Oil & Energy
Hydrogen In The Limelight At COP28
The UN’s COP28 climate talks, a mega-conference running for two weeks, are organized around daily themes. The fifth day on Tuesday, last week, focused on energy and brought out much high-level discussion of hydrogen.
The high hopes for green hydrogen were apparent at last year’s COP27 summit in Egypt with a flurry of big project announcements. Those have faded from the news as few major projects have reached financial commitment.
Yet the seriousness of discussions in Dubai this week, pursued by top ministry officials and high-level executives, showed that the momentum toward green hydrogen continues to quietly build.
This year’s conference lacks the flashy announcements, but it is moving forward with putting the basic structures in place to support a future hydrogen economy.
COP28 is showing that, while a viable market for ‘green’ hydrogen still appears far from a ‘tipping point’, the ongoing activities of companies and governments is a growing force.
A ‘High-Level Ministerial-CEO Roundtable on Hydrogen’ convened on Tuesday, sponsored by the COP28 President’s Office, with two hours of talks that cumulatively felt like a hydrogen wave.
Ministers from numerous countries described their governments’ initiatives and financial support. An official from the US DOE spoke about $7bn for seven selected ‘hydrogen hubs’, also money for electrolysis development, and a hydrogen tax credit that can extend for up to 10 years at $3 per kilogram.
Then, top executives of some 15 companies, members of the Hydrogen Council, spoke of their already significant investments in the emerging sector.
Executives from Air Liquide, Air Products, Hy24, Masdar, Next Era Energy, OCI Global, Port of Rotterdam, Topsoe, Thyssenkrupp, and others, called for incentives and clear regulation to enable global trade in the energy-rich element.
These progress reports notwithstanding, the President’s roundtable made its most important statement with the announcement of two rather obscure initiatives: It featured the launch of a “Declaration of Intent on Mutual Recognition of Certification Schemes for Hydrogen and Derivatives”; it also introduced a new ISO methodology for GHG emissions assessment of hydrogen.
Thirty-nine countries have endorsed the Hydrogen Declaration of Intent to pursue mutual recognition of hydrogen certification schemes, according to COP28.
Later in the day, another roundtable focused on the basic tasks of putting the hydrogen structure together.
Part of the so-called Breakthrough Agenda that began with COP26 two years ago, it gathered representatives of World Bank, IEA, IRENA, the UN Industrial Development Organization (UNIDO), the International Partnership for Hydrogen and Fuel Cells in the Economy (IPHE), other major non-profits and some governments.
They considered needs in key areas, including standards and certification, demand creation, research and innovation, finance and investment. The bright spot, after the morning’s announcements, was standards and certifications.
“We’ve seen standards and certification really rise in the agenda, almost in a surprising way”, said Paul Durant, who is Head of Climate Innovation for the UK government. Mr. Durant chaired the roundtable meeting.
The subsequent discussion of demand creation indicated less certainty, where a huge gap between hydrogen and fossil fuel cost was considered.
“When it comes to demand creation, we are in the very beginning”, said Oleksiy Tatarenko, Senior Principal, Hydrogen Initiatives at Rocky Mountain Institute (RMI), whose large team is working specifically on demand creation.
He spoke of the need for combined policy interventions and market-based mechanisms to grow demand for hydrogen.
“We still have a massive challenge, even in the developed countries. Making an economic case, sector by sector, you have a gap in hydrogen competitiveness versus carbon fuels or other solutions.
“Today saw a big outcome for hydrogen… We are now putting into place concrete elements to ensure it will happen”, said Laurent Antoni, Executive Director, IPHE, who spoke at both roundtables.
His organization has advocated for years for the ISO methodology and helped to shepherd the declaration on certification schemes to agreement.
“We need to rely on robust regulations, which themselves have to rely on certification, the labelling of hydrogen.
“And within the certification schemes what matters, the main point, is carbon footprint”, he said.
