Is This Big Oil’s Next Secret Weapon? | OilPrice.com
So big oil is starting to take an interest in hydrogen.
But let's be clear: this is not about hydrogen fuel cell vehicles.
The attraction here for Equinor is to allow natural gas to be part of a zero emissions world via carbon capture. This is truly a long term prospect because as yet adding carbon capture to steam methane reforming is not an existing cost-effective technology. While the O&G industry would want to talk down electrolysis as "too expensive," we don't really know if SMR+carbon capture and sequestration will ever be cheaper than electrolysis as a form of emissions free hydrogen. So it may be a fair horse race for either tech at this point. It may also be that for a rather long time the two technologies can coexist.
I would point out that strapping CCS onto SMR running at near 100% capacity factors would easily have half the capex cost of strapping CCS onto a gas power plant used at a 50% capacity factor. So if you think of this as a clever trick for adding CCS to gas generators at lower cost, this may have some favorable economics that enable natural gas to be part of a near zero carbon world for quite some time.
But I'm still pulling for electrolyzers. McKenzie believes the cost of electrolyzers could fall 70% within the next ten years. Mostly this is about scaling up production and installations to cut cost and gain efficiencies. I think basically we just need a market to grow like wind, solar or EVs to scale things up and cut the installed cost Watt to fall 10% to 20% per year. I don't even think there is a critical need for the efficiency of electrolyzers to go higher than 75% which is currently doable. We just need to cut the capex through manufacturing and scale efficiencies. The reason why is that the cost of surplus power is coming down. In many markets the average price of power below the median price is around $20/MWh. This gets you to $0.88/kg H2 for marginal power cost. This is plenty cheap, but the below median average price will continue to drive lower as more wind and solar are added to a grid.
So it is actually helpful for electrolyzers if there is already a substantial market for hydrogen paving the way with infrastructure. So if Equinor and others want to be part of developing an offtake market for hydrogen, I would be happy to see it. If such a market existed, it would help electrolyzers scale up, which is their fundamental challenge.
But here's the rub. If the globe does not invest in electrolyzers, this would hand over this potential market entirely to fossil fuels (all three). This could remain as a niche for fossil fuels into the low carbon world. So you still have all the other environmental problems associated with extracting those fuels. Such a future does not inspire me, though it may give some succor to the fossil industries. So I still want electrolyzers to be well developed to add in the transition. I think it is a more elegant solution.