Energy transition is a widely used term but means different things to different people. Energy markets have always been in transition, shifting to cheaper or…
Apr 13, 2021
Energy transition is a widely used term but means different things to different people. Energy markets have always been in transition, shifting to cheaper or cleaner fuels as they become available and competitive. Invariably these transitions are journeys, taking time for new entrants to displace incumbents.
While the technology in the current energy transition is new, it will still be a process to shift from fossil fuels to cleaner alternatives. The disruption of COVID-19 complicated matters, challenging many of the assumptions around the long-term evolution of energy markets.
S&P Global Platts Analytics’ Future Energy Outlooks Annual Guidebook, issued in February, lays out the pathway of the energy transition: here are five key energy transition themes that we highlighted in the publication.
It is painfully obvious that COVID-19 has disrupted the short-term, cross-commodity outlook, particularly for fossil fuels, with a massive shock to the macroeconomic framework in addition to restrictions on mobility. Across all fuels, CO2 emissions from energy combustion declined by the greatest extent in human history, falling by 6.4% in 2020.
It has also become increasingly clear that the impacts of COVID-19 will linger into the medium to long term and be deflationary to demand on a net basis. Changes to the macroeconomic outlook will depress energy demand not only because of weaker GDP projections, but due to “economic regression”, where the global middle class—the real engine of energy demand—will stagnate or shrink.
There will also be behavioral changes in response to COVID-19, with a greater prevalence of working from home, reductions to business travel (particularly aviation), and potentially the shortening of supply chains also reducing energy demand.
Finally, there have already been a spate of policies unveiled in the aftermath of COVID-19, ranging from “green stimulus” to net zero pledges. All three of these adjustments—macroeconomics, behaviors, and policies—will significantly deflate energy demand, and by extension CO2 emissions, from the pre-pandemic outlook.
However, while the huge decline in demand and emissions in the immediate aftermath of COVID-19 has the world temporarily on or ahead of a path that would limit global heating to 2 degrees celsius, the recovery in demand, even blunted by the lingering impacts of COVID-19, will bring about a return to CO2 emissions growth over the medium term. While there is perhaps an opportunity for COVID-19 to be a catalyst if behavior and policy changes become severe, Platts Analytics does not believe this is the path energy markets are currently on.
Even before the coronavirus pandemic disrupted demand, oil consumption growth was showing signs of slowing. The lingering impacts of the pandemic have reduced growth largely in the transportation sector, across aviation, road, and marine transportation.
There are still backstops to demand, particularly if gasoline and diesel prices fall, which makes electric vehicles more expensive relative to internal combustion vehicles. But even accounting for these backstops, we project that oil demand for passenger vehicles will peak by 2030 and move into structural decline thereafter.
Outside of personal transportation, there are limited economic alternatives to oil at scale, particularly in aviation, marine bunkering, and heavy trucking. Petrochemical sector oil demand has already become one of the largest areas of growth for oil, and the increase in demand in 2020 is a testament to the diversity of products that emerge from this sector and the fact that the recovery from COVID-19 will require both durable and non-durable petrochemical products.
Underlying all these factors is that the cost of oil is, and will remain, low. Platts Analytics estimates that oil production cost breakevens are below $50/b (in real 2019 dollars) in most non-OPEC growth areas, with some breakevens in the low-$40s/b or high-$30s/b. Such low-cost supply on top of even less expensive OPEC barrels will keep oil economically competitive with alternatives, supporting demand overall.
When it comes to the energy transition, much of the focus falls on the deployment of new technologies. New electric vehicle models, wind/solar capacity additions and new hydrogen electrolyzer plants certainly grab the headlines, but turnover rate of existing infrastructure will be a critical determinant of how quickly sectors can transition to low carbon pathways.
It is a much easier and less expensive proposition to replace an older, inefficient vehicle, power plant, or boiler at the end of its useful life than it is to do so with efficient infrastructure that may have decades of useful life left and perhaps some capital left to recover.
For example, the relative old age of the coal-fired generating fleets in Europe and North America was a major factor in coal’s displacement by gas and renewables. Conversely, China has virtually no coal-fired capacity older than 40 years, with most of its fleet at less than 20 years of age.
Another example of this dynamic is in passenger vehicles. While EV penetration of new car sales continue to rise, around 95% of new cars hitting the road are still internal combustion engine models.
In industrialized nations, new vehicles last on average 10-13 years, but a significant amount of them will continue to operate for another decade or more, perhaps sold as used vehicles in developing nations. Globally, the passenger vehicle fleet doesn’t fully turn over for 30 years or more, illustrating the lag between the adoption of EVs from a sales perspective and a use perspective.
