Malaysia’s Petronas sees CCS cost as challenge

Having to implement CCS offshore will push up the costs for Petronas, writes Reena Nathan

Malaysian state-owned Petronas' goal of achieving net zero emissions by 2050 mirrors that of its home country and includes hydrogen as a crucial step.

The firm will focus on blue over green hydrogen at first, targeting exports to existing LNG customers in Japan and South Korea . But the cost of CCS is challenging for domestic projects. "If you look at [the] Middle East or Australia, their carbon capture is all onshore, so the cost of doing it is much cheaper theoretically. But because ours is all offshore… you get into all the complexities of operating offshore," Petronas' hydrogen business head, Adlan Ahmad, says.

Petronas has signed an initial agreement with ExxonMobil to assess the viability of CCS projects in peninsular Malaysia. "If we can crack the code in having a commercially viable CCS service, then it will also enable more production of blue hydrogen from Malaysia when we find more gas," Adlan says.

Blue hydrogen also offers a way to monetise the 1.5 trillion m³ of shale gas reserves Petronas owns as part of a joint venture in Canada. "Being in Canada, we can also access the North American market," Adlan says, adding that Petronas is also interested in supplying the European market through the Middle East .

Petronas has set a 2027-28 target for green hydrogen production, although this will depend on securing the long-term contracts that are needed to get such projects off the ground. It is not ready to invest in building green hydrogen plants without securing customer commitments. "We are quite particular about managing the risks. I don't think we are ready to build hydrogen plants on speculation. I think we wouldn't be doing taxpayers' money justice," Adlan says.

It does not help that a question mark still hangs over pricing. "There is no precedent in the market. There is no model for us to follow, so it's really a ‘willing buyer-willing seller' situation," Adlan says. Petronas has taken the approach of partnering with customers to develop hydrogen facilities to be "completely transparent with them about what is the cost to produce it and what would be a reasonable return for us".

A benchmark price based on grey ammonia could make sense for blue hydrogen or ammonia "because it comes from the same source — it comes from gas. But if it's green, I don't think you should base it on the ammonia price… I think whoever can sign the first agreement will need to be careful because they'll be setting the precedent in the market that the rest of the projects in the world will start to follow," he adds.

Carrying on Petronas has a clear preference for ammonia as a hydrogen carrier. "We've got facilities on the ground for customers who actually want hydrogen in ammonia form. We could utilise those as much as possible." Using existing infrastructure reduces the investment needed for both Petronas and its customers, translating into "an attractive price for the customer", Adlan says.

But the company does not rule out other carriers, such as methylcyclohexane (MCH), "if the end-customer doesn't want to use the hydrogen in ammonia form", he adds. Japanese refiner Eneos is exploring importing blue hydrogen from Malaysia with Petronas via MCH .

Petronas is also closely monitoring liquefied hydrogen as a transport candidate for Japan and South Korea, especially for mobility-related applications. "We believe that at some point in the future — it could be five years, it could be 10 years — this technology will become commercially viable," Adlan says. But for now, liquefied hydrogen, which requires cryogenic storage technology, is "very, very challenging [and] very, very expensive".

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