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KBR to conduct feasibility study for low-carbon crude refinery

Southern Rock's proposed 250,000bpd refinery will be powered by solar, wind, waste heat and geothermal energy and consume hydrogen and oxygen as a fuel source.

KBR announced today it has been awarded a feasibility study contract by Southern Rock Energy Partners to support the development of a first-of-its-kind refinery in Cushing, Oklahoma, according to a news release.

Southern Rock’s proposed 250,000bpd refinery will be powered by solar, wind, waste heat and geothermal energy and consume hydrogen and oxygen as a fuel source, making it a cutting-edge refinery with the goal of becoming net zero carbon, and the first truly green refinery in the United States, the release states.

Under the terms of the contract, KBR will provide expert consulting services, including a feasibility study in the formative stages of the project, and key technical information for the individual process units. KBR will focus on incorporating best practices into the design that will reduce emissions of greenhouse gases (GHG) with the potential for future reduction of GHG for a sustainable operation.

The facility would capture carbon dioxide emitted by the autothermal reformer. Southern Rock also plans to build a hydrogen/oxygen peaking power plant on-site with 150 MWh of capacity. The plant would also run on low-carbon electricity and recycle 80% of wastewater.

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Verdagy partners with Doral on electrolyzer supply

Verdagy has entered a strategic agreement to supply electrolyzers to global green hydrogen projects developed by Doral.

Verdagy, an electrolyzer startup, has reached a strategic agreement with Doral, a renewable energy developer, in which Verdagy will supply green hydrogen electrolysis systems to Doral through 2030.

The agreement is global with a focus on green hydrogen projects Doral is developing in EuropeUnited StatesAustralia and the Middle East, according to a news release.

“Doral has a proven track record of developing infrastructure-scale renewable energy projects for over 15 years and Verdagy is excited to work together with Doral to drive the transition to green hydrogen,” said Verdagy CEO Marty Neese.

“Verdagy has developed green hydrogen electrolyzers that seamlessly pair in real-time with renewable energy sources, have the highest efficiencies and are cost-effective. With Verdagy’s electrolyzers already operating for several years, we are excited to now use these in our infrastructure scale, green hydrogen projects,” said Doral Hydrogen Managing Director Yam Efrati-Bekerman.

Doral Energy currently has a 16 GW pipeline of renewable projects under development and 14MWh of battery storage in the US and Europe. Since June 2020, Doral Energy is traded on the Tel Aviv Stock Exchange under the ticker symbol: DORL. Doral Hydrogen is the Hydrogen subsidiary of Doral Group to develop, build, and operate green hydrogen and green ammonia projects in the USAAustraliaEurope, and MENA.

The company already operates an HRS in the Netherlands and is developing more than 1GW projects for green hydrogen and ammonia production. Some of the projects will be executed in 2025 and already secured the offtake, the news release states.

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Baker Botts adds NY project finance partner

Baker Botts has hired has hired Veronica Relea from Pillsbury.

Baker Botts L.L.P., an international energy, technology, and life sciences law firm, has hired Veronica Relea to its Energy, Projects & Transactions Section of the Global Projects Department as a partner in the New York office.

Relea has significant experience representing project developers and lenders in highly structured and complex finance transactions in the U.S. and Latin America. She advises commercial and investment banks, sponsors, developers and private equity firms in the development, construction, operation and financing of energy, oil and gas, and infrastructure projects, including LNG projects, fuel storage facilities, renewable energy assets, and mining assets.

She has developed a robust Latin American practice, advising on a range of complex finance transactions and has been recognized by Latinvex annually since 2017 as one of Latin America’s Top 100 Female Lawyers. She is fluent in Spanish and proficient in Portuguese and French.

Relea is the eighth lateral partner to join Baker Botts since early February. The firm most recently welcomed energy finance partner Matthew Gurch in Washington, D.C., and in December welcomed energy and infrastructure partner Mona Dajani in New York.

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Chevron and JERA eyeing US liquid H2 carriers

The two companies are collaborating on “multiple lower carbon opportunities,” including liquid organic hydrogen carriers in the US.

Chevron New Energies and JERA are collaborating on multiple lower carbon opportunities in the US and Asia Pacific, according to a press release.

