HOUSTON: Governments worldwide need to simplify rules around hydrogen supply to attract investment and scale it up to become competitive enough to substitute fossil fuel use in heavy industry, energy executives said this week.

Hydrogen as a potential alternative to natural gas, coal or oil burned in heavy industry or shipping is seen as key to reducing emissions in industries in which electrification is not practical. Hydrogen is often described by color and many in the industry call it a "rainbow renewable" but the most important color for executives at the conference was green -- as in cash.

Hydrogen can be made in many ways, some cleaner than others. Among methods that produce what is known as green hydrogen are electrolysis to split water into hydrogen and oxygen using power from renewables. Hydrogen can also be made from natural gas. When carbon emissions from the process are captured and stored, it is known as blue hydrogen.

The industry is still in a nascent stage and the fuel is relatively expensive to produce, so governments worldwide are seeking ways to facilitate rapid development to make it an economic alternative to fossil fuels in industry.

Provisions in U.S. President Joe Biden's signature Inflation Reduction Act (IRA) and legislation in the European Union have incentivized the development of hydrogen but need further clarification, and government mandates may be required to encourage industries such as steel and shipping to embrace hydrogen, energy industry executives said at the CERAWeek energy conference this week in Houston.

"The market for hydrogen and people's willingness to pay a premium for low-emissions fuels I think hasn't quite taken off yet," Exxon Mobil Corp Chief Executive Darren Woods said.

Though the IRA is incentivizing production of green and blue hydrogen, Woods said the associated costs are making it difficult for Exxon's partners to sell either into Europe and Asia.

Discussions and rules around classifying hydrogen made from renewable fuels or natural gas should be secondary to making the fuel affordable for consumers, said Colin Parfitt, vice president of Midstream for Chevron Corp.

"There is way too much conversation about if it is blue or green," Parfitt said. "The challenge is how do you create hydrogen as a business."

Transporting hydrogen is currently not commercially viable nor affordable for consumers, Parfitt said.

The technology for shipping hydrogen is still in early stages of development, said Chevron's vice president of hydrogen Austin Knight.



The most obvious and near-term demand for hydrogen is in industries that currently use so-called grey hydrogen that is produced from fossil fuels, Spanish energy producer Cepsa SA Chief Executive Maarten Wetselaar told Reuters. Grey hydrogen is currently consumed by fertilizer, refining, and iron and steel units.

About 30-35% of the total energy system will need hydrogen to decarbonize, he said.

For industries such as shipping, government mandates are needed to make hydrogen cost competitive with cheaper petroleum-based fuel oil, Wetselaar said.

By 2030, Cepsa plans to produce 600,000 tons of green ammonia per year, produced using hydrogen made from renewable energy, for green marine fuel and begin green ammonia exports by 2027. Cepsa could begin selling green ammonia to ships by 2026, Wetselaar told Reuters.

Meanwhile, low-carbon hydrogen fuels used for transportation need more infrastructure, such as refueling stations, to support and scale the market, said Plug Power Chief Executive Andy Marsh.



Green hydrogen could quickly be brought to market with the right rules around production, said CEO John Ketchum of the world's top renewable power generator NextEra.

NextEra is working with the U.S. Treasury on rules that govern what can be considered green hydrogen, he said. The process is complicated by the variability of renewable power supply from wind and solar, he said.

If power from those sources dropped, then an electrolyzer producing hydrogen would need to switch to power from the grid, which may or may not be renewable, he added. If hydrogen producers could no longer classify hydrogen as green and had to switch off electrolyzers, the cost of producing the fuel would go up and make it uneconomical. The solution would be to offset the use of non-renewable power with carbon credits, he said.

Otherwise, "we will have an out-of-the-money product," he said.

More regulation, certifications and standards are needed for handling hydrogen, along with supply contracts to access infrastructure and new ideas on transporting hydrogen, company officials said Wednesday.

"The IRA has not been fully implemented yet in the U.S., so after that contract terms and clear standards will have to be tackled," said Juancho Eekhout, vice president of business development at Sempra Infrastructure.

Further, the trade of hydrogen also has complexities that will need to be addressed, said Margaux Moore, head of the Energy Transition Research Group at Trafigura.

Depending on how hydrogen is produced, the fuel has different carbon intensity scores in different countries, she said. (Reporting by Stephanie Kelly; additional reporting by David French, Sabrina Valle and Marianna Parraga; Editing by Simon Webb and David Gregorio)