Navigating environmental complexities at pace

Revamping existing hydrogen plants can provide a significant and lasting impact on reducing greenhouse gas emissions towards net zero.

Ken Chlapik, Dominic Winch and Chris Murkin
Johnson Matthey

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Article Summary

Today’s energy and fuel market is uncertain and volatile. Balancing the need to reduce fossil fuel use and meet climate targets while ensuring energy security and fuel supply is a complex task. Long-term, fossil fuel use will decline and be substituted by renewable fuels, such as green Hâ‚‚, e-fuels, and sustainable aviation fuel (SAF).1 Energy produced from renewables is projected to be 50% by 2030, rising to 85% by 2050. However, the path through the energy transition is less clear, and renewable-produced energy is not enough to reach net zero targets and limit global warming to 1.5ºC.

With pressure to reduce greenhouse gas (GHG) emissions, progress towards GHG reduction targets and goals will become increasingly scrutinised by investors, customers, and other stakeholders. This level of scrutiny adds pressure to demonstrate concrete actions and plans to tackle emissions. Carbon pricing mechanisms and policies in regions like Europe provide motivation to tackle existing CO2 emissions, while instruments such as carbon border taxes will offer incentives to producers in regions without domestic pricing to reduce GHG emissions.

Innovation will create new technology options that enable hard-to-abate industries like refining to hit their net zero targets in 2050. However, as these developing technologies take time to demonstrate, scale up, and deploy, reducing GHG emissions to meet 2030 commitments will rely on using existing technology and solutions applied to existing fossil fuel-based production.¹

Decarbonisation requires navigating a complex set of choices that balance technical and financial feasibility while ensuring a genuine, measurable climate benefit. However, assuming funding and incentives are available, and technology risk can be minimised using existing technology, the next challenge will become one of scale and number, moving from small demonstration projects and on to executing enough ‘velocity’ to decarbonise the installed asset base of over 700 refineries.2

Navigating refinery decarbonisation
Figure 1 shows the many routes to reduce GHG emissions from fossil fuel use across a refinery. Initial gains are likely to come from low investment energy efficiency and process improvements that save energy and reduce fuel usage. However, easily attainable efficiency gains in some markets have already been realised but making significant GHG emissions improvements requires substantial capital investment.

These investments could be focused on either replacing fossil fuels in a process or facility or reducing emissions coming out of the process, or a mix of the two, as illustrated in Figure 1. Replacing fossil carbon could be done through adopting biofuels, renewable energy, and electrification, or fuels created through green hydrogen or green hydrogen and captured CO2. There will ultimately be limitations to the availability of renewable energy or biomass and bio-feeds, which are already commonly utilised for blending into fuels.
Growing biofuel supply by 2030 will rely on newer, advanced biofuels, which are currently expensive.³ An alternative path is to reduce existing fossil-based carbon emissions. A refinery could revamp or retrofit an existing process by using carbon capture on existing individual units or attaching carbon capture to a hydrogen plant to produce a low carbon H₂ fuel for use across the refinery. With these, a refinery is relying on access to carbon storage or usage of nearby infrastructure. This path enables significant emissions reductions, but technology and implementation choices impact the cost and complexity of this route.

Traditionally capital investments for revamps and retrofits are relatively small, low-risk projects with a short payback time and high return on investment (ROI). Decarbonising existing industrial processes will require a different perspective. There are unlikely to be many solutions that provide the necessary climate benefit, which can meet all the outlined criteria. Projects need to be considered on climate payback time, and technology solutions, which carry some risk, will need to be included. Clearly, though, without the necessary financial incentives to execute projects, either from government policy, subsidy or market demand, few decarbonisation projects will be executed, and net zero goals will struggle to be met.

De-risking decarbonisation
Carbon pricing, either through a direct tax or an emissions trading system (ETS), is being deployed more widely as a mechanism to drive decarbonisation.⁴ One frequently discussed, the EU ETS, has seen carbon prices consistently rise above €80/t CO2 throughout 2022.⁵ Although, so far, the impact of these prices has been softened for industries like refining through free allowances deployed to prevent carbon leakage.

However, the EU is intending to implement a carbon border adjustment mechanism (CBAM) as part of its fit-for-55 proposals set out by the commission.⁶ A CBAM fulfils a key role in enabling free allowances to be reduced in the domestic market by adding a corresponding carbon price to imported products from the same industry. This will increase pressure on refineries, previously protected, to decarbonise as they face a larger carbon burden. At the same time, exporters in other regions may also face pressure to decarbonise operations to be competitive. This is not just a policy unique to the EU; other regions and countries, such as Canada, are also considering a carbon border tax or CBAM-type instrument. In the US, tax credits, such as 45Q, will enable decarbonisation projects without applying the same direct pressure on emissions.

One of the key issues for creating projects that rely on a market-based carbon price is that prices are typically volatile. As decarbonisation projects are long-term investments, creating price certainty can help de-risk a business case. One mechanism for this is a carbon contract for difference (CCFD) that creates a set price versus an ETS price, building long-term price stability. One example of a CCFD scheme available today is the SDE++ in the Netherlands, which will be used by participants in the Porthos project.⁷

Aggregator projects such as the Porthos project, Northern Lights, and HyNet have all benefited from government support and funding. These projects are key to creating the necessary infrastructure, which can be used by nearby industry. It is telling that Porthos and Northern Lights, as storage projects, are oversubscribed, demonstrating that where infrastructure is available and there is an incentive to decarbonise, there is significant demand to do so.7
Where to start?

Early focus in refineries has been on carbon replacement strategies replacing fossil fuel with hydrogenated vegetable oil (HVO) biogenic feed processing creating biofuels. This biofuel production to biodiesel and SAF receives incentives in many regulatory environments, which makes strong business cases for these projects. More sustainable cellulosic-based sources of biogenic feeds are being developed along with their processing techniques to meet the high volume of renewable fuels projected in the next few decades. In the near term, the availability of HVO feeds is reaching its peak as the volume of projects progresses, limiting the decarbonisation potential of this approach.

Burning fossil fuels in furnaces and combined heat and power plants across the refinery is responsible for most emissions across a refinery but is a hard area to tackle due to high energy demand, low CO2 concentrations, and a high number of distributed point sources. Substantially reducing emissions from power will take a green grid, which is still some time away. Green hydrogen solutions at existing electrolyser scales are only 5-10% of the size needed for energy replacement in a refinery, and it will take the rest of this decade to create the 300-500 MW scale needed to replace the main energy source of existing refineries.

Grassroots hydrogen production with carbon capture, such as the LCH technology, can meet this energy scale and address not only the hydroprocessing hydrogen required but also provide additional hydrogen as a low-carbon fuel for the refinery.

These grassroots energy scale plants are two to three times the size of current world-scale hydrogen plants for hydroprocessing clean fuels. They require large capital investment, substantial supporting infrastructure, and processing of the off-gases that have become a significant part of the fuel used in refinery process heaters as an alternative to flaring.

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