Long Beach-based oil and natural gas giant California Resources Corp. is getting into the hydrogen fuel business.
Last month, California Resources announced its first project under its major new carbon sequestration initiative: an agreement to partner with Tulsa, Oklahoma-based Lone Cypress Energy Services to develop a hydrogen fuel plant that uses natural gas as its feedstock. Because water is added to the process to make the hydrogen fuel, the technology is known as “blue hydrogen.”
The plant would be located above California Resource’s main oil and natural gas producing field at Elk Hills in Kern County.
This blue hydrogen plant is expected to be operational by the end of 2025; when it does, it would be the first plant of its kind in the state. As part of the plant’s operation, California Resources would take the carbon dioxide byproduct that is captured and sequester it in an underground storage vault.
Initially, California Resources expects to sequester 100,000 metric tons of carbon dioxide a year, an amount that it expects to double if and when the hydrogen plant’s capacity is expanded.
The financial terms of the partnership and the expected cost to build the hydrogen fuel plant were not disclosed.
California Resources does have the right under the partnership to take a majority equity stake in the hydrogen plant, which would give it a share of the revenue from the sale of hydrogen fuel.
Race for hydrogen plants
This is the first – and rather modest – carbon sequestration project announced under California Resource’s “carbon terra vault” initiative that aims to capture and store underground 200 million metric tons of carbon dioxide over the next five years at an overall estimated cost of $2.5 billion. California Resources unveiled the initiative in mid-2021; in August, the company brought on Toronto, Canada-based Brookfield Renewable as a financial partner for the initiative, now called the Carbon Terra Vault Joint Venture.
Despite its modest size, this carbon sequestration project using a hydrogen plant is notable for its approach, according to Mac McFarland, California Resources’ chief executive.
“Because capture and compression are built into the project development, we anticipate limited capital requirements from the CTV JV (Carbon Terra Vault Joint Venture) and EBITDA (earnings before interest, taxes, depreciation, and amortization) per metric ton within our previously stated range,” McFarland said in the hydrogen plant announcement.
“This CTV storage project is a meaningful step forward in CRC’s rollout of carbon capture and sequestration technology across the state and is the first of, what we believe, will be many projects to come.”
California Resources is not the only company pursuing this strategy. According to Pavel Molchanov, managing director of renewable energy and clean technology for St. Petersburg, Florida-based financial services and equity research firm Raymond James & Associates, at least two other oil giants are involved in blue hydrogen plants to produce both hydrogen and carbon dioxide that can be sequestered.
Molchanov noted that Irving, Texas-based ExxonMobil Corp. announced in March that it’s planning a blue hydrogen plant at its refining and petrochemical plant in Baytown, Texas. And he cited a similar initiative announced in March 2021 by London-based oil giant BP at Teesside in Northern England in the United Kingdom. The BP project has an operational target date of 2025, the same year as the Lone Cypress Energy plant.
“The hydrogen market worldwide is $120 billion, this is much larger than many people realize,” Molchanov. “So, the opportunity to scale up blue hydrogen is practically limitless.”
But, Molchanov said, blue hydrogen projects are expensive and take years to develop.
Producing ‘blue hydrogen’
According to the announcement, the plant will be built and operated by Lone Cypress Energy Services. It will use a proprietary steam methane reformation technology with an integrated carbon capture system.
Under methane reforming, natural gas is mixed with steam and a catalyst. The resulting chemical reaction creates hydrogen and carbon monoxide. Water is added to turn the carbon monoxide into carbon dioxide and generate additional hydrogen. It is that water addition that gives the name “blue hydrogen.” The process is considered carbon neutral if all the carbon dioxide generated is captured and stored underground.
But the technology does have one potential drawback: the possibility of methane leaks, either from the extraction and transportation of natural gas or from chemical processes taking place inside the plant.
The facility is expected to produce 30 tons per day of hydrogen at startup with the ability to expand to 60 tons per day of hydrogen if Lone Cypress Energy decides to proceed with an expansion.
The fuel would then be sold to customers, who in turn would use it as part of the state’s fledgling hydrogen highway network of fueling stations for hydrogen-powered vehicles.
Under the partnership between California Resources and Lone Cypress Energy, California Resources and its Carbon Terra Vault Joint Venture have the right to take a majority equity stake in the project, as well as to provide carbon sequestration services for all subsequent Lone Cypress Energy hydrogen projects in California. If California Resources does take a majority stake in the hydrogen plant project, it stands to make money on the sale of hydrogen produced at the plant.