Natural gas has long held the promise of being a “bridge fuel”, essentially spanning from coal, and a lesser extent oil, to renewables. As a generally less polluting fuel than coal, with supply that has turned out to be abundant (or overabundant in some instances), natural gas has broadly been used to displace coal in industrialized nations and slow the growth of coal in developing nations.
Renewables are clearly far from just a promise anymore, and the other side of the proverbial bridge is coming into focus. The downgrade in the long-term macroeconomic outlook from COVID-19 has reduced global energy demand growth considerably, while more aggressive emissions policy pushes over the past year have caused Platts Analytics to upgrade the outlook on renewables penetration, which will further limit the upside to natural gas.
Additionally, there are longstanding structural impediments to gas demand growth that we have cautioned about for several years, not least gas pricing, particularly LNG. The global gas market is in a precarious position if it wants to continue growing strongly, as prices need to be high enough to incentivize new liquefaction but low enough to keep demand growing.
For many years, the view of hydrogen developing into a potential clean energy solution was characterized by its potential. Hydrogen has always had the potential to be used in a variety of sectors and applications without emitting CO2 at the point of consumption.
However, hydrogen had long been seen as being only that, just a potential fuel, with its hypothetical application and related reductions to oil, gas, and coal emissions still decades away.
Commitments to hydrogen have accelerated considerably over the past year, an achievement made all the more impressive for taking place during the COVID-19 pandemic.
There have been notable policy pushes such as the European Commission’s hydrogen strategy; development of regional partnerships; and deployment of hydrogen production capacity and end-use technologies.
It should not be surprising that the catalyst of the acceleration of hydrogen’s development has been more companies and governments making net zero pledges. Achieving net zero or even severe reductions in CO2 emissions without a non-intermittent energy source is next to impossible. The use of carbon-free hydrogen as an energy carrier offers pathways to decarbonization in sectors where electrification is ill-suited, such as industry, refining, chemicals, and heavy transportation.
The production of hydrogen with renewables could provide solutions to electricity intermittency and longer duration storage, and the production of hydrogen with fossil fuels and CCS offers ways to continue to use those fuels without emitting CO2.
The biggest barrier to hydrogen’s ultimate development and potential use as a major driver of emissions reductions is cost, particularly in markets that do not offer financial incentives to reduce CO2 emissions. Policymakers in Europe (and a few other countries) have signalled their willingness and ability to subsidize the deployment of hydrogen, with the aim of driving down the cost globally so that it can be more widely deployed globally. Cost declines will be key to the ultimate deployment of hydrogen and other clean energy solutions.
Feb 02, 2021
Apr 12, 2021
“Companies all over the world are looking for tangible solutions to reduce their carbon footprint and this design provides a valuable hydrogen solution to accomplish that goal,” Cesar Canals, senior vice president of CB&I Storage Solutions, said in a statement.
The facilities can power a series of electrolyzers to produce green hydrogen and oxygen through a design that also provides the flexibility to incrementally expand production and storage capabilities through modular additions, the statement said.
The hydrogen design can be used for grid-scale blending with natural gas pipelines, blending existing or new power-generating facilities and energy-storage injection into salt caverns and above-ground storage tanks, the companies said.
The facility design allows for incremental 15 MW of 100% hydrogen-fueled power generation to support grid-scale energy storage applications, according to the announcement.
“Working closely with our strategic partner, CB&I Storage Solutions, we believe New Energy’s innovative, flexible design can provide the most cost-effective application of green hydrogen technologies for the natural gas industry,” Alexander “Hap” Ellis, New Energy managing partner, said.
Mar 30, 2021
As ESG factors become increasingly important to governments and companies around the world, hydrogen has solidified as a means to divest from fossil fuels across…
Nov 24, 2020
As ESG factors become increasingly important to governments and companies around the world, hydrogen has solidified as a means to divest from fossil fuels across commercial, power generation, and transportation industries. Although it is not yet a perfect solution, as most hydrogen today is produced from fossil fuels, the global community is racing to research and implement hydrogen within the energy mix in efforts of accelerating the energy transition and achieving net-zero emissions.
Navigating a pathway to a low-carbon global economy requires a new plan. The S&P Global Platts Atlas of Energy Transition, produced in collaboration with S&P…
Feb 22, 2021
The US power sector is relentlessly shifting towards a greater role for renewables to meet aggressive climate targets. This report assesses progress made so far,…
Apr 13, 2021
The US power sector is relentlessly shifting towards a greater role for renewables to meet aggressive climate targets. This report assesses progress made so far, future goals, and challenges standing in the way of a cleaner electricity system.
