New Delhi: Shifting from gray hydrogen to green hydrogen in India’s refining sector may entail a blended cost impact of approximately $3 per barrel (bbl) on gross refining margin (GRM) or EBITDA, as outlined in a report by Emkay Global Financial Services.
The report underscores that, based on current price dynamics, the transition to green hydrogen could result in a blended cost impact of about $3/bbl on gross refining margin (GRM), which represents earnings before interest, taxes, depreciation, and amortization (EBITDA). This impact is significant within the context of a mid-cycle GRM range of $5/bbl to $8/bbl.
It further notes that the adoption of green hydrogen by refineries, expected to commence around FY26, is likely to begin cautiously, with an initial focus on gray-green blending. As the cost of green hydrogen drops to gray hydrogen levels by CY30, the adoption rate is anticipated to expand significantly.
The report anticipates a range of adoption levels for green hydrogen by oil refineries, spanning from 30 percent blending to full-scale adoption by CY30. However, cost is not the sole determining factor in this transition. Project-related challenges, such as establishing renewable energy and electrolyzer capacities, limited space availability within refineries, and the physical demand-supply misalignment, pose additional constraints.
The report speculates that a green hydrogen demand of approximately 2.3 million metric tonnes per annum (mmtpa) can be attained in India’s refining sector by CY30 if a 50 percent blending mandate, as recommended in the NITI Aayog report, is implemented.
While sectoral mandates for green hydrogen usage have not been established yet, public sector refiners have initiated their green hydrogen plans. Presently, they have indicated a commitment to achieve 0.43 mmtpa of green hydrogen volumes by CY30. This implies an overall blending rate of 22 percent with gray hydrogen, based on existing capacity, and approximately 18 percent when considering expansions by CY28.
Moreover, it is expected that the refining sector’s hydrogen demand will reach approximately 4.5 mmtpa by CY30. The hydrogen intake per refinery is likely to increase further due to sulfur removal policies and a focus on higher value products, as highlighted in the report.
Currently, India’s hydrogen consumption exceeds 6 mmtpa, with approximately 3 mmtpa utilized by oil refineries for desulfurization of fuels and the production of higher-value products. Over 2.5 mmtpa is employed in ammonia production for urea and other fertilizers, while the remaining quantity serves the steel and chemical industries.
The 3 mmtpa usage in refineries is distributed across a total refining volume of 250 mmtpa in India. Looking ahead, there are plans for refinery capacity expansions of up to 56 mmtpa until CY28, leading to a total refining capacity projection of over 310 mmtpa.
Both the refining and ammonia sectors, which currently rely on gray hydrogen derived from natural gas through the steam methane reforming process, are associated with high levels of pollution. This underscores the imperative need for transitioning to cleaner green hydrogen alternatives.
In summary, while the transition to green hydrogen in India’s refining sector presents cost challenges, it aligns with environmental goals and holds the promise of a more sustainable future.
Source: Economic Times.
