Hydrogen Energy

by Richard T. Stuebi

Whenever someone mentions “hydrogen” to me, I immediately think of fuel cells. So, when someone mentioned to me in passing the other day something about BP (NYSE: BP) and hydrogen in Southern California, I was really confused: I didn’t think that BP was doing much with fuel cells these days.

Now I understand. In May, BP announced (press release) that it has partnered with mining-giant Rio Tinto (NYSE: RTP) to form a joint venture, named Hydrogen Energy, that has licensed integrated gasification combined cycle (IGCC) technology from GE (NYSE: GE) and will develop IGCC projects involving carbon sequestration — and one of its first projects will be a 500 megawatt facility located adjacent to BP’s refinery in Carson, California. (project description)

Hydrogen Energy’s efforts therefore have nothing to do with fuel cells. Hydrogen is simply the main constituent of the syn-gas produced from the gasification of the input fossil fuel (in Carson’s case, petroleum coke), which will be combusted in a conventional combined cycle for power generation.

A few observations occur to me from this development:

1. The selection of the L.A. Basin of California for one of the first projects is extraordinary. It’s hard enough to permit a new office building in Southern California, much less a 500 megawatt powerplant that is more akin to a refinery. Then too, with California’s climate initiatives, placing any new industrial infrastructure in-state has to be massively challenging. I would have guessed someplace like Texas for one of the early IGCC plants — easy to get things done there. The Carson IGCC project is only possible because the gasification step produces relatively pure streams of by-products that can relatively easily be diverted from being emitted into the air — including CO2, which will be pumped underground. So, the Carson location for an early project is great PR not only for all the corporate parties (“We’re producing clean domestic energy for California”), but for the state of California too (“See — we’re not anti-energy, we support energy businesses and new energy projects.”).

2. The sequestration of the CO2 will occur in the Southern California oil/gas fields, which are very mature and can thus benefit from enhanced oil recovery (EOR) techniques to pressurize the underground reservoirs and thereby improve yields. The increase in oil/gas production, worth a lot at current energy prices, helps offset the costs of CO2 capture and pumping. As more carbon sequestration projects occur, I expect to see many of them in areas with old producing fields that can benefit from EOR, such as Pennsylvania, Ohio, West Virginia, Kentucky, Illinois and so on. Oh, coincidentally, these states have lots of coal to burn in the IGCCs.

3. According to the press release BP partnered with Rio Tinto in order to obtain access to Rio’s
coal mining/extraction expertise. In this context, the selection of Rio makes sense: like BP, it too is a global colossus of a company, and gargantuan corporations tend to work best with partners of similar size. If other big oil companies want to follow in BP’s footsteps to pursue IGCC with a coal company as partner, there will be few players in the coal industry of similar heft. Indeed, I wonder if one way to view this partnership as BP moving more into coal — and if other oil majors will increase their coal activities?

4. The naming of the partnership as “Hydrogen Energy” is an interesting choice. I used to think that the “hydrogen economy” hype of a few years ago had produced a semantic burden to be avoided rather than embraced. But, here come BP and Rio Tinto — no dummies — deliberately positioning their venture not as “carbon-free” or “zero emission” or “clean coal”, but rather as “hydrogen”. This has significant branding implications. If Hydrogen Energy becomes a success, hydrogen as an energy source (or, more properly, an energy storage approach, or energy “carrier”) may therefore become more validated in the eyes of those who are currently skeptics.

5. In turn, if Hydrogen Energy really takes off, and hydrogen’s reputation is burnished, fuel cells may ultimately benefit substantially. If many IGCC plants become installed across the continent, it becomes more plausible to envision hydrogen transport and distribution on a mass-scale to support fuel cells — initially in selected stationary power applications, perhaps ultimately for vehicles too.

Of course, it will take years for us to see if Hydrogen Energy becomes a big deal, or is yet another example of a highly-touted joint venture between two mega-corporations that ultimately comes to very little.

Richard T. Stuebi is the BP Fellow for Energy and Environmental Advancement at The Cleveland Foundation, and is also the Founder and President of NextWave Energy, Inc. (Note: Mr. Stuebi has no affiliation whatsoever with BP.)