In an isolated patch on the Red Sea coast, Saudi Arabia has unveiled a grand vision of a futuristic zero-carbon community called Neom, fueled by…
Apr 01, 2021
In an isolated patch on the Red Sea coast, Saudi Arabia has unveiled a grand vision of a futuristic zero-carbon community called Neom, fueled by hydrogen, a showpiece for Crown Prince Mohammed bin Salman in his efforts to diversify the economy of the world’s top oil exporter.
The first phase of the project, a linear smart city spanning 170 km of desert and mountains, was announced to great fanfare in January. Dubbed “The Line,” it was described as a “blueprint for how people and the planet can co-exist in harmony” by the future king, with housing planned for 1 million residents at a cost of up to $200 billion.
“We need to transform the concept of a conventional city into that of a futuristic one,” Prince Mohammed, known commonly by his initials MBS, said at the time.
Its goals are lofty.
The Line will comprise carbon-positive urban developments powered by 100% clean energy. An ultra-high-speed transit network will allow an end-to-end journey to take no more than 20 minutes.
But plans are one thing, executing them are another.
No investors have yet to be announced beyond the Saudi sovereign wealth fund, and the project’s unprecedented scale and aspirations have many doubters.
“It is positive that they are thinking about this, but it is normal to be skeptical about such an ambitious project,” one Middle East-focused analyst told S&P Global Platts on the condition of anonymity. “It’s not entirely clear how it going to be funded.”
Only after a feasibility study is conducted might investors have some confidence in the project, the analyst added.
However, the utility of The Line may not be as important as the symbolism it represents for Saudi Arabia, Angela Wilkinson, CEO of the World Energy Council, told S&P Global Platts.
“What I think Saudi Arabia is trying to do with this project is create a global exhibition space that says, ‘We have design and innovation, and we are thinking about how to shape the future,'” Wilkinson said. “It has a respectable ambition behind it. I think Saudi Arabia is trying to say, ‘Allow us to breathe and have a story that is positive about our future.'”
London — The European Commission (EC) is expected to adopt by April 21 so-called EU taxonomy rules on sustainable hydrogen production pathways with emissions thresholds…
Apr 07, 2021
EU Taxonomy is a key tool to accelerate the energy transition and allow Europe to meet its climate neutrality goal by 2050 with the delegated act set to establish a classification of “sustainable investments.”
“Weakening the EU taxonomy criteria comes down to undermining the Green deal itself,” Francois Paquet, impact director at Renewable Hydrogen Coalition, said April 2 in an email.
Delegated acts are technical with little opportunity for EU members states to have a real say, which explains why such a technical file has become so strategic and political, Paquet said.
Renewable Hydrogen Coalition, which represents wind and solar generators and associations, called in a open letter to the EC to maintain the original threshold of 2.256 mt CO2e/mt of hydrogen to allow for only the most sustainable hydrogen to qualify as “green,” including wind or solar based-hydrogen.
Concerns that solar would not meet the threshold are baseless, Paquet said adding that recent studies show solar-based hydrogen electrolysis ranging from 1.32 to 2.5 mt CO2e/mt of hydrogen.
The methodology refers to life-cycle greenhouse gas emissions and was initially set in a first draft in December 2020.
A threshold of 3 mt CO2e would potentially allow some hydrogen types produced via low-carbon electricity or hydrogen produced via steam methane reformation with carbon capture and storage (SMR with CCS) to qualify as “green/sustainable,” it added.
Some countries like France or Slovakia envisage using grid-based surplus electricity for the production of low-carbon hydrogen.
Utilities including EDF, Fortum and CEZ in another open letter to the EC have called for a higher threshold.
“The upcoming delegated act… should not introduce disproportionate constraints to hydrogen production,” the letter dated March 11 said.
Related infographic: EU carbon border adjustment mechanism sparks clash over free CO₂ allowances
Hydrogen produced via electrolysis powered by French or Nordic grid-based electricity has a carbon footprint of less than 3 mt CO2e/mt of hydrogen, but the proposed criteria of the draft delegated act would not qualify such hydrogen as taxonomy aligned, the utilities said in the letter.
The draft proposal may even rule out some solar-based hydrogen production pathways, it added.
Sector association Hydrogen Europe said April 7 that clear definitions and clear thresholds were essential within that context.
“The threshold should be aligned with the taxonomy in order to have consistency throughout different pieces of legislation,” it said in a paper.
Hydrogen Europe urged the EC to consider other types of low carbon hydrogen as highlighted in the EU Hydrogen Strategy and EU Council Conclusions.
