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Hydrogen from coal? Hydrogen production from natural gas? Cost Comparison and Recommendations Author/Source: Huahua Network Coal Chemicals Date: 2019-04-08 Clicks: 74 Hydrogen from coal? Hydrogen production from natural gas? Cost comparison and recommendations: As crude oil becomes of lower quality and the standards for refined products improve, refineries face a growing demand for hydrogen. Reducing the cost of hydrogen has thus become an important strategic goal for refineries. Hydrogen is recognized as an excellent green fuel; its heat of combustion is 2.7 times that of gasoline and 3.5 times that of coal. It is currently primarily used as a propulsion fuel for the second/third stages of space rockets. Research is being conducted both domestically and internationally on applications in the field of daily transportation. In particular, Japan is pursuing the development of hydrogen fuel cells vehicles; currently, 300 to 400 such vehicles are produced each year. By 2020, it is planned to establish 160 hydrogen fueling stations and put 40,000 fuel cell vehicles into use. At the same time, hydrogen is also an important industrial raw material and reducing agent, widely used in various sectors of the national economy. It serves as a synthetic material for industries such as fine chemicals and pharmaceutical intermediates, as well as a shielding gas in metallurgy, electronics, glass manufacturing, and machinery production. In the oil processing industry, hydrogen is an essential and important raw material. With the deterioration of crude oil quality and increasing emphasis on environmental protection, fuel cleanliness standards are constantly rising. The hydrogenation process has developed rapidly, leading to a sharp increase in the demand for hydrogen by refineries; hydrogen has thus become the second most important raw material after crude oil. Finding cheap sources of hydrogen is an issue that refineries must take into consideration. Starting from the sources of raw materials involved in reducing hydrogen costs in refineries, this study examines the independent hydrogen production facilities required for the entire hydrogenation process in refineries, and analyzes the factors affecting hydrogen production costs as well as the level of competition. 1. Sources of hydrogen in refineries: There are mainly three sources of hydrogen in refineries: ① Hydrogen generated as a by-product of crude oil processing, including that produced by reforming units, recovered from hydrogen-rich gases, and generated by ethylene, electrolysis, and dehydrogenation units within the chemical systems integrated with refining operations ； ②The refinery is equipped with a separate hydrogen production unit to generate hydrogen ； ③Purchased hydrogen source. The hydrogen produced as a by-product of reforming accounts for approximately 0.5% to 1.0% of the total crude oil volume. In a full hydrocracking refinery process, the hydrogen consumption typically ranges from 0.8% to 2.7% of the crude oil processed. Relying solely on hydrogen generated as a by-product of reforming and other units is insufficient to meet the growing demand resulting from the increasing processing of sulfur-containing and low-quality crude oils. Moreover, China is accelerating the construction of large-scale hydrocracking refineries, leading to a rapid increase in hydrogen consumption; the capacity for hydrogen production now accounts for over 70% of the overall crude oil processing capacity. It has become difficult to achieve a balance in hydrogen supply across the entire refinery using only conventional processing methods, hence it is necessary to build separate hydrogen production facilities. 2. Selection of raw material routes for hydrogen production units: Refineries have high requirements for the stability of their hydrogen demand; therefore, when installing independent hydrogen production units, it is essential to ensure their stable operation, as well as a steady supply of raw materials in terms of both quality and quantity. The process technology used must be mature and reliable. The choice of hydrogen production feedstock route depends on the availability of raw material resources, technical maturity, and economic viability of the feedstocks. The main hydrogen production feedstocks include refinery dry gas, natural gas, coal, light naphtha, and heavy oil. However, as domestic demand for chemicals increases and the trend toward recycling heavy oil and naphtha grows, existing hydrogen production plants that use heavy oil fail to make full use of the value of their raw materials, resulting in increasingly poor cost-effectiveness and affecting the profitability of refineries; as a result, they have stopped operating one after another. In actual production, hydrogen production plants that use dry gas as a raw material need to comprehensively address the contradictions in the overall fuel balance of the plant. Hydrogen production from natural gas and coal, as independent sources of raw materials, are becoming the two most important approaches for hydrogen production. In comparison, natural gas-based hydrogen production requires lower initial investment, while coal-based hydrogen offers higher production volumes and lower prices, resulting in a significant cost advantage. With high natural gas prices and regulatory controls, coal-based hydrogen is cost-effective. 