Shell Abandons Hydrogen Plant Plans

In a surprising turn of events, Shell Plc (NYSE:SHEL) has officially abandoned plans for a low-carbon hydrogen plant on Norway’s west coast. This decision stems from an apparent lack of market demand for blue hydrogen, according to a spokesperson from the company who spoke with Reuters recently.

Equinor Follows Suit

This development follows closely on the heels of Equinor ASA (NYSE:EQNR), Norway's state-owned energy giant, which announced just last week that it too will not proceed with its proposed hydrogen pipeline project aimed at transporting hydrogen to Germany. The plan, which involved a partnership with RWE (OTCPK:RWEOY), was stymied by insufficient customer interest and a regulatory landscape deemed inadequate for such ventures. Equinor had initially planned to establish hydrogen production centers capable of dispatching up to 10 gigawatts of blue hydrogen annually to Germany.

“We have decided to discontinue this early-phase project. The hydrogen pipeline hasn’t proved to be viable, which also means that our hydrogen production plans will be placed on hold,” an Equinor spokesperson confirmed.

Challenges in the Hydrogen Sector

Despite the hype surrounding hydrogen's potential to mitigate climate change, the sector is facing significant challenges. With energy analysts predicting that hydrogen could account for up to 20% of the world's primary energy by 2050, expectations have been high. However, reality tells a different story.

The industry is grappling with exorbitant costs, which are limiting its growth. A report from Bloomberg New Energy Finance (BNEF) revealed a startling statistic: merely 12% of hydrogen production plants currently have secured customers through offtake agreements. Many of those that have signed agreements are left with loose, nonbinding contracts that can easily evaporate if buyers decide to withdraw.

Production Costs as a Barrier

Production costs are another hurdle. The price of green hydrogen—produced through the electrolyzation of water using renewable energy—remains nearly four times greater than that of gray hydrogen, which is derived from fossil fuels without capturing carbon emissions. This price disparity poses a significant barrier to the establishment of hydrogen infrastructure, especially when demand remains uncertain.

As BNEF analyst Martin Tengler aptly noted, “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 for a project without reasonable confidence that someone’s going to buy the hydrogen.”

Uncertain Future for Hydrogen

The current state of the hydrogen market raises questions about the feasibility of ambitious climate goals. As major players in the energy sector pivot away from hydrogen investments, the future of this once-promising energy source may be in jeopardy. With both Shell and Equinor retracting their commitments, the prospects for hydrogen as a key player in global energy transition appear more uncertain than ever.

This ongoing saga illustrates the complexities intertwined within the push for low-carbon technologies and serves as a stark reminder of the challenges the energy industry faces in its pursuit of sustainability amidst fluctuating demand dynamics.