Hydrogen Energy

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Hydrogen Energy is a company established as a joint venture between Rio Tinto and BP to "develop decarbonised energy projects around the world" with an initial focus on "hydrogen-fuelled power generation, using fossil fuels and carbon capture and storage (CCS) technology to produce new large-scale supplies of clean electricity." The formation of the joint venture was publicly announced in May 2007. [1]

Kwinana Project Hyped ... Then Shelved

The week after the launch of Hydrogen Energy, the joint venture partners announced that it was "beginning feasibility studies and work on plans for the potential development of a A$2 billion (US$1.5 billion) coal-fired power generation project at Kwinana in Western Australia that would be fully integrated with carbon capture and storage to reduce its emissions of greenhouse gases." It also noted that the company was also investigating two other CCS projects -- one at Peterhead in Scotland and another at Carson in California, USA. [2]

The company proposed to construct a gasification plant and a 500 megawatt power station adjacent to BP's Kwinana oil refinery and Rio Tinto's HIsmelt iron smelter. The project’s gasification facility and power station would be located in Kwinana, 45km south of Perth, alongside BP's refinery and Rio Tinto's facility. The hydrogen would be burnt in the power station, which would be capable of producing 500 megawatts of electricity, while the carbon dioxide pumped underground to be "permanently and securely stored in a geological formation deep beneath the seabed of the Perth basin."[2]

"This would be the first hydrogen-fuelled power project to store CO2 in a saline formation, a type of geological structure which is more common globally than suitable oil and gas reservoirs," the joint venturers stated. From the outset the company was lobbying for government support and a favourable regulatory environment. "For the project to be economic and able to compete effectively in the electricity market, it would require appropriate policy support and a regulatory environment which recognises and encourages the low-carbon benefits it can deliver," the company stated.[2]

The company foreshadowed that "a final investment decision to develop the project could be made in 2011, with the project coming into operation after a three year construction period."[2]

However, the decision came much sooner than that. Less than a year after the company's upbeat launch, the Financial Times reported that the project had been quietly shelved as a result of the lack of suitable geological formations. "We wanted to be absolutely certain we had the right geology before we went ahead, because this would be the first project and would be a proof of concept," BP said.[3]

The Peterhead Project in Scotland

The proposed Peterhead project in north-east Scotland followed a similar pattern. In June 2005 BP, ConocoPhillips, Shell and Scottish and Southern Energy (SSE) announced that they were set to "commence engineering design of the world's first industrial scale project to generate 'carbon-free' electricity from hydrogen."[4]

The concept of the $600million project was that it would convert up to 70 million cubic feet of natural gas a day to hydrogen and carbon dioxide gases with the hydrogen used to power a 350 megawatt power station. Approximately 1.3 million tonnes of carbon dioxide would be pumped via existing pipelines into the the declining Miller oil field 240 kilometres offshore in the North Sea to increase the volume of oil recovered from the field. "The Miller field is currently due to cease production in 2006/7 but the injection of carbon dioxide into the reservoir could increase the amount of oil extracted from the field, potentially allowing the production of up to 40 million additional barrels of oil and extending the life of the field by 15 to 20 years," the media release stated. (The Miller oil field was a joint venture comprising BP (52%), ConocoPhillips (30%t) and Shell (18%).[4]

The carbon dioxide, it was hoped, would then be stored underground permanently. The joint venturers hoped that initial engineering feasibility studies could be completed in late 2006 and a final decision to proceed could be made in 2009.[4]

There was an important qualifier in the initial up-beat announcement. For the project to proceed, the media release stated, "it would also require an appropriate policy and regulatory framework which encourages the capture of carbon from fossil fuel-based electricity generation and its long-term storage." The project proponents had their eye on funds that the UK government had announced could be made available as incentives for the development of carbon capture and storage projects.[4]

In February 2007, BP announced that it was delaying any further investment in the project a decision had been made on whether the government would provide funding. [5]

Two years after its optimistic announcement about the project, the company finally pulled the plug on the concept. BP stated that the decision by the UK government to make funds available only to projects selected via a competition in November was a timetable which was unacceptable to the company. BP spokesman David Nicholas stated that the November date was "an extension too far for this project". BP was reported to have spend US$50 million in thr previous 18 months on the project.[6] A later Financial Times report stated that the company had spent a total of $60 million on its evaluation.[3]

In evidence to the House of Commons environmental audit committee the U.K. Energy Minister Malcolm Wicks that "as to Peterhead, I do not believe it would have been sensible or proper governance if we were to have a demonstration project that cost the British taxpayer literally hundreds of millions of pounds to give it to the first one that came forward, namely the Miller Field Peterhead project. Perfectly properly, we had a competition and then made the decision – it was controversial but I believe it was the right one – that instead of pre-combustion, it should be post-combustion."[7]

We're Off to Abu Dhabi

In January 2008, the company announced that it would proceed with the investigation of another CCS project in Abu Dhabi. (In the Scottish media this decision was reported as "a revolutionary green-energy plant once planned by BP for Peterhead is now to be built in the United Arab Emirates", though the two project concepts are of substantially different scales).[8]

In conjunction with Masdar, the United Arab Emirates government's initiative for alternative energy, Hydrogen Energy announced "the signing of an agreement to work together on the front-end engineering design" of a CCS project to be located in Abu Dhabi. The projected cost of the investigation is $45 million and is expected to be completed by the end of 2008. According to Hydrogen Energy the proposed plant would process 100 million cubic feet of natural gas per day to fuel a 420 megawatt power station and capture up to 1.7 million tonnes of CO2 per year. The company stated that the Co2 "would replace the natural gas currently being injected into oil fields, allowing the gas to be used to fuel Abu Dhabi’s continued growth, or to be exported."[9]

The company estimated that the capital cost of the project would be US$2 billion with the joint venturers expecting to make a decision on whether to proceed by early 2009. It stated that it could be in commercial operation in 2012.[9]

In late 2009 Rio Tinto announced that it was bailing out of the Abu Dhabi project. Preston Chiaro, Rio's group executive, technology and innovation said that "Rio Tinto prefers to focus on projects with solid fuel feedstocks, which are better aligned with our other businesses." As a result of this preference for projects using coal or petroleum coke, Chiaro said the company would focus on the Hydrogen Energy California project in the US.[10]

The Business Strategy Behind the Hype

In its 2007 annual report, Rio Tinto explained that its motivation in becoming a part of the joint venture was to "position Rio Tinto Energy to profit from the advent of a global low carbon energy future and initiate the development of a broader risk management strategy for climate change regulation while providing a meaningful offer on climate change and product stewardship."[11]

"The group’s strategic intent is to build through Hydrogen Energy a low carbon energy business primarily reliant on coal that will ultimately leverage Rio Tinto’s capabilities in identifying, acquiring and operating large long life coal assets. Gasification opens new and larger markets for coal and the aim is to maximise returns across the emerging coal gasification value chain. Early positioning will convey an important element of competitive advantage. A key to unlocking value will be to proactively shape government policy to support and enable initial projects," it stated.[11]

Contact Details

1 The Heights,
KT13 0NY
Tel: +44 (0)1932 823288

One World Trade Center
Suite 1600
Long Beach
CA 90831 - 1601
Tel: 1-562-276-1543

Global Press Office
Tel: +44 (0)1932 823288
Email: pressoffice AT hydrogenenergy.com
Website: http://www.hydrogenenergy.com/

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