As part of their focus across the hydrogen value chain – including production, export, and transportation – the two companies will study liquid organic hydrogen carriers (LOHC) in the US.

Other industries include production, new technology commercialization, and the capture, utilization and storage of carbon.

The companies have signed a Joint Study Agreement to explore the potential co-development of lower carbon fuel in Australia and will conduct a feasibility study expected to be completed in 2023. Lower carbon fuel supplies to be produced in the region would seek to leverage Chevron’s LNG and CCS knowledge and experience.

JERA recently announced a collaboration with Uniper to produce up to 8 MTPA of clean ammonia in the US for export.

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exclusive

Interview: Vinson & Elkins’ Alan Alexander on the emerging hydrogen project development landscape

Vinson & Elkins Partner Alan Alexander, whose clients include OCI and Lotus Infrastructure, has watched the hydrogen project development space evolve from a fledgling idea to one that is ready for actionable projects.

Vinson & Elkins Partner Alan Alexander, whose clients include OCI and Lotus Infrastructure, has watched the hydrogen project development space evolve from a fledgling idea to one that is ready for actionable projects.

In the meantime, a number of novel legal and commercial issues facing hydrogen project developers have come to the forefront, as outlined in a paper from the law firm this week, which serves as a guide for thinking through major development questions that can snag projects.

In an interview, Alexander, a Houston-based project development and finance lawyer, says that, although some of the issues are unique – like the potential for a clean fuels pricing premium, ownership of environmental attributes, or carbon leaking from a sequestration site – addressing them is built on decades of practice.

“The way I like to put it is, yes, there are new issues being addressed using traditional tools, but there’s not yet a consensus around what constitutes ‘market terms’ for a number of them, so we are having to figure that out as we go,” he says.

Green hydrogen projects, for example, are “quite possibly” the most complex project type he has seen, given that they sit at the nexus between renewable electricity and downstream fuels applications, subjecting them to the commercial and permitting issues inherent in both verticals.

But even given the challenges, Alexander believes the market has reached commercial take-off for certain types of projects.

“When the hydrogen rush started, first it was renewables developers who knew a lot about how to develop renewables but nothing about how to market and sell hydrogen,” he says. “Then you got the people who were very enthusiastic about developing hydrogen projects but didn’t know exactly what to do with it. And now we’re beginning to see end-use cases develop and actionable projects that are very exciting, in some cases where renewables developers and hydrogen developers have teamed up to focus on their core competencies.”

A pricing premium?

In the article, Vinson & Elkins lawyers note that commodities pricing indices are not yet distinguishing between low-carbon and traditional fuels, even though a clean fuel has more value due to its low-carbon attributes. The observation echoes the conclusion of a group of offtakers who viewed the prospect of paying a premium for clean fuels as unrealistic, as they would need to pass on the higher costs to customers.

Eventually, Alexander says, the offtake market should price in a premium for clean products, but that might depend in the near term on incentives for clean fuels demand, such as carbon offsets and levies, like the EU’s Carbon Border Adjustment Mechanism.

“Ultimately what we need is for the market to say, ‘I will pay more for low-carbon products,’” he says. “The mindset of being willing to pay more for low-carbon products is going to need to begin to permeate into other sectors. 30 or 40 years ago the notion of paying a premium for an organic food didn’t exist. But today there are whole grocery store chains built around the idea. When the consumer is willing to pay a premium for low-carbon food, that will incentivize a farmer to pay a premium for low carbon fertilizer and ammonia, which will ultimately incentivize the payment of a premium for low-carbon hydrogen. The same needs to repeat itself across other sectors, such as fuels and anything made from steel.”

The law firm writes that US projects seeking to export to Europe or Asia need to take into account the greenhouse gas emissions and other requirements of the destination market when designing projects.

In the agreements that V&E is working on, for example, clients were first focused on structuring to make sure they met requirements for IRA tax credits and other domestic incentives, Alexander says. Meanwhile, as those clean fuels made their way to export markets, customers were coming back with a long list of requirements, “so what we’re seeing is this very interesting influx” of sustainability considerations into the hydrogen space, many of which are driven by requirements of the end-use market, such as the EU or Japan.

