INSIGHT: German Refineries Kick Off Complex Green Hydrogen Switch

In July, Royal Dutch Shell’s Rhineland complex will become the first refinery to operate an electrolyzer plant in Germany, ushering in a new era for the country’s dozen oil refineries as operators contemplate a strategic but uncertain energy transition from fossil-fuel grey to carbon-free green hydrogen.

The plant, an advanced polymer electrolyte membrane (PEM) 10 megawatt (MW) electrolyzer is on schedule to begin operating on July 2 at the 140,000-b/d refinery at Wesseling, part of its parent company’s 325,000-b/d integrated Rheinland facility, according to a Royal Dutch Shell spokesperson.

Green hydrogen production at refineries is a slow burner riddled with challenges but promoted by incentives. As long as the political climate threatens to shake up its primary mode of operation, refineries could look towards green hydrogen plants as part of a revamped business model. Green hydrogen is produced using electrolysis of water using renewable energy, delivering zero emissions.

“It is very possible that [refiners] see hydrogen as their future main market,” said Dr. Soufien Taamallah, director of research and analysis at IHS Markit. “It is also possible that they move to synthetic fuels (chemically identical to fossil-based fuels) which require hydrogen and a source of carbon, carbon monoxide or carbon dioxide (CO2).”

Green hydrogen projects pipeline at refineries

At least one-third of German refiners are making a move towards green hydrogen production. A second 50MW electrolyzer is in the very early stages of planning and funding approval at BP’s Lingen refinery.

Green hydrogen production at refineries is a slow burner riddled with challenges but promoted by incentives.

Future electrolyzer projects pipeline associated with German refineries include the giant 700MW Westküste 100 green hydrogen project – powered by Orsted’s offshore wind farm – planned for 2030 to supply natural gas grids and produce sustainable aviation fuel (SAF), with the northern Heide refinery one among ten partners in the project consortium. In the initial phase, a 30MW anion exchange membrane (AEM) electrolyzer will become operational, potentially by 2025, at Heide refinery.

Other German refineries, such as the BP Gelsenkirchen refinery, are planning to focus heavily on decarbonizing their hydrogen while the rest of the region’s industrial outfit considers hydrogen as part of the planned coal phaseout. RWE’s Lingen electrolyzer – with a planned capacity of up to 100MW – will supply the refinery, alongside others, with green hydrogen from 2024.

Location is key in green hydrogen production, as linking offshore wind farms to existing hydrogen infrastructure is still a challenge. “In terms of location, the northern refineries do have an advantage thanks to their proximity to offshore wind parks,” IHS Markit senior analyst Dr. Britta Daum said.

Existing refinery grey hydrogen output, potential GHG cuts from switching to green

The slow pace is understandable. In Germany, captive hydrogen at refineries is synonymous with grey hydrogen, produced using fossil fuels with no carbon capture, utilization and storage (CCUS).

According to a survey of German refinery experts, organised by IG BCE Innovationsforum Energiewende and oil body Mineralölwirtschaftsverband (MWV), German refineries typically produced 440,000 mt out of the 1.770 million mt total domestic hydrogen demand estimated by the German Hydrogen and Fuel-Cell Association (DWV). The rest mainly went into the chemical sector for ammonia and methanol production, and smaller volumes into other industries.

German refineries could achieve annual emissions cuts of 1.7 million mt of CO2 equivalent in switching from unabated SMRs to electrolyzers.

Of that, 263,000 mt was produced as a by-product of naphtha catalytic reforming, while 177,000 mt was produced using carbon-heavy steam methane reforming (SMR), as per the expert survey. Replacing the latter alone with green hydrogen was considered more practical and lead to emission cuts of 1.7 million mt of CO2 equivalent (MMTCDE)/year, at comparatively low abatement costs, the price of reducing harmful environmental output such as pollution, according to the study.

Thus, German refineries could achieve annual emissions cuts of 1.7 MMTCDE in switching from unabated SMRs to electrolyzers. According to IHS Markit, German refinery emissions amounted to 21.5 MMTCDE in 2020. Alternative options such as an upgrade to blue hydrogen aided by CCUS are not yet on the horizon for German refinery SMRs.

