What are the realities for sustainable hydrogen in oil, chemicals and steel?

September 4, 2019 |

The International Energy Agency observed in its Future of Hydrogen report (here), that “ the technologies are available to avoid the emissions from fossil fuel use [in industrial sectors] by producing and supplying low-carbon hydrogen.” 

Yes, hydrogen is used in vast quantities in oil refining,. chemical production and iron and steel production, with ammonia and methanol production comprising the major chemical applications. In each there are opportunities, particularly in steel and chemicals.

Let’s look at the IEA’s approach to industrial hydrogen replacement — the opportunities and challenges.

Oil refining

The IEA writes:

More than 60% of hydrogen used in refineries today is produced using natural gas. Hydrotreatment is used to remove impurities, especially sulphur. Hydrocracking uses hydrogen to upgrade heavy residual oils into higher-value oil products. 

Hydrogen production – unless supplied as a by-product of refining operations – currently results in considerable CO2 emissions. Globally the production of hydrogen for use in refineries contributes some 230 MtCO2 /yr emissions, which is around 20% of total refinery emissions. Producing hydrogen in a cleaner way is therefore vital to achieving a significant reduction in emissions from refining operations.

There are two main cleaner pathways to hydrogen production for refineries: equipping coal or natural gas-based hydrogen production facilities with CCUS; and using electrolytic hydrogen from low-carbon electricity.  despite the continued decline of technology costs for CCUS, the large-scale adoption of CCUS at hydrogen production units in refineries needs a helping hand from policy makers, especially given the tight margins and highly competitive nature of the refining industry. Introducing CCUS would add an incremental cost of some USD 0.25–0.5/barrel, which is higher than today’s carbon price levels (zero to USD 0.1/barrel).

Chemical production

The IEA writes:

Ammonia is mostly used in the manufacture of fertilizers such as urea and ammonium nitrate.  Methanol is used for a diverse range of industrial applications, including the manufacture of formaldehyde, methyl methacrylate and various solvents.  Demand for hydrogen for primary chemical production is set to increase from 44 Mt/yr today to 57 Mt/yr by 2030 as demand for ammonia and methanol grows.  demand for ammonia and methanol could rise further if these chemicals were to become established as energy carriers for the transmission, distribution and storage of hydrogen, facilitating its use in new applications, or if they were to be used as fuels in their own right.

Using biomass for ammonia and methanol production looks significantly less cost-competitive than the other options, so the IEA focus is on the use of natural gas with Carbon Capture and on the use of electrolytic hydrogen. In locations with the lowest cost renewable electricity (for example in Chile, Morocco and China), electrolytic hydrogen would be close to being competitive in cost terms with natural gas and coal for ammonia and methanol production, even if they did not use CCUS.

Steel production

The IEA writes:

In the longer term, steel and high-temperature heat production offer vast potential for low emissions hydrogen demand growth. Assuming that the technological challenges that currently inhibit the widespread adoption of hydrogen in these areas can be overcome, the key challenges will be reducing costs and scaling up. In the long term it should be technically possible to produce all primary steel with hydrogen, but this would require vast amounts of low carbon electricity (around 2 500 TWh/yr, or around 10% of global electricity generation today) and would only be economic without policy support at very low electricity prices.

The blast furnace-basic oxygen furnace  route accounts for about 90% of primary steel production globally. It produces hydrogen as a by-product of coal use.  The direct reduction of iron-electric arc furnace route accounts for 7% of primary steel production globally. It uses a mixture of hydrogen and carbon monoxide as a reducing agent. The hydrogen is produced in dedicated facilities, not as a by-product. 

In the absence of sufficiently high CO2  prices to trigger a switch to low-carbon hydrogen, replacing unabated natural gas with renewable hydrogen in the DRI-EAF route would widen the difference in cost between the commercial direct reduction and blast furnace routes. 

The IEA Chart

This chart sums up the state of play very well. 

The Bottom Line

So, what are the options for sustainable hydrogen in industrial applications? Comes entirely down to the carbon price — or, as we say here in Digestville, the price to dump emissions into the Skyfill. Right now, the discussions around the world are at something like the $20-40 level — that’s not going to be enough to switch the world off fossil natural gas as a source for industrial hydrogen. That might change if the feedstock was at negative cost as part of a landfill avoidance strategy. That’s been the rationale for Enerkem in making methanol, for example.

Where the case for industrial hydrogen gets most interesting is where we have landfill and skyfill aspects — for example, where the waste owner has to pay $70 per ton to dump at the landfill and also pays a carbon price for the emissions as that waste degrades, say $120 per ton for the CO2. The ex=economic attractions are not hard to figure — but it all comes down to a consistent Skyfill policy.

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