O&G players to gain from hydrogen hype

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KUALA LUMPUR: As hydrogen gains traction as a viable and sustainable fuel source, traditional players in the oil and gas (O&G)sector that have existing infrastructure to support its production stand to benefit from its rising prospects.

Petroliam Nasional Bhd (Petronas) has started exploring hydrogen potential from its existing plants.

The oil and gas giant has recently signed a memorandum of understanding (MoU) with Tokyo-based ENEOS Corp to explore “low-carbon” hydrogen production from Petronas’ petrochemical facilities and green hydrogen produced by renewable energy.

The MoU also covers a technical-commercial joint study to develop a competitive clean hydrogen supply chain between Malaysia and Japan.

The study, which will be eligible for funding from the Japanese government’s Green Innovation Fund, includes hydrogen production, transportation in methylcyclohexane form and conversion from its original gaseous state into a liquid form to enable large- volume deliveries.

Petronas already produces “low carbon” blue hydrogen as a by-product from its existing facilities and is looking to explore commercial production of green hydrogen as it also looks to achieve net zero scope one and two carbon emissions by 2050.

Petroliam Nasional Bhd (Petronas) has started exploring hydrogen potential from its existing plants.

AmInvestment Bank noted that further development in this area could offer Petronas’ subsidiaries an opportunity to widen their revenue stream.

“Petronas’ subsidiaries such as Petronas Chemicals Group Bhd and Petronas Gas Bhd have the existing infrastructure and are well- positioned to begin investing in natural gas-to-hydrogen production, which could diversify their revenue stream.

“Support providers such as Dialog Group Bhd, which has built liquefied natural gas terminals in Pengerang and provide specialist and plant maintenance services, may also be able to participate in the value chain,” it said in a report yesterday.

The brokerage pointed out that the development of liquid organic hydrogen carrier technology has gained traction due to its chemically stable nature that allows for long-term storage and long-distance transport as well as leveraging on existing conventional oil and petrochemicals infrastructure.

This evades the need to develop new assets, hence improving its cost-competitiveness, scalability and ultimately, financial viability for established energy players.

The world’s largest crude oil exporter Saudi Arabia already has plans to invest in a US$5bil (RM21bil) green hydrogen facility at the site of its NEOM smart city project.

Nonetheless, AmInvestment Bank said not every oil and gas outfit would jump on the hydrogen bandwagon.

“While exploration and development operators such as Sapura Energy Bhd and Hibiscus Petroleum Bhd produce natural gas, we do not see their near-term involvement in this early-stage technology, which is only likely to be borne by Petronas with a much stronger capability, balance sheet and governmental support.

“Likewise, even though other smaller service providers such as KNM Group Bhd may have the expertise in fabricating containment vessels and processing equipment, we are uncertain of their financial capability at this juncture,” it said.

The research house kept its “overweight” call on the oil and gas sector amid expectations of upward earnings trajectory for the industry and for the fact that investments to-date is still below Petronas’ annual capital expenditure plans.

Within the oil and gas sector, AmInvestment Bank continues to like Dialog Group for its resilient non-cyclical tank terminal and maintenance-based operations and Yinson Holdings Bhd for its strong earnings growth momentum.

The brokerage also favours Sapura Energy as its RM10bil debt restructuring package positions it to secure fresh global orders, while noting Petronas Gas offers highly compelling dividend yields.