Although marginal in the wider German energy context, this could become a tentative first step for refiners in the green hydrogen switch, followed by on-purpose hydrogen plants to supply other sectors including integrated chemicals, natural gas grids, iron and steel. The replacement of a sizeable chunk of the oil products portfolio with synthetic products, including SAF, could be a third, and giant, leap forward.

Refineries incentivised to produce green hydrogen

As is generally the case within the new energy transition milieu, there are a motley assortment of reasons prodding refiners towards green hydrogen production. Firstly, Germany’s climate targets have become stricter with the updated climate protection law – prescribing stronger emissions cuts, especially for the energy and transport sectors.

As a result, fossil fuel-based oil products demand is expected to decline, but not disappear, over the long-term to be replaced by green mobility. And more and more German refineries could cope by seeking out EU and German government funding to start green hydrogen plants to test their new business models. Already, a pilot project at Dresden in eastern Germany is successfully producing synthetic fuels from captured carbon and hydrogen generated from an electrolyzer.

Secondly, EU and German funding, especially via the Important Projects of Common European Interest (IPCEI), have bankrolled the BP’s Lingen, Heide and RWE Lingen (Gelsenkirchen) projects. The government is also guaranteeing to abandon the levy on green power in this regard, which could help in easing some of green hydrogen’s financial woes.

“The government is also planning to introduce a minimum quota for jet fuels developed on the basis of green power as of 2026. Other than that, it is thinking about investments in refuelling infrastructure in general,” Dr. Daum adds. The power-to-liquids quota in transport fuels might encourage synthetic fuel production and will begin at 0.5% in 2026 and go up to 2% by 2030.

Financial incentives – both EU and German – are key in stimulating refinery green hydrogen production, but competition for funding is stiff.

Equally, European refining industry body Fuels Europe highlights the supplementary role hydrogen could play even in greening the power mix at a refinery: “The intermittency of electricity generation from solar and wind sources requires the availability of a vast, responsive and flexible capacity to store energy at times when its supply exceeds the demand. Hydrogen supply can be used as a backup for a refinery.”

Refineries face multiple hurdles

Firstly, financial incentives – both EU and German – are key. Notably, Shell’s 10MW Rhineland electrolyzer succeeded in securing 10 million euros in funding from the EU through the Fuel Cell Hydrogen Joint Undertaking initiative. It’s a win-win for both parties as this ‘real-world laboratory’ models out different scenarios to test commercial scale, which continues to elude green hydrogen technology.

But competition is stiff from hard-to-decarbonise industries. In late May, less than a handful of the 62 hydrogen projects chosen by the government for funding as part of the joint European IPCEI were based at refineries. And almost always, sponsorship is conditional on securing additional finance from private partners.

Secondly, the German National Hydrogen Strategy (NHS) is tilted towards ensuring dominance in hydrogen technology and not necessarily production, given the country’s natural limitations in renewable energy source capacity. The NHS in effect allows for a faceoff between green hydrogen and the transitional blue hydrogen, that is, grey hydrogen redeemed by carbon capture.

Lastly, and counter-intuitively, future refinery rationalisations might even dent green hydrogen demand.
“Refineries today are most often net consumers of hydrogen,” says Dr. Taamallah. “It is used by refineries [in] their production of fossil transportation fuels. As the production of those [fuels] is curbed over time and the transport sector moves to low-carbon fuels, hydrogen use for these is expected to diminish as well.”

Each day, OPIS editors canvass the market for hard-to-track delivered premiums into ports across Europe. They also draw on exclusive shipping data for supply insight that covers import volumes into Europe, identifying key dynamics behind price changes. This insight and price transparency for the European spot middle distillates market is delivered daily in the OPIS Europe Jet, Diesel & Gasoil Report. If you don’t already subscribe, download a sample copy here – and then request a free trial here.

Tags: Carbon, Spot Market