European Refiners Embrace Green Hydrogen to Meet Regulatory Demands
European refiners are gearing up to play a significant role in both producing and purchasing green hydrogen, with a particular focus on the maritime sector. Despite high costs hindering the widespread adoption of green hydrogen projects, new regulations within the European Union’s refining sector are paving the way for the expansion of this eco-friendly technology on a larger scale, as highlighted in a recent report by Wood Mackenzie.
The report titled “Isn’t it ironic? How Europe’s oil refiners could offer a route to scale up green hydrogen” projects that European refiners will need approximately 0.5 million tonnes of green hydrogen annually by 2030 to adhere to EU regulations, replacing about 30% of current CO2-emitting hydrogen production. This presents a significant opportunity for the refining industry, which currently accounts for a substantial portion of global hydrogen demand, especially in ammonia and methanol production.
The latest revision of the EU’s Renewable Energy Directive (RED III) favors green hydrogen over blue hydrogen, providing a boost to the sector and helping to overcome the delays typically associated with green hydrogen projects worldwide.
“European refiners are set to become significant producers or buyers of green hydrogen, initially to decarbonize the refining sector and its derivatives as fuel for marine and aviation,” remarked Alan Gelder, VP of Refining, Chemicals & Oil Markets. He added, “Numerous green hydrogen projects have already targeted the sector.”
According to the report, European refineries have already committed over $5 billion of capital to green hydrogen projects, with a total low-carbon hydrogen capacity of 6 Mtpa having reached a final investment decision (FID).
Refiners Lead Market Appetite for Green Hydrogen
Recent EU Hydrogen Bank auction results demonstrate refiners’ strong commitment to green hydrogen adoption, with the sector showing a willingness to pay premium prices to meet regulatory requirements. The average levelized cost of hydrogen for refineries stands at US$9.23/kg, higher than the project costs estimated by Wood Mackenzie at US$7.04 to US$8.30/kg.
While there have been cost reductions in green hydrogen production, progress has been uneven across the EU due to slow adoption of RED III legislation at the national level, hindering project development in many member states.
Transport Fuels Hold Long-Term Growth Potential
While refinery decarbonization presents a compelling near-term investment case, the marine and aviation sectors offer substantial long-term growth opportunities for green hydrogen derivatives. Regulations such as Europe’s FuelEU Maritime Regulation and the International Maritime Organization’s Net Zero Framework are driving interest in hydrogen-derived marine fuels.
“The opportunities for low-carbon hydrogen have come full circle,” stated Murray Douglas, Vice President of Hydrogen Research at Wood Mackenzie. He emphasized the potential for marine and aviation sectors in the long run, given the challenges in electrifying these industries and the need for policy support.
Policy Challenges Remain
Despite the progress made, significant hurdles persist, with current EU policy setting modest targets for renewable fuels in the transport sector by 2030. Delays in transposing RED III into national legislation have created regulatory uncertainty, slowing down project development in several EU countries.
The report underscores the crucial role that European refiners can play in scaling up the green hydrogen industry but highlights the need for continued cost reductions and stronger policy support to drive demand across the continent.