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.”