He also stressed the importance of the new ISO method to ensure everyone uses precisely the same methodology to quantify the carbon footprint, to allow comparison across markets and borders.
It’s a key common piece needed in all countries’ regulations to facilitate a future hydrogen market. That’s a big breakthrough, he thinks.
Antoni, an electrochemist, won’t talk colours in regard to hydrogen.
“When speaking about a kind of hydrogen, what you’re really speaking about is the carbon footprint”, he said.
“And the carbon footprint of the hydrogen is regardless you of the primary energy and technology used to produce it.
“What matters for hydrogen is to use decarbonized hydrogen”, he said, adding that “It’s not a ‘silver bullet’, but without low-emission hydrogen, we won’t achieve our climate targets”.
By: Alan Mammoser
The Federal Government has expressed optimism in attracting more investments by International Oil Companies (IOCs) into Nigeria to foster growth and sustainability in the energy sector.
This is as some IOCs, particularly Shell and TotalEnergies, had announced plans to divest some of their assets from the country.
Recall that Shell in January, 2024 had said it would sell the Shell Petroleum Development Company of Nigeria Limited (SPDC) to Renaissance.
According to the Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, increasing investments by IOCs as well as boosting crude production to enhancing Nigeria’s position as a leading player in the global energy market, are the key objectives of the Government.
Lokpobiri emphasized the Ministry’s willingness to collaborate with State Governments, particularly Bayelsa State, in advancing energy sector transformation efforts.
The Minister, who stressed the importance of cooperation in achieving shared goals said, “we are open to partnerships with Bayelsa State Government for mutual progress”.
In response to Governor Douye Diri’s appeal for Ministry intervention in restoring the Atala Oil Field belonging to Bayelsa State, the Minister assured prompt attention to the matter.
He said, “We will look into the issue promptly and ensure fairness and equity in addressing state concerns”.
Lokpobiri explained that the Bayelsa State Governor, Douyi Diri’s visit reaffirmed the commitment of both the Federal and State Government’s readiness to work together towards a sustainable, inclusive, and prosperous energy future for Nigeria.
While speaking, Governor Diri commended the Minister for his remarkable performance in revitalisng the nation’s energy sector.
The Federal Government has assured investors in the nation’s gas sector of the security and safety of their investments.
Minister of State for Petroleum Resources (Gas), Ekperikpe Ekpo, gave the assurance while hosting top officials of Shanghai Huayi Energy Chemical Company Group of China (HUAYI) and China Road and Bridge Corporation, who are strategic investors in Brass Methanol and Gas Hub Project in Bayelsa State.
The Minister in a statement stressed that Nigeria was open for investments and investors, insisting that present and prospective foreign investors have no need to entertain fear on the safety of their investment.
Describing the Brass project as one critical project of the President Bola Tinubu-led administration, Ekpo said.
“The Federal Government is committed to developing Nigeria’s gas reserves through projects such as the Brass Methanol project, which presents an opportunity for the diversification of Nigeria’s economy.
“It is for this and other reasons that the project has been accorded the significant concessions (or support) that it enjoys from the government.
“Let me, therefore, assure you of the strong commitment of our government to the security and safety of yours and other investments as we have continually done for similar Chinese investments in Nigeria through the years”, he added.
Ekpo further tasked investors and contractors working on the project to double their efforts, saying, “I want to see this project running for the good of Nigeria and its investors”.
Earlier in his speech, Leader of the Chinese delegation, Mr Zheng Bi Jun, said the visit to the country was to carry out feasibility studies for investments in methanol projects.
On his part, the Managing Director of Brass Fertiliser and Petrochemical Ltd, Mr Ben Okoye, expressed optimism in partnering with genuine investors on the project.
Crude oil prices recently logged their second monthly gain in a row as OPEC+ extended their supply curb deal until the end of Q2 2024.
The gains have been considerable, with WTI adding about $7 per barrel over the month of February.
