COP26 saw world leaders adopt the Glasgow Climate Pact; an international agreement which calls for decisive action to decarbonise the economy and avert the worse effects of the climate crisis. Whilst the urgency to reduce carbon emissions has been present long before COP26, there is a sense that COP26 has catalysed the green transition. We are seeing this particularly in the private sector, where governmental pressure and public opinion has resulted in the need for private enterprise to make substantial investments to meaningfully reduce their carbon emissions. 

Case Study: Ineos Group

The strategy adopted by Ineos Group, one of the largest producers of petrochemicals in the world, is a clear example of this private sector shift. Last year, Ineos made a commitment to invest over a billion pounds in reducing the environmental impact of its Grangemouth site. The site, located on the east coast of Scotland, is Ineos’ largest production site and the only crude oil refinery in Scotland. It is responsible for significant Scottish and English supplies of aviation fuel, diesel and petrol.

This billion-pound commitment is in addition to the efforts made since acquiring the Grangemouth site in 2005, which has already resulted in a 37% reduction in net CO2 emissions. Ineos has set an ambitious target of reducing Grangemouth greenhouse gas emissions to net zero by 2045.

In the latest step in Ineos’ ambitious net zero strategy, the Group has this week invited contractors to tender for the construction of a dedicated low carbon hydrogen facility on the Grangemouth site. It is estimated that such facility would cut emissions by a further 60% by 2030.

The proposed facility would produce ‘blue hydrogen’, hydrogen created from natural gas, with the majority of the resulting CO2 captured and stored. There is significant debate on the merits of blue hydrogen which we have covered here, and do not propose to delve into this further. The intention is for the low carbon hydrogen that is produced to be used for the onsite ethylene cracking plant, oil refinery and eventually the site’s main power plant.

Wider Trends

Ineos’ tender for the hydrogen facility at its Grangemouth site is indicative of a number of interesting broader trends.

Firstly, there is a trend for companies within the oil & gas sector to invest in hydrogen infrastructure. Specifically, blue hydrogen, where the upfront capital expenditure is lower than ‘green hydrogen’ (the generation of hydrogen from purely renewable resources). As well as the above, BP’s planned 1GW Teeside blue hydrogen facility is further evidence of the trend.  BP’s facility is currently the largest blue hydrogen facility in development in the UK. This transition to hydrogen is perhaps unsurprising, given the expertise and technology already at the disposal of these companies given their involvement in the oil & gas industry. Whilst there is a case for blue hydrogen, we think that there will be increasing pressure in the coming decades for a transition from blue to green hydrogen. 

Secondly, it is in line with the trend of low carbon hydrogen facilities being constructed in industrial clusters primarily to supply industrial sectors. An important reason for this is the inherent difficulty in decarbonising many heavy industries by using renewable energy sources. Hydrogen, however, can more easily be used as a substitute for natural gas, coal and oil in many industrial contexts, resulting in hydrogen being seen as one of the best options for decarbonising heavy industries. The construction of low carbon hydrogen facilities in industrial centres is a key part of the governments Hydrogen Strategy in the 2020s, for which we provided our commentary on here. We anticipate to see a continued effort in establishing hydrogen hubs to power existing industrial clusters.  

This article has been drafted by Lloyd James, Ross Howells and Adam Reeves.