3. Basis for calculation: A refinery with a capacity of 10 Mt/yr processing sulfur-containing crude oil (with a sulfur content of 2%) is considered, using full hydrogenation and maximum reformation capacity. The refinery process is designed to produce refined oil and chemical feedstocks, with the refined oil meeting National V emission standards. The comparison between the two process routes is based on a minimum required hydrogen production capacity of 90,000 m³/h. (1) The prices of raw materials are based on those in the Shanghai area: the price of natural gas at the plant is 2.5 yuan per m³ (excluding taxes, with a calorific value of 35,948 kJ/m³), while coal costs 450 yuan per ton (excluding taxes, with a calorific value of 22,990 kJ/kg). (2) Oxygen purchased externally at 0.5 yuan/m³ ； 3.5 MPa steam: 100 yuan/ton, 1.0 MPa steam: 70 yuan/ton ； Fresh water: 4 yuan/m³ ； Electricity: 0.56 yuan per (kW·h). (3) Coal-to-hydrogen production uses the water-coal slurry technology, with an investment of 1.24 billion yuan, while natural gas-to-hydrogen production requires an investment of 600 million yuan. Personnel costs are standardized. The residual value of the device after 10 years of depreciation is 5% ； Repair costs are 3% per year; financial costs are based on a 70% loan for the construction funds, with an annual interest rate of 5%. (4) The comparison scope is within the plant boundary, and the construction cost does not include land acquisition fees or associated storage and transportation facilities. 4 Main Results 4.1 Price and Cost Parameters The cost estimates for hydrogen production from natural gas and coal are shown in Table 1. When the natural gas price in Shanghai is 2.5 yuan per m³ (excluding taxes; the same applies hereafter), the cost of producing hydrogen from natural gas is 12,831 yuan per ton, which corresponds to 1.14 yuan per m³. At 450 yuan per ton for coal, the cost of producing hydrogen from coal is 9,903 yuan per ton, which equals 0.869 yuan per m³. Using 90,000 m³/h of coal to produce hydrogen saves approximately 200 million yuan in annual costs compared to using natural gas for hydrogen production. 4.2 Cost Composition of Hydrogen Production from Natural Gas The cost composition of hydrogen production from natural gas is shown in Figure 1. As can be seen from Figure 1, the cost of hydrogen production from natural gas is primarily composed of natural gas, fuel gas, and manufacturing costs, among which the price of natural gas is the most significant factor, accounting for 73.4%. Fuel gas is the second largest cost factor, accounting for 13.7%. Based on the assumption that 70% of the total investment is financed, manufacturing and financial costs will account for 9.3% of the total costs. Fuel power consumption other than fuel gas accounts for 2.4%. Other expenses account for 1.2%. 4.3 Cost Composition of Hydrogen Production from Coal The cost composition of hydrogen production from coal is shown in Figure 2. As can be seen from Figure 2, the cost of hydrogen produced from coal is primarily composed of coal, oxygen, fuel energy consumption, and manufacturing costs; however, the proportion of costs related to coal is much lower than that of costs related to natural gas, accounting for only 36.9%. Generally, the partial oxidation process is used for hydrogen production from coal. Based on calculations of the oxygen cost associated with the accompanying air separation unit, this accounts for 25.9% of the total hydrogen production cost. Due to the high costs associated with producing hydrogen from coal, manufacturing and financial expenses become significant cost factors, accounting for 22.5% of the total costs. Fuel costs account for 7.9%, while other expenses make up 6.7%. 4.4 Relationship between the equal costs of hydrogen production from natural gas and coal Hydrogen production from natural gas and coal at equal costs is shown in Table 2. As can be seen from Table 2, when the price of natural gas is 1.67 yuan/m³ and the price of coal is 450 yuan/ton, the cost of hydrogen produced from natural gas and hydrogen produced from coal is 0.87 yuan/m³ ； When the price of natural gas is 2.52 yuan/m³ and the price of coal rises to 850 yuan/ton, the cost of hydrogen produced from both is 1.15 yuan/m³. Currently, the hydrogen production processes of both methods are being used in industrial-scale production. The source of raw materials is a major factor affecting the cost of hydrogen, and it also constitutes one of the key factors in determining which technology a company chooses. 