CEO of the Energy Chamber of T&T, Thackwray “Dax” Driver, addresses the need for T&T to move quickly regarding the low existing demand for low carbon hydrogen.
T&T’s Minister of Energy, Stuart Young, has been at CERAWeek, probably the most prestigious global annual gathering of energy industry leaders.
One of the main talking points at the event this year, has been the issue of low existing demand for low carbon hydrogen in major markets.
This situation represents a major opportunity for T&T: I know at first sight this might seem counterintuitive but let me explain.
While the importance of low carbon hydrogen in the energy transition is universally acknowledged, the industry is facing a “chicken and egg” problem; there is not much existing demand for low carbon hydrogen in the major industries that need hydrogen as a feedstock, so the potential upstream producers of low carbon hydrogen do not see much of an incentive to invest in its production, but without the guaranteed supply of low carbon hydrogen the potential buyers are not investing in upgrading facilities to bring in new low carbon hydrogen in exchange for the existing “grey hydrogen” from natural gas (where the hydrogen is split from the carbon atoms in methane).
Without the investments going in to scale up low carbon hydrogen production the anticipated fall in costs, as happened when wind, solar and other renewables ramped up, is not getting the opportunity to take place.
This means that low carbon hydrogen costs will remain high and unless there is a clear market advantage over commodities produced with traditional “grey carbon” it makes little sense for industries using hydrogen as feedstock to make the shift.
So, how does that create an opportunity for T&T?
Well, there are three important factors that put T&T in a unique position, and which create an opportunity for us to take advantage of the current uncertainty:
1) Lack of availability of traditional “grey hydrogen.”
In stark contrast to most places trying to develop low carbon hydrogen, petrochemical producers in T&T are facing a significant shortfall in the availability of hydrogen today.
In the United States (the main focus for low carbon hydrogen development) petrochemical facilities can access as much natural gas as they possibly need as feedstock to produce traditional “grey hydrogen.”
And the natural gas prices are low: prices are down below US$1.70 per mmbtu at the Henry Hub in Louisiana at the time of writing this article.
While gas sales contract prices in Trinidad are not regularly publicly released, published data from various industry reports and statements from ministers would suggest that the gas purchase price is higher that this for any petrochemical plant in Point Lisas today.
And perhaps even more significantly plants are simply not able to access all of the natural gas they require to produce “grey hydrogen.” So, unlike in other markets, in T&T there is an unmet demand for hydrogen of any type and plants are therefore very interested in accessing any hydrogen that might be available.
It is not a question of substituting traditional hydrogen with low carbon hydrogen, but rather adding new hydrogen.
2) Past inefficiency means there is potential low carbon electricity available.
Unlike most other countries, T&T has had more electricity generation capacity that it needs.
This unusual situation came about because of the decision in 2010 to cancel the construction of the aluminium smelter, though the modern combined cycle plant to supply the smelter, the TGU plant in La Brea, was still constructed.
This power plant supplies the majority of Trinidad’s base load lower, with the other less efficient single cycle units being brought online as needed, and especially during evening periods when demand for electricity rises.
Putting a combined cycle generation unit on existing single cycle units would count as a low carbon source of energy once it is linked to a new hydrogen electrolyser (producing hydrogen from splitting oxygen in water molecules rather than carbon in methane molecules).
The availability of single cycle generation units in Trinidad therefore creates a great opportunity to produce low carbon hydrogen.
And the large-scale solar project under construction can also provide new green electrons during the day (complimenting the new combined cycle source that would typically kick-in during the evening).
So, ironically our past low levels of energy efficiency can become a benefit to improve the economics of new low carbon hydrogen.
3) Our commodities are almost all exported.
One of the main driving forces behind low carbon hydrogen demand is the new carbon border adjustment mechanisms (CBAMS) that have been put in place in the European Union and likely to be adopted in other major markets in the next few years.
These mechanisms tax specific commodities at the point of import, based on their carbon intensity.
The principle behind these import taxes is to discourage companies from “offshoring” production to markets that don’t already tax carbon. One of the commodities set to be taxed under the EU CBAM is ammonia.
Most ammonia produced in the world is not exported, but rather sold on to neighbouring facilities for further processing, especially for fertiliser production.
So, in the USA most ammonia is sold domestically, converted into fertilisers and sold to farmers in the USA.
Trinidad is one of the few places where our ammonia is mainly exported by sea to international markets.
This means that Trinidad ammonia production is more likely to be impacted by CBAMS and hence makes lower carbon hydrogen an attractive option to help reduce potential import taxes.
These three factors mean that Trinidad presents a unique opportunity for low carbon hydrogen development, while the rest of the world is grappling with finding ways to develop the market.
In most countries low carbon hydrogen needs significant government subsidies to make the development possible.
As the presentations at CERAWeek made clear, governments in some of those markets, especially in the United States, are currently working on subsidy packages, but they are not there yet.
There are things that need to be put in place to ensure that we can take advantage of this opportunity but the data I have seen does not suggest we need specific heavy Government subsidies.
Essentially the subsidy has been “pre-paid” through our past investments in single cycle gas fired power generation.
One thing that is required is the quick adoption of a national regulatory framework for monitoring, reporting and verification (MRV).
This will be vital for companies to be able to take credit for any carbon reduction initiatives, in the context of CBAMS and carbon markets. This issue will be a major topic of discussion at the upcoming Caribbean Sustainable Energy Conference on June 10 to 12 2024.
The unique position that Trinidad holds provides a significant opportunity to move fast and enter the low carbon hydrogen market quickly.
Existing ammonia plants in Point Lisas do not need significant capital investment to be able to blend in volumes of hydrogen from new sources (up to somewhere in the region of 10 to 20 per cent of current hydrogen).
If we can rapidly jump on the unique opportunity that exists, we could make a small percent of low hydrogen available and take a leading global role.
It makes sense for T&T to move quickly.