The more stringent requirements have existed for products like biofuels for some time, he adds, “but we’re beginning to see it in hydrogen and non-biogenic fuels.”

Sharing risk

Hydrogen projects are encountering other novel commercial and legal issues for which a “market” has not yet been developed, the law firm says, especially given the entry of a raft of new players and the recent passage of the Inflation Reduction Act.

In the case of a blue hydrogen or ammonia project where carbon is captured and sequestered but eventually leaks from a geological formation, for example, no one knows what the risk truly is, and the market is waiting for an insurance product to provide protection, Alexander says. But until it does, project parties can implement a risk-sharing mechanism in the form of a cap on liabilities – a traditional project development tool.

“If you’re a sequestration party you say, ‘Yeah, I get it, there is a risk of recapture and you’re relying on me to make sure that it doesn’t happen. But if something catastrophic does happen and the government were to reclaim your tax credits, it would bankrupt me if I were to fully indemnify you. So I simply can’t take the full amount of that risk.’”

What ends up getting negotiated is a cap on the liability, Alexander says, or the limit up to which the sequestration party is willing to absorb the liability through an indemnity.

The market is also evolving to take into account project-on-project risk for hydrogen, where an electrolyzer facility depends on the availability of, for example, clean electricity from a newly built wind farm.

“For most of my career, having a project up and reaching commercial operations by a certain date is addressed through no-fault termination rights,” he says. “But given the number of players in the hydrogen space and the amount of dollars involved, you’re beginning to see delay liquidated damages – which are typically an EPC concept – creep into supply and offtake agreements.”

If a developer is building an electrolyzer facility, and the renewables partner doesn’t have the wind farm up and running on time, it’s not in the hydrogen developer’s interest to terminate through a no-fault clause, given that they would then have a stranded asset and need to start over with another renewable power provider. Instead, Alexander says, the renewables partner can offset the losses by paying liquidated damages.

Commercial watch list

In terms of interesting commercial models for hydrogen, Alexander says he is watching the onsite modular hydrogen development space as well as power-to-fuels (natural gas, diesel, SAF), ammonia and methanol, given the challenges of transporting hydrogen.

“If you’re going to produce hydrogen, you need to produce it close to the place where it’s going to be consumed, because transporting it is hard. Or you need to turn it into something else that we already know how to transport – natural gas, renewable diesel, naphtha, ammonia.”

Alexander believes power-to-fuels projects and developers that are focused on smaller, on-site modular low-carbon hydrogen production are some of the most interesting to watch right now. Emitters are starting to realize they can lower their overall carbon footprint, he says, with a relatively small amount of low-carbon fuels and inputs.

“The argument there is to not completely replace an industrial gas supplier but to displace a little bit of it.”

At the same time, the mobility market may take off with help from US government incentives for hydrogen production and the growing realization that EVs might not provide a silver-bullet solution for decarbonizing transport, Alexander adds. However, hydrogen project developers targeting the mobility market are still competing with the cost of diesel, the current “bogey” for the hydrogen heavy mobility space, Alexander says.

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Exclusive: Inside Strata’s P2X strategy

Strata Clean Energy is seeking to engage with global chemical, energy, and shipping companies as a potential partner for a pipeline of green hydrogen projects that will have FIDs in 2025 and CODs later this decade.

Strata Clean Energy is developing a pipeline of green hydrogen projects that will produce large amounts of green ammonia and other hydrogen derivatives later this decade.

Mike Grunow, executive vice president and general manager of Strata’s Power-to-X platform, said in an interview that the company is investing in the development of proprietary modeling and optimization software that forms part of its strategy to de-risk Power-to-X projects for compliance with strict 45V tax credit standards.

“We’re anticipating having the ability to produce substantial amounts of low-carbon ammonia in the back half of this decade from a maturing pipeline of projects that we’ve been developing, and we’re looking to collaborate with global chemical, energy, and shipping companies on the next steps for these projects,” he said.

Strata’s approach to potential strategic offtakers could also include the partner taking an equity stake in projects, “with the right partner,” Grunow said. The projects are expected to reach FID in 2025.

Grunow declined to comment on the specific size or regional focus of the projects.