4.5 Distribution of Natural Gas and Coal Prices: The benchmark gate price for natural gas used by non-residents in various provinces (regions, municipalities) in December 2016, including value-added tax, is shown in Table 3; while China’s coal price indices for the main regions from 2014 to 2016 are presented in Table 4. The prices of natural gas and coal show significant regional differences, mainly divided into East China and South China, North China, and Northwest China. The East China and South China regions are far from the main natural gas production areas; both pipeline transportation and LNG transport incur high costs. Currently, the price of natural gas is above 2.5 yuan per cubic meter. In contrast, there are fewer restrictions on coal imports, and these can be brought in via sea transport, with prices being roughly the same as those for domestic transportation within the Bohai Bay region. In North China, natural gas is located near the sources of production and the main import pipelines, which ensures good availability of this resource and relatively low prices; the current selling price is around 2 yuan per cubic meter. Although coal is also produced nearby, it is mainly transported by rail and road, resulting in high logistics costs; its selling price is the same as that of the **Bohai Bay Index. At the same time, the Beijing-Tianjin-Hebei region faces significant environmental protection pressures, resulting in high targets for reducing coal consumption. The Northwest region is located in the main areas of natural gas and coal production, so the prices there are lower. 4.6 The impact of a carbon tax on hydrogen production costs: Global warming and environmental pollution necessitate the control of greenhouse gas and pollutant emissions, and the task of reducing such emissions is becoming increasingly demanding. With increasing environmental pressures, especially after China set out at the Paris Climate Conference under the United Nations Framework Convention on Climate Change in 2015 the goal of reducing carbon dioxide emissions per unit of GDP by 60%–65% by 2030 compared to 2005, as well as reaching a peak in carbon dioxide emissions from fossil fuel consumption around that same time, the imposition of a carbon tax has become inevitable. The carbon dioxide emissions generated by the coal-based hydrogen production process are approximately four times those of natural gas-based hydrogen production. The implementation of a carbon tax has a much greater impact on the competitiveness of coal-based hydrogen production projects than that of natural gas-based hydrogen production. The impact of a carbon tax on hydrogen production routes is shown in Table 5. Based on the natural gas price of 2.5 yuan/m³ and the coal price of 450 yuan/ton in Shanghai in 2015, when the carbon tax is 175 yuan/ton, the coal-to-hydrogen process loses its cost advantage over the natural gas-to-hydrogen process. Based on natural gas prices of 2.0 yuan/m³ and coal prices of 450 yuan/ton in North China, when the carbon tax is 100 yuan/ton, the coal-to-hydrogen process loses its cost advantage over the natural gas-to-hydrogen process. Based on a natural gas price of 1.5 yuan/m³ and a coal price of 300 yuan/t in the Northwest region, when the carbon tax is set at 50 yuan/t, the coal-to-hydrogen process loses its cost advantage over the natural gas-to-hydrogen process. 5 suggestions: Based on the calculation results, it can be seen that the natural gas-based hydrogen production and coal-based hydrogen production processes have different sensitivities to raw material prices and carbon taxes. The impact of raw materials on hydrogen production from natural gas is greater than that on hydrogen production from coal; generally speaking, a 10% change in natural gas prices is equivalent to a roughly 23% change in coal prices. The impact of a carbon tax on hydrogen produced from coal is greater than that on hydrogen produced from natural gas; for every 25 yuan per ton change in the carbon tax, the cost of hydrogen produced from natural gas increases by 0.01 yuan per m³, while the cost of hydrogen produced from coal increases by 0.05 yuan per m³. Hydrogen produced from coal has higher energy consumption compared to hydrogen produced from natural gas; it requires more steam and electricity, and enterprises need to install boilers. The unified installation of coal-fired boilers is subject to various constraints. As the quality of refined oil products improves at an accelerating pace, refineries’ demand for hydrogen continues to rise, making it inevitable to build new hydrogen production facilities or expand existing ones. The cost of hydrogen has thus become one of the key factors influencing a company’s competitiveness. To this end, it is recommended to select an appropriate hydrogen production route after taking into account the conditions of various regions and enterprises. (1) Natural gas prices in East and South China are the highest in the country, being about 0.5 yuan/m³ higher than those in North China, which is equivalent to a coal price that is 250 yuan/ton higher. However, these two regions have multiple supply channels for coal resources and convenient transportation. “During the 13th Five-Year Plan period, 5 out of the 7 major bases outlined in the \"Petroleum and Chemical Industry Planning Scheme\" (2014) were located in this region. In addition, there is a 40 Mt/year integrated refining and chemical complex under construction in Zhoushan. With fierce market competition, it is particularly crucial to reduce raw material costs. At the same time, this region is also one where domestic residents enjoy a high standard of living; it has a developed manufacturing industry, and there is a shortage of natural gas resources. It is recommended to actively coordinate with **, with coal-based hydrogen production being the main route for hydrogen generation. (2) The gas/coal price ratio in North China is lower than that in East China, and coal-to-hydrogen production is highly affected by carbon taxes. Based on the recommendation in the 2009 **Ministry of Finance’s Detailed Technical Report on the Implementation of a