Shell Plc has decided to cancel plans for a low-carbon hydrogen plant on Norway’s west coast, citing insufficient demand for blue hydrogen, Reuters reported on Monday.
A Shell spokesperson stated, “We haven’t seen the market for blue hydrogen materialize and decided not to progress the project.”
This announcement follows a similar decision by Equinor ASA, another major player in the energy sector. Last week, Equinor, a state-owned Norwegian company, revealed it would not proceed with plans for a hydrogen pipeline from Norway to Germany. This decision was made in partnership with RWE, and it was driven by the lack of customers and an inadequate regulatory framework. Equinor intended to build hydrogen plants that would allow Norway to supply Germany with up to 10 gigawatts of blue hydrogen each year.
An Equinor spokesperson explained, “We have decided to discontinue this early-phase project. The hydrogen pipeline hasn’t proved to be viable. That also implies that hydrogen production plans are also put aside.”
Over the past decade, climate experts have emphasized the potential of hydrogen in combating climate change. Many models suggest that by 2050, hydrogen could supply up to 20% of the world’s primary energy, which is nearly equivalent to the current contribution of all renewable sources in the United States. This has led to ambitious plans in the hydrogen sector.
However, the hydrogen industry faces significant challenges, primarily due to high production costs. According to Bloomberg New Energy Finance (BNEF), only 12% of hydrogen plants have secured customers through offtake agreements. Even among those with agreements, many are vague and nonbinding, allowing potential buyers to back out without consequences.
The cost of producing green hydrogen through electrolysis, which uses renewable energy, is nearly four times higher than producing gray hydrogen from natural gas using steam methane reforming without capturing greenhouse gas emissions. This disparity in cost complicates efforts to establish hydrogen infrastructure when demand is uncertain and may take years to develop.
BNEF analyst Martin Tengler emphasized, “No sane project developer is going to start producing hydrogen without having a buyer for it, and no sane banker is going to lend money to a project developer without reasonable confidence that someone’s going to buy the hydrogen.”
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