“We aspire for the projects to be as large as possible,” he said. “All of the projects are in deep discussions with the regional transmission providers to determine the schedule at which more and more transmission capacity can be made available.”

Strata will apply its expertise in renewable energy to the green hydrogen industry, he said, which involves the deployment of unique combinations of renewable energy, energy storage, and energy trading to deliver structured products to large industrial clients, municipal utilities and regulated utilities.

The company “commits to providing 100% hourly matched renewable energy over a guaranteed set of hours over the course of an entire year for 10 – 20 years,” Grunow said.

“It’s our expectation that the European regulations and more of the global regulations, and the guidance from the US Treasury will require that the clean energy supply projects are additional, deliverable within the same ISO/RTO, and that, eventually, the load of the electrolyzer will need to follow the production of the generation,” he said.

Strata’s strategy for de-risking compliance with the Inflation Reduction Act’s 45V revenue stream for green hydrogen will give asset-level lenders certainty on the delivery of a project’s IRA incentives.

“Right now, if I’m looking at a project with an hourly matched 45V revenue stream, I have substantial doubt about that project’s ability to actually staple the hourly matched RECs to the amount of hydrogen produced in an hour, to the ton of hydrogen derivative,” he said.

During the design phase, developers evaluate multiple electrolyzer technologies, hourly matching of variable generation, price uncertainty and carbon intensity of the grid, plant availability and maintenance costs along with evolving 45V compliance requirements.

Meanwhile, during the operational phase, complex revenue streams need to be optimized. In certain markets with massive electrical loads, an operator has the opportunity to earn demand response and ancillary service revenues, Grunow said.

Optimal operations

“The key to maximizing the value of these assets is optimal operations,” he said, noting project optionality between buying and selling energy, making and storing hydrogen, and using hydrogen to make a derivative such as ammonia or methanol.

Using its software, Strata can make a complete digital twin of a proposed plant in the design phase, which accounts for the specifications of the commercially available electrolyzer families.

Strata analyzes an hourly energy supply schedule for every project it evaluates, across 8,760 hours a year and 20 years of expected operating life. It can then cue up that digital project twin – with everything known about the technology options, their ability to ramp and turn down, and the drivers of degradation – and analyze optimization for different electrolyzer operating formats. 

“It’s fascinating right now because the technology development cycle is happening in less than 12 months, so every year you need to check back in with all the vendors,” he said. “This software tool allows us to do that in a hyper-efficient way.”

A major hurdle the green hydrogen industry still needs to overcome, according to Grunow, is aligning the commercial aspects of electrolysis with its advances in technological innovation.

“The lender at the project level needs the technology vendor to take technology and operational risk for 10 years,” he said. “So you need a long-term service agreement, an availability guarantee, key performance metric guarantees on conversion efficiency,” he said, “and those guarantees must have liquidated damages for underperformance, and those liquidated damages must be backstopped by a limitation of liability and a domestic entity with substantial credit. Otherwise these projects won’t get financed.”

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Exclusive: Banker enlisted for CO2-to-SAF capital raise

BofA Securities is running a capital raise for a US-based CO2-to-SAF technology provider and project developer with a global pipeline of projects.

eFuels developer Infinium has launched a Series C capital raise along with efforts to advance unannounced projects in its development pipeline, Ayesha Choudhury, head of capital markets, said in an interview.

Bank of America has been engaged to advise on the capital raise.

Infinium recently announced the existence of Project Roadrunner, located in West Texas, which will convert an existing brownfield gas-to-liquids project into an eFuels facility delivering products to both US and international markets. Breakthrough Energy Catalyst has contributed $75m in project equity.

Infinium, which launched in 2020, closed a $69m Series B in 2021, with Amazon, NextEra and Mitsubishi Heavy Industries participating. Its Project Pathfinder in Corpus Christi is fully capitalized.

About a dozen projects, split roughly 50/50 between North America and the rest of the world, are in development now, Choudhury said. The company is always scouting new projects and is looking for partners to provide CO2, develop power generation and offtake end products.

A CO2 feedstock agreement for a US Midwest project with BlackRock-backed Navigator CO2 Ventures was recently scrapped after the latter developer cancelled its CO2 pipeline project.

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