Yet a lot of analysts remain bearish about the commodity’s prospects. In fact, they believe that there is enough oil supply globally to keep Brent around $81 this year and WTI at some $76.50, according to a Reuters poll.
Yet, like last year in U.S. shale showed, there is always the possibility of a major surprise.
According to the respondents in that poll, what’s keeping prices tame is, first, the fact that the Red Sea crisis has not yet affected oil shipments in the region, thanks to alternative routes.
The second reason cited by the analysts is OPEC+ spare capacity, which has increased, thanks to the cuts.
“Spare capacity has reached a multi-year high, which will keep overall market sentiment under pressure over the coming months”, senior analyst, Florian Grunberger, told Reuters.
The perception of ample spare capacity is definitely one factor keeping traders and analysts bearish as they assume this capacity would be put into operation as soon as the market needs it. This may well be an incorrect assumption.
Saudi Arabia and OPEC have given multiple signs that they would only release more production if prices are to their liking, and if cuts are getting extended, then current prices are not to OPEC’s liking yet.
There is more, too. The Saudis, which are cutting the most and have the greatest spare capacity at around 3 million barrels daily right now, are acutely aware that the moment they release additional supply, prices will plunge.
Therefore, the chance of Saudi cuts being reversed anytime soon is pretty slim.
Then there is the U.S. oil production factor. Last year, analysts expected modest output additions from the shale patch because the rig count remained consistently lower than what it was during the strongest shale boom years.
That assumption proved wrong as drillers made substantial gains in well productivity that pushed total production to yet another record.
Perhaps a bit oddly, analysts are once again making a bold assumption for this year: that the productivity gains will continue at the same rate this year as well.
The Energy Information Administration disagrees. In its latest Short-Term Energy Outlook, the authority estimated that U.S. oil output had reached a record high of 13.3 million barrels daily that in January fell to 12.6 million bpd due to harsh winter weather.
For the rest of the year, however, the EIA has forecast a production level remaining around the December record, which will only be broken in February 2025.
Oil demand, meanwhile, will be growing. Wood Mackenzie recently predicted 2024 demand growth at 1.9 million barrels daily.
OPEC sees this year’s demand growth at 2.25 million barrels daily. The IEA is, as usual, the most modest in its expectations, seeing 2024 demand for oil grow by 1.2 million bpd.
With OPEC+ keeping a lid on production and U.S. production remaining largely flat on 2023, if the EIA is correct, a tightening of the supply situation is only a matter of time. Indeed, some are predicting that already.
Natural resource-focused investors Goehring and Rozencwajg recently released their latest market outlook, in which they warned that the oil market may already be in a structural deficit, to manifest later this year.
They also noted a change in the methodology that the EIA uses to estimate oil production, which may well have led to a serious overestimation of production growth.
The discrepancy between actual and reported production, Goehring and Rozencwajg said, could be so significant that the EIA may be estimating growth where there’s a production decline.
So, on the one hand, some pretty important assumptions are being made about demand, namely, that it will grow more slowly this year than it did last year.
This assumption is based on another one, by the way, and this is the assumption that EV sales will rise as strongly as they did last year, when they failed to make a dent in oil demand growth, and kill some oil demand.
On the other hand, there is the assumption that U.S. drillers will keep drilling like they did last year. What would motivate such a development is unclear, besides the expectation that Europe will take in even more U.S. crude this year than it already is.
This is a much safer assumption than the one about demand, by the way. And yet, there are indications from the U.S. oil industry that there will be no pumping at will this year. There will be more production discipline.
Predicting oil prices accurately, even over the shortest of periods, is as safe as flipping a coin. With the number of variables at play at any moment, accurate predictions are usually little more than a fluke, especially when perceptions play such an outsized role in price movements.
One thing is for sure, though. There may be surprises this year in oil.
lrina Slav
Slav writes for Oilprice.com.
