stocks in the sector already are falling after rising sharply in 2022: Cheniere (LNG) has slipped 6% in the past month. Golar LNG (GLNG) is down 8%, and New Fortress (NFE) is off 13%. Front-month February Nymex natural gas closed -7.8% to $3.419/MMBtu this week, down for four straight weeks and six of the past seven. Meanwhile, crude oil futures jumped to their largest gain in three months this week.