When it comes to the global energy mix, a future in which hydrogen plays a key role is closer than many might think.
While it may be decades before visions of a so-called “Hydrogen Economy” are realized, there are strong indications that, as governments and private companies around the world strive to cut carbon emissions, make more efficient use of resources and shift to more sustainable energy sources to power industrial manufacturing, transportation and other segments, hydrogen is on the brink of a breakthrough.
In a report published in May 2020 by consultancy DNV GL, half of senior oil and gas professionals said they expect hydrogen to be a significant part of the energy mix by 2030; about 20 percent said their companies are already active in the hydrogen market. The share of oil and gas companies intending to invest in the hydrogen economy doubled year over year, from 20 to 42 percent, according to DNV.
One energy company that’s already investing in the hydrogen business, BP, predicts that by 2050 hydrogen could account for a sizable share — 16 percent — of the world’s total energy needs. For its part, the company says its goal is to capture 10 percent of the clean hydrogen market by 2030 in core markets, while building positions in both “green” and “blue” hydrogen in the United States, UK, Europe, China and Australia. (“Green” refers to hydrogen produced renewably via carbon-free sources; “blue” hydrogen is produced through the reformation of a fossil fuel, mainly natural gas).
With the rise of hydrogen in the fuel mix come opportunities for pipeline companies to diversify their business portfolios with new revenue streams built around the H2 molecule. For energy companies, an embrace of hydrogen not only supports their own efforts to meet corporate sustainability goals, comply with environmental regulations, and contribute to decarbonization efforts, it helps their customers do likewise.
All of which suggests that the time is right for oil and gas pipeline companies — and indeed, for energy companies upstream, downstream and in between — to get serious about hydrogen. Let’s take a closer look at the business case for pipelines to consider doing so, along with some of the digital capabilities that can make their move into hydrogen both practical and profitable.
Gain an Early Foothold in a Fast-Growing Market
In a recent report, Frost & Sullivan said it expects global hydrogen production to more than double this decade, to 168 million tons in 2030 from 71 million tons in 2020. The hydrogen transportation infrastructure will need to expand to support that growth. With well-placed, well-timed investments, plus the technological wherewithal and the mindset to explore ventures outside their traditional core, pipeline companies are in a strong position to carve out a key role in that infrastructure expansion.
In Europe, a consortium of gas transmission companies is attempting to do just that, unveiling a plan for developing a dedicated hydrogen infrastructure to affordably transport hydrogen throughout the continent. Its European Hydrogen Backbone envisions creating a 14,300-mile network by 2040 using mostly modified existing natural gas pipelines, augmented by new lines. On a broader scale, meanwhile, an alliance of European company CEOs recently mobilized to support decarbonization on a range of fronts, including development of a green hydrogen value chain. Initial members of the alliance include top execs from ABB, AkzoNobel, Eon, Enel, Iberdrola, A.P. Møller Maersk, Philips, SAP, Scania, Schneider Electric, Siemens and Volkswagen.
For pipeline companies and their partners to successfully stand up new hydrogen-related ventures (or integrate hydrogen ventures they may acquire to build a presence in that market), they’ll need another kind of backbone — a strong, flexible, agile digital platform to seamlessly integrate a venture operationally with the larger enterprise, and within which venture partners and customers can connect, collaborate and share insight as part of a value chain. With advanced analytics, modeling and other capabilities as part of the digital backbone, they can explore opportunities around transportation fuels (for fuel cell-powered vehicles, for example), renewable olefins, renewable plastics and other promising hydrogen markets. Likewise, they can pursue opportunities in the emerging Circular Economy, a business approach rooted in the zero-waste principles of reuse, remanufacture and recycle.
Capitalize on Inherent Strong Competitive, Geographic Positioning
Oil and gas pipeline companies have a ready-made advantage in the hydrogen market, one they can capitalize on (as the European Backbone blueprint would do) by leveraging their existing assets, infrastructure, rights-of-way and workforce. As Olav Junttila, managing director at investment firm Nomura Greentech Capital Advisors, points out in an October 2020 Wall Street Journal article, “Large-scale usage of hydrogen requires build out and operation of not just production facilities, but also compression, transportation, distribution and conversion facilities. Oil-and-gas companies generally excel in one or more of these areas, and can translate that expertise into leadership positions within hydrogen.”
Here’s another area where digital capabilities can prove invaluable, helping companies to model, plan and execute the most efficient approaches to adapt and augment their infrastructure, assets, supply chains, systems and processes to hydrogen. Digital capabilities can help pipeline operators with mass balancing of their hydrogen throughput, for example, enabling them to track the fuel’s origins (whether it’s green, blue or gray, a blue-green combination).
One Molecule to Meet Multiple Objectives
Hydrogen can be a strategically versatile molecule for pipeline companies. For one, it can provide the means to diversify their business portfolios with renewables, a sound business strategy that some of the world’s largest energy companies are embracing in pursuit of a lower-carbon future. They’re doing so because it’s in the best interests of their shareholders, their customers, their bottom lines and the environment.
By carving out a role as a hydrogen transporter, pipelines also can serve the business interests of downstream industrial customers — manufacturing companies (steel, cement, etc.) that want to use a clean fuel for regulatory compliance and to meet their own corporate sustainability and decarbonization goals.
Those decarbonization efforts can be an important competitive differentiator for an energy company in a world where investors, consumers and business partners factor the “green line” into their investing and purchasing decisions. Thus, a company must have the digital capabilities to accurately measure, report and articulate its carbon emissions — and reductions in those emissions — across all its business segments.
Hydrogen has the potential to develop into a $2.5 trillion business by 2050, according to the Hydrogen Council, a global trade group whose diverse membership includes energy providers like BP, Total and Shell, a slew of leading automakers, along with corporate luminaries like 3M, Bosch and Michelin.
There remain formidable obstacles to fulfilling those lofty predictions. Hydrogen production cost is an issue. Storage and infrastructure are lacking. Hydrogen is commercially unproven as a transportation fuel. And safety remains a concern. But amid all the uncertainty, it’s clear that hydrogen presents a potentially massive business opportunity for oil and gas companies seeking a pathway forward in a decarbonized energy future — a future they can play a role in writing.
Benjamin Beberness is global vice president for the oil & gas industry at SAP, where he’s responsible for leading the company’s solution strategy and global marketing within the oil and gas industry.