Carbon Tax in China**, which suggests a carbon tax rate of 40 yuan per ton [6–7], at the current natural gas price of 2.0 yuan per m³, the maximum acceptable price for coal is approximately 500 yuan per ton. In addition, **the integration of the Beijing-Tianjin-Hebei region is being accelerated. In March 2017, the Ministry of Environmental Protection, the National Development and Reform Commission, the Ministry of Finance, the National Energy Administration, and six relevant provinces and municipalities jointly issued the ‘Work Plan for Air Pollution Prevention and Control in the Beijing-Tianjin-Hebei Region and Surrounding Areas in 2017’. This plan included 28 cities in Beijing, Tianjin, Hebei, Shanxi, Shandong, and Henan within the air pollution transmission corridor of the Beijing-Tianjin-Hebei region. Among them, Beijing, Tianjin, Langfang, and Baoding were required to complete the establishment of ‘coal-ban zones’ by the end of October 2017.** Other cities along the transmission route are required to complete projects to replace coal with gas or electricity in 50,000 to 100,000 households each by the end of October, following the principle of using gas where appropriate and electricity where suitable. However, this region has a diverse source of natural gas resources; four pipelines carrying natural gas to Beijing have already been established in the Beijing area, and a fifth pipeline is currently under construction. Tianjin and Shandong have built imported LNG facilities. Multiple coal-to-gas plants have been planned and constructed in Shanxi, Inner Mongolia, and other regions. It is recommended that, where natural gas is available, hydrogen production facilities using natural gas be constructed first in this area. (3) For existing integrated oil refining enterprises with a capacity of less than 5.0 Mt/yr that do not engage in refining activities, these enterprises produce a large amount of fuel gas on-site, have low hydrogen demand, and face high costs associated with transporting dry gas; it is recommended that they use the dry gas produced locally to build hydrogen production facilities. (4) Existing urban-type refineries have stringent environmental requirements, and coal transportation is subject to many constraints; it is recommended to give priority to the hydrogen production route using a mixture of dry gas and natural gas, taking into account fuel balance. (5) Given the increasingly stringent environmental protection requirements, especially the \"Air Pollution Prevention and Control Law\" which stipulates that coke with a high sulfur content cannot be released onto the market (with a sulfur content of 3% or more), companies that process crude oil with high sulfur levels will face difficulties in finding outlets for their petroleum coke. In 2015, the price of petroleum coke with a sulfur content of over 3% was 680 yuan per ton, while in Qingdao and Tianjin, petroleum coke with a 7% sulfur content was sold at only 460 yuan per ton, which is roughly on par with the price of coal. In the future, as environmental protection requirements and transportation challenges increase, prices are expected to decline gradually. However, petroleum coke has a high hydrogen content. According to the chemical reactions involved in the conversion of hydrocarbon vapors, when the number of carbon atoms is the same, the higher the hydrogen-to-carbon ratio, the higher the theoretical hydrogen yield. If petroleum coke is used as a raw material for gasification, it can address both the issue of ensuring a stable supply of coal and the problem of finding a use for petroleum coke. It is recommended that enterprises of this type adopt the coke/coal hybrid hydrogen production route as the main approach. (6) At present, the hydrodesulfurization route is not economically viable for heavy crude oils with high metal content. It is recommended that this vacuum residue be subjected to mild solvent deasphalting first, and then combined with processes such as hydrogenation and catalytic cracking in order to maximize the conversion of the residue into light oil products. The resulting deasphalted residue can be used as a raw material for hydrogen production or as fuel for boilers. However, when the asphalt-based hydrogen production approach is included in refinery restructuring projects, its benefits are greatly influenced by the properties of crude oil, oil prices, and the options for end products, requiring comprehensive evaluation. (7) The supply capacity and prices of coal and natural gas are crucial in determining the fuel choice for the thermal boilers used in hydrogen production processes. Based on preliminary calculations using prices in the Shanghai area, the cost difference between the two fuels for a 10 Mt/yr oil refining system is approximately 500 million yuan ； There is a difference of 350 million yuan in the North China region. Considering the costs associated with hydrogen production, at the current level, for a refinery with a capacity of 10 Mt/year, natural gas is about 700 million yuan more expensive than coal in the Shanghai area; for a refinery with a capacity of 15 Mt/year, the difference is over 1 billion yuan. For integrated refining and chemical enterprises, coal serves as both fuel and raw material, giving them a more significant advantage (the annual cost difference is estimated to be around 2 billion yuan).