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Blue hydrogen and industrial base products: The future of fossil fuel exporters in a net-zero world
There is little doubt that the oil & gas industry will be around for many decades to come. But it must achieve drastic CO2 cuts and do so economically. There are several pathways to this goal.
1. Keep exporting hydrocarbons and rely on importers to capture CO2 upon use. This option is problematic because many importers don't want to establish local CCS infrastructure.
2. Produce blue hydrogen for export. This option capitalizes on the exporter's capability to handle the captured CO2, but it is limited by the cost and complexity of long-distance hydrogen trade.
3. Produce various energy-intensive industrial products (e.g., steel or ammonia) for export. This option is attractive because most industrial products are easy and cheap to export and stockpile.
Our latest paper explores these different energy export avenues in a European context by modelling a future clean energy system between Norway (the exporter) and Germany (the importer). Steel is used as an example of an industrial export product.
We find that investment in steel trade is beneficial to Norway because it grants access to the global market, supporting prices and export profits. On the other hand, direct hydrogen exports are limited to the demand within Norway's Northern European neighbours, which is subject to considerable uncertainty.
Oil & gas exporters are therefore advised to invest in blue hydrogen exports to neighbouring importers and low-carbon industrial products to diversify into the global market. If hydrogen prices in importing regions are set by local green hydrogen production, such a strategy can maintain high profit margins for exporters. In this way, the oil & gas industry can rapidly decarbonize while maintaining high levels of profitability.
Blue hydrogen and industrial base products: The future of fossil fuel exporters in a net-zero world
Is there a place for today's fossil fuel exporters in a low-carbon future? This study explores trade channels between energy exporters and importers using a novel electricity-hydrogen-steel energy systems model calibrated to Norway, a major natural gas producer, and Germany, a major energy consumer. Under tight emission constraints, Norway can supply Germany with electricity, (blue) hydrogen, or natural gas with re-import of captured CO2. Alternatively, it can use hydrogen to produce steel through direct reduction and supply it to the world market, an export route not available to other energy carriers due to high transport costs. Although results show that natural gas imports with CO2 capture in Germany is the least-cost solution, avoiding local CO2 handling via imports of blue hydrogen (direct or embodied in steel) involves only moderately higher costs. A robust hydrogen demand would allow Norway to profitably export all its natural gas production as blue hydrogen. However, diversification into local steel production, as one example of easy-to-export industrial base products, offers an effective hedge against the possibility of lower European blue hydrogen demand. Looking beyond Europe, the findings of this study are also relevant for the world's largest energy exporters (e.g., OPEC+) and importers (e.g., developing Asia). Thus, it is recommended that large hydrocarbon exporters consider a strategic energy export transition to a diversified mix of blue hydrogen and climate-neutral industrial base products.
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