Hydrogen energy,as a clean and efficient form of energy,plays an indispensable role in achieving China's carbon neutrality goals and will be an important component of the future national energy system.China is the world's largest producer of hydrogen energy.According to statistics from Zhiyan Consulting,in 2022,China's hydrogen production reached 37.81 million tons,a year-on-year increase of 14.58%.Among this,62% of hydrogen production comes from coal or coke production,industrial by-product hydrogen accounts for about 19%,natural gas hydrogen production accounts for 18.1%,and electrolysis of water for hydrogen production accounts for only 0.9%.

Although electrolysis of water for hydrogen production (green hydrogen) is recognized as the future direction,it is evident that hydrogen production from fossil fuels will remain the mainstream method for the present and a period in the future.Utilizing CCUS (Carbon Capture,Utilization and Storage) technology to reduce carbon emissions from fossil fuel-based hydrogen production has become a key topic,playing a significant transitional role in industry development.

This article will analyze and discuss the current status of fossil fuel-based hydrogen production and CCUS technology,as well as related investment opportunities.

Fossil fuel-based hydrogen production remains the primary method at present.Based on production methods and carbon footprint differences,hydrogen energy is typically divided into three categories: grey hydrogen,blue hydrogen,and green hydrogen.Grey hydrogen usually originates from fossil fuels,including coal-based hydrogen,natural gas-based hydrogen,and industrial by-product hydrogen,all of which are considered grey hydrogen.The production technology is well-established,and the costs are relatively low.However,the carbon emission levels during production are comparatively high.Blue hydrogen is produced on the basis of grey hydrogen,applying CCUS technology to reduce carbon emissions,which can significantly decrease environmental impact but also faces higher costs.Green hydrogen is produced through the electrolysis of water using renewable energy sources such as solar and wind power,achieving the goal of zero carbon emissions from the source and is the cleanest method of hydrogen production.

Given China's energy endowment of "abundant coal,scarce oil,and little gas," along with the reality of high costs for green hydrogen,fossil fuel-based hydrogen production remains the main form of hydrogen production in China at this stage,with the proportion of green hydrogen consistently less than 1%.

Globally,policy catalysis and demand growth drive the increase in total hydrogen demand,and the scale of fossil fuel-based hydrogen production will continue to expand.According to Research Nester,the industry scale of grey hydrogen in 2023 exceeded 135 billion USD,and it is expected to reach 192 billion USD by the end of 2036; the industry scale of the blue hydrogen market in 2023 was 2 billion USD,and it is expected to exceed 8 billion USD by the end of 2036.

Comparing the two,grey hydrogen,though cost-effective,has high carbon emissions and does not meet carbon neutrality requirements.Its share in the hydrogen energy structure will gradually decrease in the future.Before the widespread adoption of green hydrogen,the large-scale transition from grey to blue hydrogen,achieving carbon reduction from fossil fuels,is the most feasible approach for the hydrogen energy industry at this stage and is also one of the largest industrial opportunities from the short to medium term.

The cost of CCUS technology needs to decrease.CCUS refers to the process of using carbon capture technology to separate CO₂ from carbon emission sources (industrial production,energy utilization),and then utilize it or inject it into geological formations to achieve permanent carbon emission reduction.This technology is key to transforming grey hydrogen into blue hydrogen,effectively reducing carbon emissions in the hydrogen production process,and thus has been receiving continuous attention from the industry.Data shows that under different raw material preparation and various CCUS technology levels,the carbon emissions of blue hydrogen can be reduced by about 25% to 60% compared to grey hydrogen,with significant carbon reduction effects,and is considered by the industry as a better hydrogen production method before the popularization of green hydrogen.

So,what is the current economic level of blue hydrogen?Tian Jiangnan,a senior engineer at China Energy Construction North China Power Design Institute,said in an exclusive interview with First Financial that the cost of blue hydrogen is mainly divided into two parts: hydrogen production cost and CCUS cost.Among them,the CCUS cost mainly depends on the carbon source.If the carbon source has a high concentration of carbon dioxide,the CCUS cost is lower; on the contrary,it is higher.If carbon dioxide is directly captured from the air,the CCUS cost is the highest.

He introduced that the current cost of grey hydrogen is about 8-15 yuan/kg,and the cost of obtaining industrial-grade purity carbon dioxide using CCUS technology is about 500-1500 yuan/ton,so the cost of blue hydrogen is about 20-30 yuan/kg.Overall,the price of blue hydrogen is relatively high,but the gap with grey hydrogen is no longer unattainable.The key to the parity of blue hydrogen lies in the reduction of CCUS costs.

Tian Jiangnan believes that it will take at least 10 years for green hydrogen to replace grey hydrogen as the main hydrogen production method.Under the background of carbon neutrality,blue hydrogen will become an important transitional means during this stage,and policies may become a catalyst for the popularization of CCUS technology."At present,the large-scale replacement of grey hydrogen by blue hydrogen is mainly limited by the maturity and cost of CCUS technology,as well as the strength of national subsidies for carbon reduction projects.Under the national dual control policy requirements for carbon emissions,the proportion of grey hydrogen and grid electricity hydrogen production is gradually decreasing.If corresponding policies can be introduced to subsidize the increased CCUS costs due to carbon emission reduction,it will also help to accelerate the process of blue hydrogen replacing grey hydrogen." Tian Jiangnan said.

