Cepsa CEO: Hydrogen Urgently Needs Demand, Infrastructure

(Reuters) — Cepsa, an oil, gas and chemicals company, is investing more than 3 billion euros ($3.3 billion) to create Europe’s largest clean hydrogen hub and a further 2 billion euros in solar and wind facilities in southern Spain, making use of prime locations on the Mediterranean and Atlantic for exportation to northern Europe.

However, if the hydrogen industry is to grow independently, governments must help pave the way through policies and reforms, Wetselaar said. He hopes such issues will form part of talks at the ongoing COP28 summit where world leaders are debating the global climate agenda and how to wean today’s economies off fossil fuels.

“The political will is there; we just need to feed it and raise its urgency,” Wetselaar said in an interview with Reuters Events Hydrogen.

“There are those that have a strong climate agenda in Europe, and I don’t see that slowing down … (hydrogen) is slowly moving from hype to reality and we want to play a big role in that.”

Supply vs Demand

Europe and the United States are investing heavily in creating clean hydrogen industries.

In the U.S., the Biden administration's Inflation Reduction Act (IRA) is offering billions of dollars in production tax credits to produce some 10 million metric tons (MT) of clean hydrogen a year by 2030, 20 MT by 2040, and 50 MT by 2050.

The European Union will provide support for low-carbon technologies for the period 2020-2030 as part of the 40-billion-euro Innovation Fund and the European Hydrogen Bank, an auction scheme designed to support the production of renewable hydrogen.

The EU’s goal is to produce annually 10 MT of renewable hydrogen and import another 10 MT by 2030.

Much of the subsidies on both sides of the Atlantic are aimed at encouraging clean hydrogen production while the EU’s regulatory framework also aims to create reliable offtake.

“Of the things we need dearly, one would be to create demand. Demand creation is more important than supply subsidies, because you cannot scale up an industry with subsidies. It's too expensive,” Wetselaar said.

“The U.S.’s [Inflation Reduction Act] is great in terms of incentivizing supply, but if the incentivized supply still needs to compete with natural gas, it’s going to be tough.”

Demand can be stimulated by raising carbon costs and setting consumption mandates, he said, such as those being set for aviation and shipping.

The European Commission’s ‘Fit for 55’ legislation package includes the ReFuelEU proposal which aims to boost the production and uptake of Sustainable Aviation Fuels (SAF) through a blending mandate imposed on aviation fuel suppliers. Hydrogen can be used to create eSAF.

The mandate begins in 2025 with a minimum volume of SAF at EU airports of 2%, 6% by 2030, 20% by 2035, and up to a maximum of 70% by 2050.

By mandating the demand, companies are left racing to supply the fuel.

Airlines are tendering for about double the required percentages ahead of expected customer demand from climate-conscious consumers, Wetselaar said.

“I think the problem with SAF is that there will be not enough production, not that there will be enough demand,” he said.

A similar ‘Fit for 55’ initiative, FuelEU Maritime, calls for measures that will ensure greenhouse gas intensity of fuels used by the shipping sector will decrease by 2% in 2025 to as much as 80% by 2050.

Building The Infrastructure

Build out of the relevant infrastructure will also be a major part of the puzzle for the clean hydrogen economy and it is up to governments to open their books for new pipelines and production facilities, Wetselaar said.

Cepsa plans to build the largest clean ammonia project in Europe with an annual production capacity of up to 750,000 tons at its energy park in San Roque, Cadiz, and has partnerships in place to create a clean hydrogen maritime corridor between the ports of Algeciras in Spain and Rotterdam in the Netherlands.

Such ambitious projects will need the roll out of large infrastructure projects.

“With the infrastructure revolution that we need now, in terms of electrical transmission lines and [hydrogen] pipelines, the existing system will simply be too slow to get to net zero by 2050,” he said.

Any fast tracking of permitting and infrastructure roll outs by governments run the risk of clashing with local populations.

“If no action is taken, we will not build the infrastructure that will get us to net zero, so permitting and infrastructure is a really big issue.”

Once such obstacles are cleared, however, Cepsa will be ready to scale up production significantly.

Cepsa plans to build two new plants with a total capacity of 2 GW producing up to 300,000 tons of clean hydrogen in Campo de Gibraltar (Cadiz) and Palos de la Frontera (Huelva). Both plants should be at full capacity by 2028.

By the early 2030s, once all the initial regulatory, citing, licensing, and permitting challenges are met, the Cepsa CEO said the two plants could readily double, or even triple, that capacity.

“Our vision is to be a green molecule leader in Europe before 2030 … it's a radical transformation from our starting point just a year ago, but we will achieve it because we're going to build these projects,” Wetselaar said.

 

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