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It’s all hydrogen: CERAWeek focuses on potential fuel of the future

HOUSTON — As the topic of hydrogen came up yet again during one of the larger sessions on the first day of CERAWeek, a panelist quipped that the conference perhaps should be renamed Hydrogen Week.

And if the energy transition ever makes it to heavy-duty trucking, that rising focus of the energy industry on hydrogen would be good news, given that hydrogen appears to be the consensus energy source that could power a truck as big as those in the Class 8 category.

The first day of the CERAWeek by S&P Global (NYSE: SPGI) meeting in Houston, which has an attendance of a staggering 7,500 delegates, featured hydrogen talk across numerous presentations. And the consistent theme throughout the day Monday was that the Inflation Reduction Act (IRA), signed last August by President Biden, has placed the hydrogen industry in the U.S. in a warp speed gear.

The provisions in the IRA for hydrogen are complex and multilayered. But the most generous one will provide a $3 per kilogram tax credit for hydrogen produced with almost no emissions, the so-called green hydrogen. Different colored hydrogen, made by more polluting processes, will receive smaller credits.

The central role of hydrogen at the CERAWeek meeting stands in sharp contrast to its past structure, when Day One was about oil, Day Two was about natural gas and Day Three was about electricity. On Monday, more than a dozen presentations had hydrogen or ammonia (which is built on hydrogen molecules) in their titles.

“If we’re not successful this time, we’re never going to be successful,” said Andy Marsh, the president and CEO of Plug Power (NASDAQ: PLUG), a manufacturer of fuel cells and other hydrogen capital equipment. “The level of support is astronomical.” 

With the tax credit, Marsh said, hydrogen produced from low-emission fuels like solar-generated electricity can be produced cheaper than so-called gray hydrogen, which comes from a natural gas-fueled process. 

Sanjiv Lamba, the CEO of hydrogen producer Linde, dismissed the rainbow colors of hydrogen as “misleading and misguided,” a criticism that was heard elsewhere from other forums. Hydrogen should be thought of as a “low-carbon intensity fuel, not the colors.”

“I am amazed how such a colorless molecule can get this whole range of rainbow colors,” he said. 

But even if there is a significant boost to production coming as a result of the IRA, that doesn’t mean there is an available buffet of uses for it. “If you want to move this forward, you need to generate the demand,” Lamba said.

Most of the talk of uses for hydrogen tended to focus on electricity generation, in which hydrogen can be blended with other fuels, and various industrial applications. References to hydrogen in transportation were infrequent over the course of the day.

As a point of reference to the volatility of hydrogen prices, S&P Global in January reported that Gulf Coast hydrogen produced by the gray process, without carbon capture and sequestration, had a production cost equal to $1.27 per gallon in December. But in California, which suffered through a cold December and consequently rising natural gas costs, the price was $13.79 per kilogram. 

Bill Vass, the vice president of engineering at Amazon Web Services, said the target within Amazon for hydrogen long term is that it needed to be cheaper than diesel. 

One aspect of the IRA is that there are numerous “buy American” and other provisions that have raised the anger of other countries in the world, particularly in Europe, as they see these rules as possibly in violation of World Trade Organization and other free trade rules. 

The one European representative on a panel entitled “Hydrogen: how fast can it rise?” was Andrew Flanagan, chief development officer of RWE Clean Energy (OTC: RWEOY). Flanagan said those aspects of IRA have “created a lot of concern” in Europe, but ultimately “it will force change and the industry will have to adapt.”

The panel on hydrogen’s growth rate also included Bill Newsom, the president and CEO of Mitsubishi Power Americas. He cast his vote for the power sector as the likely first landing spot of the supplies of hydrogen that would increase as a result of the IRA. 

“It’s a kind of race,” Newsom said. But the Rockies and the West Coast of the United States already have a significant supply of renewables, and every utility in the region is looking to increase their share of those supplies, he added, making it likely that hydrogen can find a willing market there. 

And with those larger supply lines producing hydrogen, hydrogen exports are going to be a big opportunity as well, Newsom said, pointing out that other nations that are trying to decarbonize “don’t have the resources in their own country, so they need to bring in low-carbon fuels.” 

The hydrogen wouldn’t likely be exported in its raw state, Newsom said. He mentioned exporting hydrogen as a component in ammonia, which is liquid at room temperature and gets its energy “kick” from the hydrogen contained in its structure. (Ammonia’s chemical composition is three molecules of hydrogen and one of nitrogen.)

On that same panel, Justin Bird, the CEO of Sempra Infrastructure, compared the potential growth in hydrogen to what has happened to LNG, where the U.S. has grown tremendously and by one measure was the largest supplier of LNG to the world in 2022. 

Bird said LNG was “a wonderful market to be in.” But he said that the potential of “clean molecules” of which hydrogen would be one part “is a bigger opportunity” than the huge growth of LNG.

Newsom’s company last year received a more than $500 million loan to build a hydrogen production facility in Utah producing green hydrogen. It’s a template for what Newsom said is needed for hydrogen to flourish: a supply chain. 

But his comments then shifted back to the IRA. “I think the IRA is going to drive that supply chain to decrease costs, and that will drive up demand,” he said. 

That supply chain could be helped along by states looking to offer “procurement pools” that would provide a source of demand for hydrogen used mostly as a blended fuel in power generation, Bird said. “The market is large.” 

In a separate panel about the IRA specifically, Joseph Majkut, the director of energy security and climate change at the Center for Strategic and International Studies, saw a positive consequence to the unhappiness of other countries with some of the IRA provisions. Majkut raised the possibility of a “clean energy arms race.” 

But he also cautioned that while this arms race might deal with multiple solutions, a true energy transition is going to need some energy sources to rise to the top of the heap. “We don’t want to create a world that is totally fractured with technologies,” he said.

On the panel with Majkut, Meghan Nutting, an executive vice president at solar producer Sunnova (solar is also a big beneficiary of the IRA), said other countries are “so worried about the IRA that they have a huge suite of proposals they are looking at.”

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