INSIGHT: US IRA to accelerate hydrogen, CCS projects

NEW YORK (ICIS)–The US Inflation Reduction Act (IRA), which was signed into law in August 2022, will accelerate the development of hydrogen and carbon capture and storage (CCS) projects, which in many cases will go together.

“There’s a lot of activity in this [low carbon] space – a lot of interest particularly with the IRA here in the US, but more generally around the world. I think [there’s] a real focus on low-carbon opportunities,” said Darren Woods, CEO of ExxonMobil, on the company’s Q4 earnings conference call in late January.

He added that the IRA “further reinforces” its commitment to hydrogen and CCS.

US-based ExxonMobil in December boosted its planned investments in its Low Carbon Solutions business to $17bn from 2022-2027 – up from $15bn in its prior plan.

ExxonMobil in January awarded a FEED (front end engineering and design) contract to build what it calls the world’s largest low-carbon hydrogen facility at its site in Baytown, Texas. The project would produce 1 billion cubic feet (bcf)/day of blue hydrogen (with carbon capture) and also offer CCS for third-party CO2 emitters. The CCS project would be able to store up to 10m tonnes/year of CO2.

For ExxonMobil’s Baytown olefins complex, the project could cut CO2 emissions by 30% if hydrogen is used to fuel cracker furnaces instead of natural gas.

A final investment decision (FID) is expected in 2024 with start-up planned for 2027-2028.

The Baytown project would be an initial contribution to a cross-industry supported Houston CCS hub which could capture and store 50m tonnes/year of CO2 by 2030 and 100m tonnes by 2040.

US-based Chevron, which is also building low-carbon businesses such as hydrogen and CCS, sees the IRA potentially de-risking investments to some extent.

“The IRA will probably accelerate some activity in the US, there’s no doubt. Hopefully, what that does is allow technologies to be de-risked, the cost of technologies to be reduced and the attractiveness of these investments to improve,” said Mike Wirth, CEO of Chevron, on the company’s Q4 earnings conference call.

While the IRA doesn’t necessarily change Chevron’s long-term view on how it builds those businesses, “it does, perhaps, change the trajectory at which some of those businesses become more economically viable”, he added.

UK-based BP sees increased incentives for CCS in the IRA supporting its greater use in the power sector, as well as in industry and to produce blue hydrogen.

Source: BP Energy Outlook 2023

With the IRA and other incentives, the company sees US CCS deployment reaching over 100m tonnes/year by 2035 and close to 400m tonnes/year by 2050, according to BP chief economist Spencer Dale, in BP’s Energy Outlook 2023.

Ultimately, it will take tens or more likely, hundreds of billions of dollars of investment in hydrogen and CCS to decarbonise not just the chemical industry, but all energy-intensive manufacturing sectors in the US.

“What we start to see, with the IRA, is an increase in the price on CO2. That’s been raised to $85/tonne for the CO2,” said Dow CEO Fitterling in an interview with ICIS in November.

The IRA increases the 45Q tax credits from up to $35/tonne for captured CO2 used in enhanced oil recovery (EOR) or in certain industrial applications, and up to $50/tonne for CO2 in secure geological storage, to $60/tonne and $85/tonne, respectively, according to US law firm Gibson Dunn.

“That actually helps quite a lot as an incentive to capture the CO2, but what we have to do now is build the carbon capture hubs and the hydrogen hubs to make that happen,” said Fitterling.

The Dow CEO said it would take between 6-8 hydrogen/carbon capture hubs in strategic locations to decarbonise as much as 85% of the entire chemical industry in the US, citing an analysis done with the American Chemistry Council (ACC).

“And in the IRA, both the funding and the price on carbon help us get there,” he added.

Along with hydrogen and CCS, which represents blue hydrogen, there will be greater investment in US green hydrogen, driven by the IRA. Green hydrogen involves electrolysis of water using renewable power.

BP sees US low-carbon hydrogen usage increasing to 4m tonnes/year in 2030 and 26m tonnes/year by 2050.

Source: BP Energy Outlook 2023

“The hydrogen incentives [in the IRA] are especially supportive of green hydrogen, which accounts for around 60% of US low-carbon hydrogen in 2050, compared with around 25% in [BP’s previous outlook in 2022],” said Dale.

Source: BP Energy Outlook 2023

Insight article by Joseph Chang

Thumbnail shows hydrogen. Image by Shutterstock.