Analysis: Reliance’s deep fossil fuel footprint gives its blue hydrogen an edge

Strong points

Raise oil and gas prices to support the new energy surge

Refiner seeking to reallocate some of its gasification assets

Blue Hydrogen Gives Reliance First-Mover Advantage: Platts Analytics

Reliance Industries aims to capitalize on its strong oil and gas presence by expanding its blue hydrogen footprint, a move that will help India’s largest refiner strike a balance between promoting profitable clean energy while remaining focused on its business. traditional fossil fuels.

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Analysts said that while a dramatic recovery in crude oil and gas prices has created opportunities for the company’s oil and gas business in the upstream and downstream sectors, the company is keen to expand its presence in the blue hydrogen until green hydrogen costs come down.

As oil demand and prices recovered, Reliance saw its crude throughput in the October-December quarter increase 8.2% year-on-year to 19.7 million tonnes, while its refining margins have also greatly improved.

Analysts said the company’s strong performance in its traditional oil and gas business would help fund new energy initiatives.

“Reliance’s focus on its traditional oil and gas business will continue to focus. But as the energy scenario is about to change, Reliance will increasingly focus on turning oil into chemicals, hydrogen blue as well as green hydrogen. It is very well positioned to do this with the right kind of assets,” Ravinder Kumar Malhotra, former chief executive of the Federation of Indian Petroleum Industry, told S&P Global Platts.

First blue, then green

The company is looking to take a big step towards blue hydrogen by reallocating some of its gasification assets, a step towards a net-zero carbon entity by 2035.

“Meanwhile, until the cost of green hydrogen drops, Reliance can be the first to establish a hydrogen ecosystem with minimal additional investment in India,” the company said.

Reliance produces syngas and gray hydrogen from petroleum coke. Blue hydrogen is produced from natural gas by eliminating carbon dioxide emissions by capturing and storing the emitted carbon.

“The syngas will be used for hydrogen production as well as carbon capture and sequestration. The blue hydrogen thus produced will be supplied to Reliance refineries to replace gray hydrogen and sold to third parties. will be monetized through the production of urea and synthetic fuels,” Jefferies said in a recent Reliance research note.

Reliance said syngas has the potential to produce hydrogen at a competitive cost of $1.20 to $1.50/kg.

Reliance announced in 2021 its intention to develop the Dhirubhai Ambani Green Energy Giga Complex at its integrated refinery complex in Jamnagar, in the western state of Gujarat.

Jamnagar, the largest single-site integrated refining complex in the world, has two refineries that together can process low-grade crude and switch between fuels depending on prices. Although the old refinery is domestic oriented, there is also a separate export oriented refinery.

The Jamnagar complex, the main hub of Reliance’s petroleum-chemicals business, was envisioned to be the center of the company’s new renewable energy and new materials business, supporting its net zero commitment .

Potential to attract investors

“Reliance’s plan to transition to renewable energy with battery energy storage systems to meet its demand for electricity and steam, and its recently announced ambitions to become one of the largest producers of blue hydrogen to the world by repurposing an existing plant at its Jamnagar factory, are steps in line with the company’s commitment to become carbon neutral by 2035, but timely execution is key here,” said Shantanu Srivastava, energy finance analyst at the Institute of Energy Economics and Financial Analysis.

“The Blue Hydrogen strategy is different from other oil and gas majors around the world, which have focused more on green energy generation than manufacturing. -the chemical industry and can attract well-known investors,” he added.

That said, green rather than blue hydrogen should be the company’s primary focus and a long-term strategy should drive a transition from blue to green as commercial viability is achieved in the latter, the companies said. analysts.

“Producing blue hydrogen can give Reliance a first-mover advantage. However, in India, it makes more sense to go straight for the production of green hydrogen instead of gray or blue hydrogen for two important reasons,” said Ankit Sachan, hydrogen analyst at S&P Global Platts. Analytic.

“First, India imports about half of the natural gas, which can lead to higher hydrogen production costs. And second, India lacks large-scale CO2 storage sites compared to other gas and oil producing countries. goals due to less technological readiness,” he added.

Reliance plans to invest approximately $10 billion in the clean energy sector and aims to become carbon neutral by 2035. It identifies hydrogen as a major future clean energy fuel and aims to bring costs down hydrogen at $1/kg within a decade.

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