UK-based Transitus Energy recently secured backing from Thai energy conglomerate Bangchak and expects to make its first investments in offshore natural gas assets within the next year. Hydrogen Economist spoke to Transitus CEO Jack Peck about the company’s strategy and the development of a market for low-carbon hydrogen.

Talk us through your business model

Peck: We are building a vertically integrated hydrogen company. From this perspective, we view natural gas as a feedstock, we do not view it as the endgame. We are not an oil and gas company, so we will not make a return for shareholders from exploring for natural gas or greenfield development of oil and gas properties. We would want to maximise economic recovery of existing gas properties. But our return to our shareholders is based on hydrogen growth and the evolution and the development of the hydrogen model itself.

If the UK government authorises blending, then it creates an actual hydrogen market almost overnight

What would you need in terms of physical infrastructure to execute this strategy?

Peck: Ideally, we would acquire a gas platform which would have two reservoirs attached to it—one of which was depleted or nearly depleted, and the other one would still be producing natural gas. We would have two pipelines. The natural gas would continue to be produced until it basically ran out. But the other pipeline would be used to ship CO₂ into the depleted reservoir for sequestration. We would put a hydrogen refinery on the beach to convert the natural gas into hydrogen, and the resulting production of CO₂ would then be shipped offshore and put into a permanent storage site.

Are you are looking primarily at the Southern North Sea?

Peck: The Southern North Sea is ideal in many ways because it is shallow water. There is lots of natural gas there and old natural gas fields that are ideal for CO₂ storage. But Scotland also has a tremendous potential for carbon dioxide storage. Norway is of interest to us and the Netherlands—basically, we are open to the whole of the North Sea and, of course, Ireland.

How close are you to making an investment?

Peck: We are involved in a number of bilateral processes that we hope will be successful. As a startup we are very careful with the type of assets that we will bring on board.  We want to be sure that there is economic value left within the properties, and we want to make sure that they adhere to our desire to decarbonise—that means we are not interested in leaky old gas infrastructure.

One of the reasons why we want to be vertically integrated is that we want control over the entire value chain to the extent that we can demonstrate that fugitive emissions are minimised throughout the chain. That is extremely important and that that is what is driving our desire to own or have an ownership interest in these assets.

And how challenging is the market for these assets?

Peck: The market is tough because of where natural gas prices are today, but prices will come down from their present levels. We have gone from historic low gas prices to historic highs. In a sense it is a fake market, because we are shipping regasified LNG through the UK to supply the German market.

We aim to invest within the next 12 months, at the latest.

One of the big challenges for new hydrogen projects and, indeed, the whole hydrogen sector is the need for long-term demand and offtake agreements. How are you approaching this in terms of your project?

Peck: We are developing two different types of market. One is a point-to-point market—selling hydrogen directly to users. This is similar to the classic natural gas point-to-point market, and it is what the natural gas market used to be in this country and is elsewhere around the world.

We are also very interested in blending hydrogen into the existing natural gas network. If the UK government authorises blending, then it creates an actual hydrogen market almost overnight. It moves away from a point-to-point market, and it enables a free market in hydrogen similar to the current natural gas market in the UK. This would mean independents such as Transitus could develop hydrogen opportunities that would not necessarily be available if it was a point-to-point supply market because the transportation infrastructure linkage would not necessarily need to be put in place.

We want to be sure that there is economic value left within the properties, and we want to make sure they adhere to our desire to decarbonise—that means we are not interested in leaky old gas infrastructure

Blending would also be a low-cost decarbonisation strategy; it is low-hanging fruit for government. Blending at 20pc amounts to 7–9pc of UK’s the total CO₂ emissions per annum, or 2.5mn cars equivalent in CO₂ emissions removed per annum, according to transmission and distribution body the Energy Network Association. This reduction could be achieved at very little cost to government and consumers. It would not need massive subsidies, nor would it require any expenditure in the home as people's cookers, appliances and gas meters do not need to be changed up to a level of 20pc hydrogen.

Blending hydrogen is affordable to government and consumers; it can decarbonise the natural gas supply in just a few years rather decades for other decarbonised energy, making it more sustainable, and it brings certainty to the UK energy supply by using our existing gas and gas import facilities.

Bangchak has come in as a cornerstone investor in Transitus. Are you seeking further investment?

Peck: We want to accelerate decarbonisation and build the hydrogen economy now. More investors will enable more acquisition and construction of hydrogen infrastructure, both upstream and midstream, as well as pipelines and hydrogen refineries. And it would mean deeper development of the hydrogen market, including retail and industrial sales.

What is the outlook for attracting private finance to hydrogen projects?

Peck: Beyond investors, I think the real opportunity for us is attracting private finance into hydrogen projects. If government enables hydrogen blending, then a hydrogen market will have been created which will attract far more private financing from the banks than if it was just a point-to-point market.

Lending into a point-to-point market relies on a creditworthy offtaker to pay the contract. If you do not have that it is very difficult to raise senior debt finance. The smaller industrial users may be challenged to meet lenders’ requirements. Having been a banker for years, I can say that a point-to-point market for smaller industrials would find it difficult to actually attract private finance.

The hydrogen economy would thus be very localised and likely government-supported. So, we think it is imperative the government authorises blending, thereby establishing a free market in hydrogen so the UK can go deeper and further into decarbonising the economy. This would enable smaller users to take hydrogen into their fuelling and industrial processes just like they do with natural gas. The hydrogen market penetration would thus be larger, quicker and with less government subsidies. This is what we advocate if you want rapid decarbonisation of the UK economy.

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Author: Stuart Penson