Geologic hydrogen attracts interest as a clean energy source

Geologic hydrogen's potential as a decarbonization fuel has spurred millions in investment and no fewer than 10 exploration companies looking to monetize its tantalizing prospects, but significant challenges remain before the prospective low carbon fuel can achieve widespread use, according to an analysis by S&P Global Commodity Insights.

"Historically, geologic hydrogen was overlooked," said Geoffrey Ellis, Research Geologist at the US Geological Survey in a recent interview with S&P Global.

Despite having the tools, E&P companies were not looking for hydrogen, but "now it is clear...that anybody that is doing any kind of drilling and is producing gas is looking for hydrogen – they see hydrogen as a potential resource," Ellis added.

They also see it as a potential revenue stream as there is a growing market for hydrogen. Global demand for the gas is projected to rise from the current 97 million mt/year, which is primarily used in the industrial sector, to 119 million mt/year in 2030 and 265 million mt/year in 2050, according to S&P Global data.

As demand grows S&P Global

the hydrogen supply mix will shift to emergent low-carbon hydrogen pathways, with fossil-fueled hydrogen production declining starting in 2037. Geologic hydrogen could theoretically facilitate meeting this future demand.

"There's a very wide range of output, ranging from 1000s of mega tons to billions of mega tons," most of which is inaccessible but the amount that may be available is significant, Ellis said.

"If there were, say, 10 million megatons of natural hydrogen in these accumulations, and we could find 2% or 3% that was shallow enough and large enough, and economic, that could potentially supply all the world's demand for hydrogen for hundreds of years," according to Ellis's calculations.

Ellis estimates there may be enough recoverable natural hydrogen to supply more than 500 times S&P Global's projection of global yearly demand in 2050.

Cheap, clean geologic hydrogen would theoretically increase market penetration in industry, transportation, and power generation, potentially reducing emissions without a significant impact on cost.

Moreover, with hydrogen strategies being established globally, policies such as the Inflation Reduction Act, or IRA, in the United States where 45V Hydrogen Production Tax Credits, or PTC provide hefty subsidies to eligible hydrogen production projects based on their lifecycle greenhouse gas emissions intensity.

Geologic hydrogen has a carbon intensity of 0.37 kg CO2e per kilogram of hydrogen when including the embodied emissions of the well casing and hydrogen emissions, according to a published paper in Joule by Stanford's Dr. Adam Brandt.

As a result, geologic hydrogen could theoretically fall under the 0.45 kg CO2e/kg per hydrogen threshold within the IRA 45V's lifecycle greenhouse gas emissions intensity and be eligible for the top tier of $3/kg tax credit of hydrogen produced. This makes it an attractive opportunity for exploration companies.

"The Hydrogen PTC legislation reflects the national interest to produce as much clean, economical hydrogen as possible. It rewards technologies like geologic hydrogen, which produce hydrogen with the lowest carbon emissions," said Paul Harraka, Chief Business Officer at Koloma, a geologic hydrogen company with over $90 million raised from venture capitalists.

"Tapping into this renewable resource, alongside other forms of clean energy, will help the world reach critical decarbonization goals," Harraka told S&P Global.

Hydrogen cost and financing structure

As an emerging technology with gaps in knowledge and technology, the financing structure for hydrogen exploration is different compared to other ways of producing hydrogen and derivative projects where projects are funded on the basis of known production volumes and future sales.

Low-carbon hydrogen and derivatives projects are capital intensive, and when leading up to FID, most projects need some form of supply purchase agreement that locks a buyer in for a portion or all the project's volume, which makes the project viable. This model is similar to other energy and commodity project financing.

The funding and financial model for geologic hydrogen differs, sharing more similarities with emerging technologies that are in their initial stages given the uncertainty in prospects of low-carbon hydrogen exploration and its economic viability.

"Koloma's been backed by many of the world's top climate-focused venture capital funds from founding to the present," Harraka said.

"Like any growing business and developing technology, our funding structure will evolve over time and will likely include more traditional energy capital providers as our exploration activities scale," Harraka added.

Disruptive technology

"From a pricing perspective, [geological hydrogen] could be very disruptive. But the quantities required to displace fossil fuels at global scale, natural hydrogen alone is unlikely to do that," Luke Velterop, former Chief Operating Officer of Hyterra, a natural hydrogen exploration company preparing to drill in the Midwest of the United States told S&P Global.

"Geologic hydrogen is ... complimentary to the other secondary hydrogen sources that are being developed and deployed, each of which has its own best uses," said Erik Scher, Koloma's Chief Commercial officer.

The cost difference between new technologies and conventional hydrogen is one of the barriers to the market adoption of low-carbon hydrogen, and findings from these exploratory wells and research developments may aid in bridging this gap.

"It's surprising to me, there's been very little funding for this type of research really, anywhere in the world, relative to the amount of money that's invested into research for blue and green hydrogen," Ellis added despite recognizing the Department of Energy's Advanced Research Projects Agency-Energy, or ARPA-E, announcement on Sept. 7 of up to $20 million in funding for developing and researching technological solutions for geological hydrogen exploration and extraction.

Barrier left to overcome

"The real value is discovering a baseload hydrogen resource, to provide 24/7 dispatchable power, fuel or feedstock – whatever the downstream customer demands", Velterop added suggesting exploration wells in close proximity to end-users would be prioritized.

Exploration of this fuel "would enable the hydrogen derivative infrastructure to be built out around these long-term, baseload hydrogen sources, Scher added.

"The question isn't, is it down there? The question is, is it in accumulations that could be found and produced? That is the research we need to do. How can we predict where it might be accumulating, and how do we develop the tools for finding it," Ellis added.

To that end, the USGC is taking the petroleum system model used for oil and gas exploration and "adapting it for hydrogen, where we have different source rocks that can generate hydrogen, but some things are similar. The way that hydrogen moves through the subsurface is similar to the way other gases like methane or CO2 move," Ellis added.

On exploration, "We're also working on adapting the technologies that we have for oil and gas exploration, and bringing in technology from mineral and geothermal exploration and find how we can optimize an exploration program for targeting natural hydrogen accumulation, "Ellis added.

The USGS is working to have a web-based map to be ready by year's end.

In times where hydrogen exploration companies are preparing to drill their exploratory wells and prove themselves as a venture, oil and gas majors will be watching from the sidelines Ellis added, "keeping an eye on it and seeing what's happening."

"When we get results from these [exploratory] wells, if we hear the news of positive results there, then I think that is really going to catalyze things further than today. This could really take off," Ellis said.