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German refineries kick off complex green hydrogen switch

16 June 2021 IHS Markit Energy Expert

Shell's Rhineland complex will become the first refinery in Germany to operate an electrolyzer plant in July, ushering in a new era for the country's dozen refineries as operators contemplate a strategic but uncertain transition from fossil fuel-derived grey to carbon-free green hydrogen.

The plant, a 10-MW advanced polymer electrolyte membrane (PEM) electrolyzer, is on schedule to begin operating 2 July at the 140,000-b/d Wesseling refinery, part of the 325,000-b/d integrated Rheinland facility, according to a Royal Dutch Shell spokesperson.

Shell is planning a tenfold increase in electrolyzer capacity and a complementary sustainable aviation fuel (SAF) plant at the site, both pending future funding from the EU and Germany.

Notably, Shell's 10-MW Rhineland electrolyzer succeeded in securing €10 million ($12 million) funding from the EU through the Fuel Cell Hydrogen Joint Undertaking initiative and is set to model different scenarios for the commercial-scale production that continues to elude green hydrogen technology.

Green hydrogen production at refineries is a slow burner riddled with challenges but promoted by incentives. As long as the political climate threatens to shake up its primary mode of operation, refineries could look toward green hydrogen plants as part of a revamped business model.

Green hydrogen is produced using electrolysis of water using renewable energy, delivering zero emissions. "It is very possible that they see hydrogen as their future main market. It is also possible that they move to synthetic fuels (chemically identical to fossil-based fuels) which require hydrogen and a source of carbon (carbon monoxide or carbon dioxide)," said Soufien Taamallah, director of research and analysis at IHS Markit.

Green hydrogen projects pipeline at refineries

Shell is not alone in pursuing green hydrogen. A third of German refiners are making a move towards green hydrogen production.

A 50-MW electrolyzer is in the very early stages of planning and funding approval at BP's Lingen refinery.

Future electrolyzer projects associated with German refineries include the giant 700-MW Westküste 100 green hydrogen project—powered by an Orsted offshore wind farm—which is expected to supply gas grids and produce SAF by 2030. Shell's Heide refinery one of 10 partners in the project consortium. In the initial phase, a 30-MW anion exchange membrane (AEM) electrolyzer will become operational, potentially by 2025, at the Heide site.

Other German refineries, such as BP's Gelsenkirchen refinery, are planning to focus heavily on decarbonizing their hydrogen while the rest of the region's industrial outfits consider hydrogen as part of the planned coal generation phaseout.

RWE's Lingen electrolyzer—with a planned capacity of up to 100 MW—will supply BP's nearby refinery, among other industries, with green hydrogen from 2024.

It is part of the GET H2 Lingen project that succeeded in winning generous funding through the Important Projects of Common European Interest (IPCEI) in late May. So did the BP Lingen and Heide projects.

Location is key in green hydrogen production, as linking offshore wind farms to existing hydrogen infrastructure is still a challenge. "Generally speaking, in terms of location, the northern refineries do have an advantage thanks to their proximity to offshore wind parks," IHS Markit Senior Analyst Britta Daum said.

Grey SMR hydrogen targeted

According to a survey of German refinery experts, organized by IG BCE Innovationsforum Energiewende and oil body Mineralölwirtschaftsverband (MWV), refineries accounted for 440,000 mt of total German hydrogen demand of 1.77 million mt. The rest mainly went into the chemical sector for ammonia and methanol production, and smaller volumes into other industries.

Of that, 177,000 mt is being produced using carbon-heavy steam methane reforming (SMR), and around 263,000 mt is being produced as a by-product of naphtha catalytic reforming.

According to the study, German refineries could achieve annual emissions cuts of 1.7 million mt of CO2-equivalent in switching from unabated SMRs to electrolyzers.

IHS Markit analysts found German refinery emissions amounted to 21.5 million mt of CO2-equivalent in 2020. Alternative options such as an upgrade to blue hydrogen aided by carbon capture are not yet on the horizon for German refinery SMRs.

Although marginal in the wider German energy context, this could become a tentative first step for refiners in the green hydrogen switch.

