Originally published on Forbes.com on February 2, 2022

How does an oil-and-gas state keep or replace the revenue coming in and still find a glide path transition to renewable energies? One governor has proposed hydrogen as a solution.

If you thought this state was California which tries to be first in everything, its not. If you thought it was Texas, which tries to be first in energy everything, its not.

It’s a poor-sister state with a very rich oil deposit – the Delaware basin – and the state is number 2 in oil production. The Delaware basin is the premier oil and gas basin in the USA. The value of oil and gas at the wellhead in New Mexico was $24 billion/year in 2019 and probably a bit more in 2021 — a staggering amount of money.

So why is New Mexico debating the role of liquid hydrogen fuel in its future? Part of the reason is a linkage to the oil and gas industry in the state. The cheapest way to create liquid hydrogen is from natural gas, which the state has plenty of.

A second reason is New Mexico, under a democrat governor, has taken an aggressive stance on arresting global warming. Hydrogen as fuel for heavy-duty trucks, airplanes, ships, and manufacturing industry seems like an ideal solution for these hard-to-abate greenhouse gas (GHG) emitters.

Source: The Albuquerque Journal, Mountain View Telegraph.

The fabulous Delaware basin.

Two monster wells drilled by Devon Energy were announced in 2018 making 11,000-12,000 boe/d (barrels of oil-equivalent per day) in an early 24-hour period.

Royalties and taxes on 45,000 wells provide revenue to the state and it’s been a windfall in recent years. For FY 2021, the $2.96 billion revenue was 35% of the state budget, with over $1.4 billion going to education and over $0.6 billion to health services. 

The climate dilemma.

Now let’s step over the fence and see what’s on the other side. In New Mexico, the oil and gas sector generated 60 million metric tons of greenhouse gas (GHG) emissions in 2018 which is 53% of the state’s total and 1% of the US total emissions. Methane makes up 35% of New Mexico’s greenhouse gases (c.f. a figure of 10% nationally) and in this state most of it comes from the oil and gas sector.

Governor Michelle Lujan Grisham has set a goal to reduce by 45% methane emissions between 2005 and 2030. New rules have been established by New Mexico in 2021 to reduce methane leaks and gas flaring, and these are now some of the strongest state rules in the country.

The state government also committed in 2019 to transition to energy renewables by reducing GHG emissions to net-zero over the whole economy by 2050. This has two consequences: 

• The goal for the state is for electricity to be carbon-free by 2040. This means no more coal or gas-fired power plants. This would reduce demand for natural gas. For the whole US, it’s been estimated gas demand would fall by 39% by 2035 (updated numbers).
• Cars and trucks will change over to electric vehicles on the way to net-zero. This will reduce demand for gasoline and therefore oil. For the whole US, oil demand would fall by 34% by 2030 (updated numbers).

The picture is one of a juggling act, with lawmakers of New Mexico trying to create a balance between a very profitable oil and gas enterprise and a climate-motivated transition from fossil energy to renewables. How does a state like New Mexico achieve this? How do whole countries achieve this?

The hydrogen option.

One potential answer that involves the oil and gas industry is the liquid hydrogen option. The governor has recently proposed House Bill 4, called the Hydrogen Hub Development Act. It was discussed last week in a conference set up by a House committee.

Tax incentives would be provided to start a new industry that would be part of the transition to renewable energies. The new industry would link to the booming oil and gas industry which would provide the natural gas to produce the hydrogen and then sequester or bury the carbon-dioxide bi-product underground – a process called carbon capture and storage (CCS). Hydrogen generated in this way from methane is called blue hydrogen.

The bill would reduce GHG emissions in certain applications where battery storage is not large enough, including airplanes, ships, and steel or cement manufacturing plants.

A brand-new industry in blue hydrogen generation would provide good-paying jobs, particularly in parts of the state where coal-burning power plants are shutting down.

Two positions in New Mexico debate.

The conference set up by the House committee was attended by hundreds of industry people, environmental proponents, and other interested parties. After six hours of debate, the House committee voted 6 to 4 to table the hydrogen bill. Here is a summary of arguments for and against the concept of a blue hydrogen hub in New Mexico.

Those in favor of the concept.

• The oil and gas industry has lobbied for funds in the federal Infrastructure Bill, now law, to be used to develop hydrogen as a clean liquid fuel.
• Hydrogen is a clean-burning fuel that could be used in steel and cement plants, heavy-duty trucks, aviation, and seagoing vessels. A successful hydrogen industry would boost efforts to reduce GHG emissions in New Mexico.
• In New Mexico, tax incentives would be provided to start a new industry that would be part of the transition to renewable energies, as committed by the state. The new industry would link to the booming oil and gas industry that would provide the natural gas to produce the blue hydrogen and sequester the carbon-dioxide bi-product underground via CCS.
• The new industry would provide good-paying jobs and would benefit communities in northwest New Mexico where coal mines and coal-burning power plants are being closed.
• The new industry in cooperation with oil and gas would represent part of the glide path from fossil to renewable energies.

Those against the concept.

• 99% of hydrogen today is called blue hydrogen which comes from methane, so this method will maintain the production of natural gas. But this entails methane leaks at wellheads, in pipelines, and in gas-processing facilities, and methane has a much greater global warming effect than its more common GHG sister, carbon dioxide.
• The bi-product of the breakdown, carbon dioxide, will need to be stored deep underground via CCS. But CCS has its own scale-up challenges.
• These are two big negatives that handicap the benefits of clean blue hydrogen. Reason says the approach is more difficult than simply divesting from production of oil, gas, and coal, and reinvesting in established renewables like wind and solar.
• Prioritizing blue hydrogen would divert state investment in more direct ways: clean electricity from wind and solar, new transmission grid lines, electric vehicles, and fixing methane leaks in wellheads and pipelines.
• According to Rystad Energy, a hydrogen fuel industry, which is expensive, will be too little too late. By 2050, only 7% of global energy will be hydrogen to service a niche industry for fueling aviation, ocean transport, and metals and chemicals factories.  

A spokesperson for the governor promised the bill would be brought up again during the ongoing annual session of the legislature.