Why the U.S. Gulf Coast is Ideal for Clean Hydrogen Production

(Reuters) — The Gulf Coast currently produces 3.5 million tons (Mt) of hydrogen per year, a third of all hydrogen produced in the United States. A major oil and gas region, the Gulf Coast has the largest hydrogen pipeline network in the country spanning over a thousand miles and boasts three of the world’s six salt storage caverns.

The region around Houston, Texas, has the country’s largest renewable energy market with 36 GW of wind power and 15 GW of solar and strong growth predicted in the coming years. It also has a highly skilled energy workforce, and approximately 2.4 billion tons of CO2 storage capacity.

The region is home to major ports that already export energy products, including the Port of Corpus Christi and the Port of Houston, as well as some of the top refineries in the country.

“The Gulf Coast is the most attractive region in the world to produce hydrogen; cheap feedstock, existing infrastructure like pipelines and storage, domestic consumption that creates the demand, existing expertise, in terms of large companies, etc.,” says Nikhil Ati, Partner at consultancy group McKinsey.

Ati focuses on strategy, oil & gas, and energy transition at the consultancy firm.

“There are lots of reasons we remain very confident that, if there is to be a hydrogen industry at scale, it will happen out of Houston.”

Clean hydrogen demand in Texas could reach 21 Mt a year, according to McKinsey in its study ‘Unlocking clean hydrogen in the US Gulf Coast: The here and now’.

Around 30%-60% of clean hydrogen projects planned in the region would be located in poor and disadvantaged communities, McKinsey says.

The industry could create around 180,000 direct, indirect, and induced jobs, and generate around $100 billion in additional GDP by 2050, it says.

Government Plans

The Gulf Coast HyVelocity Hub is one of the seven regional hydrogen hubs planned across the country as part of the Regional Clean Hydrogen Hubs Program (H2Hubs) and is expected to be one of the largest. The project will receive up to $1.2 billion from the Infrastructure Investment and Jobs Act (IIJA).

Once federal authorities decide the definition of clean hydrogen - expected later this year - the Inflation Reduction Act will also provide billions of dollars in tax benefits for hydrogen production (45V), carbon sequestration (45Q), and renewable energy generation (Section 45).

HyVelocity has seven project sponsors (AES, Air Liquide, Chevron, ExxonMobil, Mitsubishi Power, Orsted and Sempra Infrastructure) working on nine projects focused on four demand areas: ammonia, petrochemical and refining, ground transportation, and power and utilities.

“HyVelocity is building on many years of experience, decades of partnerships … taking positive advantage of an ecosystem and infrastructure that already exists and expanding upon it to meet emission reduction goals,” says Executive Director of the HyVelocity Hub Liz Dalton.

The hub is in the planning stage. Following permitting and construction, the hub is expected to start operations by the mid-to-late 2030s.

Consistent with the DOE phases for award, the hub team will engage with communities to ensure the hub serves them best.

“We want to know what their concerns are, what they're interested in learning more about, where their job interests lie, what are their challenges, and how we can make sure that we bring jobs and economic opportunity to bear through these projects,” Dalton says.

However, until the clean hydrogen definitions are finalized later this year, Dalton is concerned the continuing uncertainty will make it difficult to start building community trust.

The hub directors in February penned a joint letter to the Secretary of Treasury commenting on the narrow guidance of the initial 45V proposal which, they said, "may have far-reaching negative consequences for the entire domestic clean hydrogen industry."

Ready To Go

One group which says it is not relying on government help and is ready to focus on hydrogen production is Offshore Wind Power Systems of Texas (OWPST), an offshore wind and water desalination company operating out of Dallas.

“We desalinate and then (deionize) water from offshore, bring it in on pipeline, send it to storage, send it to the electrolyzers and we use the same renewable energy power from offshore to power the entire system,” says CEO and President of OWPST Doug Hines.

The company, which Hines says has the financing and insurance deals already agreed upon but will take funding from the inflation act if it’s offered, can have hydrogen production of some 1,000 tons a day within 60 months of an order. Around 24 to 30 months of that timeframe is just to order the necessary electrolyzers, he says.

“It's taken us about 20 years to get to this point, and it’s been blood, sweat, and tears all the way. Because of that, we’re competitive without the subsidies and we’re bringing our product to the market right now,” says Hines.

One challenge for the group is political wrangling, he says.

President Joe Biden has bet heavily on environmentally-friendly projects, such as the emerging clean hydrogen industry, through large funding bills such as the inflation act and the IIJA, however deep political divides over climate change mean many projects could be overturned if he is ousted by Donald Trump in November’s election.

These tensions can already be felt at a local level.

Offshore projects wind projects along the Gulf Coast are currently being held up by the Texas Land Commissioner, which is resisting efforts to auction projects, claiming in a letter to the Biden administration that The White House is "force-feeding Americans failed ‘green’ policies".

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