ExxonMobil has warned that it could cancel its blue hydrogen project at the Baytown refinery in Texas, depending on whether the US Treasury goes through with its draft guidance for clean H2 production to qualify for the $3/kg tax credit.
In 2022, the US oil supermajor announced plans to build the plant, which would produce one billion cubic feet (2.4 million tonnes) of hydrogen per year from natural gas with CO2 emissions captured and stored, with a final investment decision due this year and start-up scheduled for 2027 or 2028.
The blue H2 would displace grey hydrogen currently consumed in the production of olefins, a precursor for plastics and other chemicals, at the refinery.
However, Mark Klewpatinond, global business manager for hydrogen at ExxonMobil, told the Houston Chronicle that based on the current draft guidance released by the Treasury last December on how lifecycle emissions for the four-tier production tax credit (see below) would be counted, “it's highly unlikely Baytown would proceed”.
“It needs to compete for capital against other projects we have,” he said, adding that the draft guidance would mean the Baytown project would only be eligible for the lowest $0.60/kg tier of the tax credit and therefore be less economic.
45V tax credits tiered by emissions intensity
Emissions intensity (kgCO2e/kgH2)
Maximum tax credit ($/kgH2)
0-0.45
$3.00
0.45-1.5
$1.00
1.5-2.5
$0.75
2.5-4
$0.60
Source: US Department of Energy
The Treasury’s draft guidelines include a requirement that hydrogen producers must draw electricity from zero-carbon generators built within three years of the H2 plant and in the same region.
The draft guidance, which is due to close its consultation period for comments on Monday, also proposes annual matching of power generation to hydrogen production up to 2028, when the rule switches to hourly correlation.
Green hydrogen producers have already been vocal in their criticism of these principles, which also hold in Europe, since it would limit the number of hours an electrolyser could possibly run and ultimately increase the cost of H2 production from this route.
So why would ExxonMobil — which is only planning to produce blue hydrogen at Baytown rather than green — be so concerned about rules for electricity input?
The answer might lie with the technology the oil major has selected for its Baytown facility. In February last year, ExxonMobil contracted Danish technology firm Topsoe to supply its SynCOR autothermal reformer (ATR) for the project.
ATR is generally considered more efficient in processing gas into hydrogen compared to conventional steam methane reforming (SMR), as well as producing concentrated, high-pressure CO2 streams that can be more easily separated from H2 for capture and storage. However, it also requires more electricity than SMR.
ExxonMobil is also planning to run its hydrogen production equipment on electricity sourced from gas-fired power plants, according to the Houston Chronicle. While existing fossil-based generators retrofitted with carbon capture and storage equipment could count as additional zero-carbon electricity based on the Treasury’s guidelines, this would still likely add to the cost of a hydrogen project.
The US Department of Energy last year calculated in a report that, based on typical upstream methane emissions from extracting natural gas and the use of grid electricity to power processes, ATR with even 94.5% CCS would have an emissions intensity of 5.7kgCO2e/kgH2 and therefore be unable to qualify for the clean hydrogen production tax credit at all.
However, some analysts have suggested that blue hydrogen producers in the US
may be better off seeking the 45Q tax credit, which offers $85 per tonne of CO
2 captured and geologically stored without strings attached on upstream emissions, since this would work out to around $0.75/kg of H
2 at a 95% carbon capture rate.