“Given the urgent need to begin decarbonizing existing hydrogen production, the retrofitting of existing hydrogen production facilities (SMR with CCS) needs careful consideration. If these projects can become feasible and prove commercial viability, they can offer an immediate contribution to decarbonization and a subsequent increase in hydrogen volumes available,” it said.
Renewable Hydrogen Coalition underlined that the EU Taxonomy aims to be guide investment in the most sustainable solutions, but “investors will still be able to invest in what’s not part of the guide.”
Hydrogen Europe also focused on the CertifHy threshold of 4.37 mt CO2/mt H2 as a starting point for a low carbon hydrogen emissions threshold.
The EU’s RED II directive methodology also allows slightly higher hydrogen emissions thresholds for the transport sector, it said.
S&P Global Platts assessed the price of renewable hydrogen (Netherlands, PEM electrolysis including capex) at Eur4.32/kg on April 6.
For low-carbon natural gas-based hydrogen (Netherlands, SMR with CCS including capex and carbon), the comparable cost-based assessment was Eur1.87/kg.
Hydrogen as a critical path for decarbonization This event is our second annual conference on hydrogen as part of the move toward decarbonization. Learn about…
May 05, 2021
This event is our second annual conference on hydrogen as part of the move toward decarbonization. Learn about near-term growth potential, industry supply chain, infrastructure build-out, and hydrogen markets expansion.
Attendees will include hydrogen producers, midstream natural gas companies, infrastructure investors, developers, electric power companies, regulators, and policy-makers, among many others. This event is part of a global series organized by S&P Global Platts, with parallel events in Europe and Asia.
A second annual event for the hydrogen community
Last year’s virtual conference drew an impressive group of attendees—over 450 participants from across the US, as well as groups from Canada, Latin America, and Europe.
We were especially pleased to see the extended, vigorous dialog between delegates and speakers, with over 120 questions submitted over four hours.
This year’s event expands both the format and the content, featuring two days of online activity and presentations, more speakers, a virtual exhibit floor, and additional opportunities for networking.
Do more with your registration. You’ll receive advanced access to our companion networking app. Use it to:
— Build your network—You can’t “work a room” like you used to. Use the app to see who else is registered, help people find you, exchange contact information digitally, and plan for who you’d like to meet at the event. The list updates in real-time once the app goes live.
— Connect—Use 1:1 messaging to introduce yourself. Conversations are saved and searchable for your convenience.
— Enjoy extra content—Get Platts market news, exclusive content, and more leading up to the event. Find out about event updates as they happen.
— Take it all with you—Look up your contacts and conversations later. If using the desktop version, install the mobile app too for easy access from anywhere.
Singapore — Sinopec, the world’s biggest refinery by capacity, plans to leverage its hydrogen business to meet carbon neutrality by 2050, ahead of China’s 2060…
Mar 29, 2021
“We set hydrogen as the main direction for the company’s new energy development,” Zhang said during the company’s 2020 results briefing and added that Sinopec targets to be China’s top hydrogen supplier.
Zhang said production, storage and distribution are the key elements in the hydrogen value chain, while Sinopec has already had remarkable strength in production and distribution.
“We have been producing hydrogen for our refining and petrochemical complexes, while we have the biggest retail network in China,” Zhang said.
Currently, Sinopec’s hydrogen production capacity is 3.5 million mt/year, accounting 14% of China’s hydrogen output, Sinopec reported on its WeChat platform on March 29. Sinopec has a refining capacity of 305.5 million mt/year (6.15 million b/d).
Zhang said they target to produce blue hydrogen as transformation fuel from the current grey hydrogen generated for refining and petrochemical production, and eventually supply green hydrogen that generated from renewables.
Blue hydrogen is the hydrogen that meets the low-carbon threshold but is generated using non-renewable energy sources, while grey hydrogen is produced using fossil fuels.
Meanwhile, Sinopec targets to build 100 hydrogen fueling stations in 2021 in China, and lift the number to 1,000 during 14th five-year plan over 2021-2025, Zhang said.
The company had 27 hydrogen fueling pilot projects by the end of 2020. In comparison, it has 30,713 branded oil fueling stations in China.
In comparison, PetroChina has also set a target to meet “near zero” carbon emissions by around 2050, ahead of China’s 2060 target. But as an upstream oil giant, PetroChina relies more on the wind, solar and geothermal resources within its mineral rights, S&P Global Platts reported earlier.
However, Zhang did not give more detail about the company’s investment plan in new energy development, despite Sinopec boosted its capital expenditure by 23.8% year on year to Yuan 167.2 billion ($25.51 billion) for 2021.