Shell abandons hydrogen projects in Norway due to lack of demand

Shell Plc (NYSE:SHEL) has abandoned plans to build a low-carbon hydrogen plant on Norway’s west coast due to a lack of demand, Reuters reported on Monday.

“We did not see the blue hydrogen market materialize and decided not to progress the project,“, a Shell spokesman told Reuters.

Shell’s announcement follows a similar move by the oil and gas giant, Equinor ASA (NYSE:EQNR). Last week, the Norwegian state-owned multinational energy company announced that it will not proceed with plans to build a pipeline to transport hydrogen from Norway to Germany with partner RWE (OTCPK:RWEOY), citing a lack of customers as well as an inadequate regulatory framework. Equinor had to build hydrogen plants which would allow Norway to send up to 10 gigawatts per year of blue hydrogen to Germany.

“We have decided to discontinue this early stage project. The hydrogen pipeline did not prove to be viable. This also implies that hydrogen production plans are also shelved“, an Equinor spokesperson told Reuters.

Over the past decade, climate experts have appreciated the huge role hydrogen could play in helping the planet limit catastrophic global warming. indeed net-zero models have forecast that hydrogen could provide up to 20% of the world’s primary energy by 2050, nearly as much as all renewable sources currently contribute to the United States’ energy mix. Not surprisingly, there is no shortage of big hydrogen ambitions.

Unfortunately, the hydrogen sector is struggling mainly due to high costs. According to Bloomberg New Energy Finance (BNEF), only 12% of hydrogen plants have customers with takeover agreements. Even among projects that have signed purchase agreements, most have vague, nonbinding arrangements that can be quietly dropped if potential buyers back out.

Green hydrogen produced by electrolyzing water using renewable energy costs nearly four times as much as gray hydrogen created from natural gas or methane using steam methane reforming, but without capturing the greenhouse gases emitted in the process. This makes it difficult to build hydrogen infrastructure when demand may not materialize for years.

“No sane project developer will start producing hydrogen without a buyer for it, and no sane banker will lend money to a project developer without reasonable confidence that someone will buy the hydrogen,” notes BNEF analyst Martin Tengler.

By Alex Kimani for Oilprice.com

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