Institutions are generally optimistic about the industrial prospects of CCUS.According to the forecast of the "China Carbon Capture,Utilization,and Storage Annual Report (2023)",China's CCUS emission reduction demand will be about 24 million tons/year by 2025,and will reach 2.35 billion tons/year by 2060,with a broad market prospect.The report from the China Business Industry Research Institute points out that the output value of CCUS technology will exceed 20 billion yuan/year by 2025,and will exceed 330 billion yuan/year by 2050.According to a conservative estimate,the compound annual growth rate (CAGR) from 2025 to 2050 will reach 11.87%.

The number and scale of CCUS demonstration projects are expanding

In recent years,although China's CCUS projects are mainly demonstration-oriented,the number and scale have been continuously expanding.According to the "China Carbon Capture,Utilization,and Storage Annual Report (2023)",the total number of planned and operational CCUS demonstration projects in China is close to a hundred,covering multiple industries,with more than half of the projects already completed and put into production,with a carbon dioxide capture capacity of more than 4 million tons/year and an injection capacity of more than 2 million tons/year.

At the same time,China has the construction capability for large-scale CCUS and is moving towards a full-process CCUS industrial cluster.As of February 2023,11 oil and gas fields of PetroChina (601857.SH) have carried out 17 major CCUS development tests,with an annual carbon dioxide injection capacity of more than 1 million tons,and a cumulative burial of carbon dioxide exceeding 5.5 million tons,equivalent to planting nearly 50 million trees.Among them,the Jilin Oilfield CCUS project is the largest EOR (Enhanced Oil Recovery) project in Asia,with an expected oil displacement production of 210,000 tons in 2026,and an annual carbon dioxide injection volume of 1.36 million tons,with significant benefits.In addition,there are several large-scale CCUS demonstration projects in the country,mostly invested and operated by state-owned enterprises.

Overall,the industrialization of China's CCUS technology is accelerating,and the improvement of scale effects is also expected to bring further cost reduction.

Related equipment manufacturers may benefit first.The demand for clean energy in society has brought development opportunities for CCUS equipment manufacturers and construction engineering companies.Based on the different carbon dioxide absorption and capture methods,the core equipment used in CCUS includes absorption towers,adsorption towers,regeneration towers,cryogenic separation equipment,air separation units,compressors,etc.,and many domestic listed companies have already laid out their plans.

Yuanda Environmental Protection (600292.SH) has undertaken the construction of the CCUS innovation demonstration project on Changxing Island in Shanghai.As of January 4,2024,the project has been in operation for over 7460 hours,making it one of the longest continuously running carbon capture projects in the domestic thermal power sector.The average carbon dioxide capture efficiency of the project is 91.45%,with electricity consumption,heat consumption,and chemical consumption indicators reaching a leading domestic and advanced international level.Since its successful commissioning,the project has produced nearly 40,000 tons of carbon dioxide,with a stable capture rate of over 90% and a product purity of over 99.5%.

Lan Shi Heavy Industry (603169.SH) is a CCUS equipment manufacturer,whose products are mainly used in the CO₂ capture and synthetic utilization stages,such as absorption towers and regeneration towers in the capture stage,and reactors,heat exchangers,and tower equipment in the synthetic utilization stage.Since 2022,Lan Shi Heavy Industry has won bids for the Sinopec Sinopec Co.,Ltd.'s Sinopec CO₂ to green methanol project,Shengbang Technology Co.,Ltd.'s Yiwu Hydrogen Energy Environmental Protection Technology Green Electricity Coupling CO₂ Capture (CCUS) to high-value chemical products project,and China Huaneng Group Longdong Energy Co.,Ltd.'s million-ton CCUS research and demonstration project,with a total bid amount exceeding 70 million yuan.

Binglun Environment (000811.SZ) is deeply involved in the core equipment of CCUS technology,the screw compressor,serving multiple demonstration projects and has been successfully applied in the capture and recovery of carbon dioxide tail gas in oil field associated gas,synthetic ammonia,biogas purification,natural gas processing,flue gas,and dry ice production.In 2022,the company won the bid for the Qilu Petrochemical-Victory Oilfield million-ton CCUS project,which is the largest carbon capture,utilization,and storage full industry chain demonstration base in China and the first million-ton CCUS project in the country,capable of reducing carbon dioxide emissions by 1 million tons per year.

Bingshan Cold & Heat (000530.SZ) is actively deploying in the CCUS field,providing key equipment including CO₂ compression units,CO₂ refrigeration units,and liquefaction equipment.The company has completed several projects for customers,including successfully producing food-grade liquid CO₂ in Hebei and delivering polysilicon projects in Xinjiang,Inner Mongolia,and other places.In addition,Bingshan Cold & Heat has also signed multiple CCUS projects in Guangdong,Shandong,Xinjiang,Jiangsu,and other places.