Route-to-market strategy for low-carbon hydrogen from natural gas in the Permian Basin

Abstract

This paper investigates the untapped potential of the Permian Basin, a multifaceted energy axis in Texas and adjoining states, in the emerging era of decarbonization. Aligned with current policy directives on regional hydrogen hubs, this study explores the viability of developing a hydrogen energy hub in the Permian Basin, thereby producing low-carbon intensity hydrogen from natural gas in the Basin and transporting it to the Greater Houston area. Diverging from existing literature, this study provides an integrated techno-economic evaluation of the entire hydrogen value chain in the Permian Basin, encompassing production, storage, and transportation. Furthermore, it comparatively analyzes the scenario of interest against an optimized base scenario, thereby underlining comparative advantages and disadvantages. The paper concludes that the delivered cost of Permian-based low-carbon intensity hydrogen to the Greater Houston area is $1.85/kg, benchmarked to the scenario, with hydrogen produced close to the Greater Houston area and delivered at $1.42/kg. Our findings reveal that Permian-based low-carbon intensity hydrogen production can achieve cost savings in feedstock ($0.25/kg) and potentially accrue a higher production tax credit due to a shorter gas supply chain to production ($0.33/kg). Nevertheless, a significant cost barrier is the expense of long-haul pipeline transport ($0.90/kg) from the Permian Basin to Houston as opposed to local production. Despite the obstacles, the study identifies a potential breakeven solution where increasing the production scale to at least 412,000 metric ton per year (about 3 steam-reforming plants) in the Permian Basin can effectively lower costs in the transport sector. Hence a scaled-up production can mitigate the cost difference and establish the Permian Basin as a competitive player in the hydrogen market. In conclusion, a SWOT analysis presents Strengths, Weaknesses, Opportunities, and Threats associated with Permian-based hydrogen production.