Moreover, this could be followed by on-purpose hydrogen plants to supply customers in other sectors including integrated chemicals, natural gas, iron, and steel. The replacement of a sizable chunk of the oil products portfolio with synthetic products could be a third, and giant, leap forward.

Refinery challenges

Nevertheless, roadblocks to green hydrogen production remain. Grey hydrogen (produced from natural gas and not offset by carbon capture) meets most refinery needs. Northern German refineries produce grey hydrogen using fossil fuels from the North Sea and the Netherlands, while Russia supplies eastern Germany, according to IHS Markit analysts.

In addition, some refineries may rationalize against green hydrogen investment because it could undermine future demand for existing products.

Counterintuitively, a decline in refined products demand could simultaneously dent hydrogen demand. "Refineries today are most often a net consumer of hydrogen. It is used by refineries to support their production of fossil transportation fuels (e.g. hydrodesulfurization, hydro-cracking). As the production of those is curbed over time and the transport sector moves to low-carbon fuels, hydrogen use for these is expected to diminish as well," said Taamallah.

Financial incentives—both EU and German—are key. But financial sponsorship is competitive—less than a handful of the 62 IPCEI hydrogen projects were awarded to refineries—and often conditional on securing additional backing from private partners. Investments are hindered by low prices for CO2 emissions certificates, Daum added.

The German National Hydrogen Strategy (NHS) effectively allows a faceoff between green and transitional blue hydrogen (grey hydrogen offset by carbon capture). It is also tilted towards ensuring dominance in hydrogen technology and not necessarily hydrogen production, given the country's natural limitations in renewable energy source capacity. Germany is still smarting from losing its dominant position in solar technology to China, after leading the charge for many years, and is keen not to repeat the mistake.

"The aim of Germany's hydrogen strategy basically is the imports of green hydrogen (given that one major problem is sufficient scale) and the exports of electrolysis technology through national market leaders like Thyssenkrupp or Siemens," said Daum.

Refineries incentivized

Germany's climate targets have become stricter with the updated climate protection law—prescribing stronger emissions cuts, especially for the energy and transport sectors—ahead of September 2020's German Bundestag federal parliamentary elections in which the Greens top the polls. The climate protection law sits alongside European refinery emissions allowances and the national implementation of EU transport fuel regulations, including the Fuels Quality Directive (FQD) and Renewable Energy Directive (RED) II, through which Germany is pushing new low-emissions fuel quotas for fuel suppliers.

Moreover, upcoming regulatory changes in the form of the landmark EU carbon border tax could mean further legislative action might be just around the corner.

"As regards the transport sector, Germany will not only increase the targets of the GHG reduction quota for 2030 (a new law was passed by Parliament in May 2021), but the government is also planning to introduce a minimum quota for jet fuel developed on the basis of green power as of 2026 [known as the power-to-liquids quota]. Other than that, it is thinking about investments in refueling infrastructure in general," Daum added.

The power-to-liquids quota might encourage synthetic fuel production and will begin at 0.5% in 2026 and go up to 2% by 2030.

As a result, fossil fuel-based oil products demand is expected to decline, but not disappear over the long-term, to be replaced by green mobility. German refineries could cope by seeking out EU and German government funding to start green hydrogen plants to test their business models. Parallel funding programs, both at the German and EU levels, have already helped bankroll some German refinery green hydrogen projects.

According to IHS Markit analysts, wider use of Hydrotreated Vegetable Oil (HVO) as fuel would boost hydrogen consumption as the HVO biofuel process requires vast amounts of it to remove the oxygen from the feedstock and isomerize the hydrocarbon chains.

Equally, industry association Fuels Europe has spotlighted the supplementary role hydrogen could play even in greening the power mix at a refinery. "The intermittency of electricity generation from solar and wind sources requires the availability of a vast, responsive, and flexible capacity to store energy at times when its supply exceeds the demand. Hydrogen supply can be used as a backup for a refinery," it said.

The refinery body points out the unique hydrogen expertise available in the sector, leaving it well equipped to become a future major producer, noting it "has deep experience in the production, storage and use of hydrogen, in addition to owning and operating the relevant equipment and technical facilities."

--Reporting by Cuckoo James, OPIS.


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