Low-carbon H2 demand in refining could reach 50 MMtpy by 2050

Potential low-carbon (green or blue) H2 demand from the global refining sector could reach 50 MMtpy by 2050, according to Wood Mackenzie.

Oil refining is one of the largest markets for H2, accounting for about 32 MMtpy or 30-35% of global H2 demand in 2020. Hydrotreating and hydrocracking are the major refinery processes consuming over 90% of H2 in the refining sector, and they are used to reduce sulphur from finished products, and to increase yield of transport fuels, respectively. 

However, more than 65% of H2 demand in refining is met by H2 supplied as a by-product from catalytic reformers and ethylene crackers; this is unlikely to be replaced by low-carbon H2. Any H2 shortfall is met by on-purpose production from gas-based steam methane reforming (grey) and coal (brown), together accounting for about 32% of refinery H2 demand.

Wood Mackenzie research director Sushant Gupta said, “Low-carbon H2 has the potential to replace on-purpose H2 as a feedstock if low-carbon H2 becomes cost competitive and policy support develops over time. Potential global market size for low-carbon H2 in this segment could be up to 10 MMtpy by 2050 delivering a 10% or 100 MMtpy reduction in overall scope 1 and 2 global refinery carbon emissions.

“But the real game-changer is in replacing fossil fuels in combustion applications to generate heat and steam. This will provide a larger market for low-carbon H2 in refining with potential market size reaching up to 40 MMtpy by 2050, and up to 300 MMtpy or about 25% reduction in carbon emissions. As such, total potential demand for low-carbon H2 in refining could be up to 50 MMtpy by 2050.” 

For further decarbonization, refiners will have to consider additional low-carbon technologies such as electric heating, CCS on main carbon emitting units and biomass gasification. Refiners will have to deploy renewable power and use low-carbon feedstocks and products. A combination of these solutions is required to solve this complex problem.

Both lower costs and high carbon prices are needed to make low-carbon H2 competitive to on-purpose fossil fuel-based H2. Cost is important because H2 production is responsible for between 10% and 25% of refiners’ variable opex. In addition, a high carbon price and related emissions penalty could become the main driver of shifting away from fossil fuel-based H2 to low-carbon H2. At current high and volatile gas/LNG prices and in the aftermath of the Russia/Ukraine war, green H2 is cheaper than fossil fuel based grey H2. So, there is market opportunity to diversify H2 supply sources to reduce emissions and support energy security.

In the case of combustion applications, higher heating value and lower emissions make low-carbon H2 an attractive alternative. Although combustion provides a bigger market, low-carbon H2 needs to achieve a much lower cost, or a much higher carbon price is needed to compete in the combustion sector than that required to compete with on-purpose H2. A much higher carbon price of $100/t to $150/t would be required in the early 2030s to make low-carbon H2 compete in the refinery combustion sector, assuming commodity prices return to levels driven by long-term fundamentals. Alternatively, green H2 cost must be sub-$1.50 per kilogram to compete with gas and fuel oil combustion in the longer term. 

Gupta said, “In addition to falling costs for low-carbon H2, higher carbon prices, financial incentives and stronger policy support will be necessary to accelerate adoption by the refining sector. Dedicated country H2 roadmaps will help grow low-carbon H2’s penetration across many sectors.

“From costs and emissions perspective, a leap towards green H2 rather than blue is more likely in refining in the longer term. However, countries with low-cost gas resources and CO2 sequestration capacity will have the opportunity to enter the blue H2 market. Replacement economics for low-carbon H2 is hugely dependent upon coal, gas, carbon and renewable power prices and hence, very refinery site and country specific.”