A recent report by Emkay Global Financial Services has highlighted that India's transition from gray hydrogen to green hydrogen could have significant cost implications for the country's refining sector, potentially impacting gross refining margins (GRM) and earnings before interest, taxes, depreciation, and amortization (EBITDA).
The report indicates that replacing gray hydrogen with green hydrogen could result in a blended cost impact of approximately $3 per barrel (bbl) on GRM or EBITDA for the Indian refining sector. This impact is considered substantial, especially when viewed against a mid-cycle GRM range of $5/bbl to $8/bbl.
The adoption of green hydrogen by Indian refineries is expected to be cautious, with initial blending of gray and green hydrogen. As the cost of green hydrogen decreases and approaches the levels of gray hydrogen by CY30, the adoption of green hydrogen could expand significantly.
The report further anticipates that the adoption of green hydrogen by oil refineries will range from 30 percent blending to 100 percent by CY30.
However, cost considerations are not the sole factor influencing this transition. Challenges related to setting up renewable energy and electrolyser capacities, availability of space within refineries, and addressing the physical demand-supply imbalance also pose constraints.
The report suggests that if a 50 percent blending mandate, as recommended in the NITI Aayog report, is implemented, the Indian refining sector could potentially achieve around 2.3 million metric tons per annum (mmtpa) of green hydrogen demand by CY30. While sectoral mandates for green hydrogen usage have yet to be established, public sector refiners have initiated their green hydrogen plans and have indicated a potential volume of 0.43 mmtpa of green hydrogen by CY30.
This implies an overall blending of 22 percent with gray hydrogen, based on current capacity, and approximately 18 percent based on expansions projected by CY28.
The report also anticipates that India's refining sector's hydrogen demand could reach about 4.5 mmtpa by CY30. This growth is expected due to increased hydrogen intake per refinery, driven by sulfur removal policies and an emphasis on higher-value products.
At present, India consumes over 6 mmtpa of hydrogen, with approximately 3 mmtpa used by oil refineries for desulfurization of fuels and the production of higher-value products. The remainder is utilized in ammonia production for urea and other fertilizers, as well as in the steel and chemicals industries.
With ongoing refinery capacity expansions and a total refining capacity projected to exceed 310 mmtpa, the demand for hydrogen in the refining sector is set to grow. Both the refining and ammonia industries, traditionally reliant on gray hydrogen produced from natural gas through the steam methane reforming process, have faced environmental challenges due to high pollution levels.
