Green Energy: A high carbon tax could erode ‘up to 60%’ of Asia’s refining earnings, WoodMac says
A high carbon tax could erode up to 60% of Asia’s total refining earnings by 2027, Wood Mackenzie said at the Global Energy Summit Focus Week.
According to Wood Mackenzie’s Emissions Benchmarking Tool, the refining industry accounts for only about 3% of global energy sector emissions, which refers to Scope 1 and 2 emissions from process operations required to convert crude oil into refined products within the refinery.
Wood Mackenzie research director Sushant Gupta said: “Asia is the largest contributor to refinery emissions globally.”
“The energy transition will manifest itself in three main challenges for refiners,” Gupta said.
“Firstly, reduced market size for refined products which leads to poor refinery margins and refinery closures.”
The second challenge will be a reduction in demand for transport fuel, which accounts for more than 50% of refinery production.
“And lastly, a possibility of a high carbon tax on refining industry as part of broader decarbonisation efforts.”
“While a carbon tax might sound like a good idea, the reality is that a global uniform carbon tax or policy is unlikely, which will make it difficult for refiners to pass on the costs of carbon to its customers. The inability to pass through carbon costs could have material impact on refinery margins.”
At US$30 per tonne (t) carbon price, Gupta said Wood Mackenzie estimates the average impact on refining margins would be US$0.55 per barrel of oil equivalent (bbl).
“This rises to US$2.10/bbl at $100/t of carbon price.”
“For 2027, we estimate that 60% of Asia’s total refinery earnings could be wiped off in a US$100/t carbon price scenario.”
Some early responses in the short term to decarbonising the refining sector include process optimisation such as improving furnace efficiency, low temperature waste heat recovery and fluid catalytic cracking (FCC) unit optimisation.
The industry could also consider switching combustion fuel from fuel oil or coke to cleaner fuels such as natural gas or green hydrogen, Wood Mackenzie said.
A switch from burning fuel oil to natural gas can reduce emissions by up to 30% and a switch to cleaner feedstocks could also be an option.
Gupta said: “As every refinery is unique, there is no silver bullet. Refiners must start with identifying sources of their emissions and work out most cost-effective ways to reduce their carbon footprint.”
“There will not be a blanket solution for the refining industry but a combination of solutions to solve this complex refining decarbonisation problem.”
For deeper decarbonisation, Wood Mackenzie said refiners will have to consider low carbon technologies such as electric heating, carbon capture and storage on FCCs, hydrogen and gasifier units and biomass gasification.
They will also have to consider the use of renewable power and green hydrogen.
Global energy Ventures Ltd (ASX:GEV) has started the HyEnergy Export feasibility study on Province Resources’ (ASX:PRL) HyEnergy Zero Carbon Hydrogen Project with the appointment of key consultants.
The aim of the HyExport Study is to demonstrate the technical feasibility and commercial advantages of GEV’s compressed hydrogen shipping solution, and is targeted for completion in the 2022 June quarter.
GEV managing director and CEO Mrain Carolan said: “GEV is delighted to appoint a group of leading consultants with the specialist experience to assist with the completion of the company’s first feasibility for hydrogen export using our proprietary marine supply chain.
“The HyEnergy Project is being positioned to be the first export project of green hydrogen from a greenfield site in Western Australia.”
Key consultants engaged to conduct the feasibility study include:
The scope of the HyExport Study will include the integration of the HyEnergy Project’s proposed green hydrogen production facility with an onshore compression facility and offshore mooring and loading system, as well as the operation of a fleet of compressed hydrogen ships for marine transport to nominated markets in the Asia Pacific region.
The basis of design will be directed by the initial findings of the HyEnergy Project’s ongoing Feasibility Study.