Hydrogen from Renewables or Fossil Fuels? The Panamanian Question

Ships await their turn to cross the Panama Canal from the Pacific to the Atlantic Ocean. Credit: Emilio Godoy / IPSby Emilio Godoy (panama)Friday, August 09, 2024Inter Press Service

PANAMA, Aug 09 (IPS) - In 2021, the Panama Canal welcomed a French experimental ship on a world tour, the Energy Observer, the first electric vessel powered by a combination of renewable energies and a hydrogen production system based on seawater.

The vessel exemplifies Panama's aspiration to become a regional hub for hydrogen, the most abundant gas on the planet, but faces the existential decision of whether to generate it from renewable energy or fossil gas.

This Central American nation of just over four million people is developing, albeit belatedly, the first phase of its roadmap to materialise the National Green Hydrogen and Derivatives Strategy, approved in 2023.

For Juan Lucero, coordinator of the Ministry of the Environment's National Climate Transparency Platform, green hydrogen would be the best option, given its renewable energy, strategic position and the influence of international policies to reduce greenhouse gas (GHG) emissions in sea transport.

"Panama has natural gas, and companies are interested in taking part in this business, in this case blue hydrogen. If Panama wants to be a hub, then blue is a good option," he told IPS.

He stressed that "for Panama, it has always been a priority to provide services, to be an energy hub. We have tradition, experience, history, as a hub for supplying bunker (a petroleum distillate) ships. The idea is to achieve that transition."

The production of hydrogen, which the fossil fuel industry has been using for decades, has now been transformed into a coloured palette, depending on its origin.

Thus, "grey" comes from gas and depends on adapting pipelines to transport it.

By comparison, "blue" has the same origin, but the carbon dioxide (CO2) emanating from it is captured by plants. Production is based on steam methane reforming, which involves mixing the first gas with the second and heating it to obtain a synthesis gas. However, this releases CO2, the main GHG responsible for global warming.

Meanwhile, "green" hydrogen is obtained through electrolysis, separating it from the oxygen in water by means of an electric current.

The latter type joins the range of clean sources to drive energy transition away from fossil fuels and thus develop a low-carbon economy. Today, however, hydrogen is still largely derived from fossil fuels.

In its different colours, Panama joins Argentina, Brazil, Chile, Colombia, Costa Rica, Ecuador, Paraguay, Peru and Uruguay in having national hydrogen policies.

Penonomé wind farm, located in the central Panamanian province of Coclé. Credit: Emilio Godoy / IPS

Ambition

In 2022, the Panamanian government created the High Level Green Hydrogen and Green Hydrogen Technical committees to drive the roadmap in that direction.

But it has not made progress in the creation of free zones for trade and storage of green hydrogen and derivatives; updating regulations; and encouraging port activities to use electric vehicles, install decentralised solar systems, introduce energy efficiency and generate heat through solar thermal energy.

The green hydrogen strategy approved in 2023 includes eight targets and 30 lines of action, foreseeing the annual production of 500,000 tonnes of this energy and derivatives, to cover 5% of the shipping fuel supply by 2030.

In 20 years, the estimate rises to the supply of 40% of shipping fuels.

But this potential would require 67 gigawatts (Gw) of installed renewable capacity, which is a substantial deployment in a country whose economy is highly dependent on the activity of the inter-oceanic canal between the Pacific and the Atlantic, inaugurated in 1914 and expanded a century later, in a project that doubled its capacity and came into operation in 2016.

In 2023, the Panamanian energy mix relied on hydropower, gas, wind, bunker, solar and diesel, with an installed capacity of 3.47 Gw at the start of 2024. Panama currently has at least 31 photovoltaic plants and three wind farms.

Electricity generation accounted for some 24 million tonnes of CO2 emissions in 2021, with the largest contributors being energy (70%) and agriculture (20%).

But in 2023, the country declared itself carbon neutral, i.e. its forests capture the pollution released into the atmosphere, having a negative balance in GHG emissions.

The national strategy includes the construction of a 160 megawatt (MW) solar plant and an 18 MW wind power farm in the centre-south of the country, as well as a second 290 MW photovoltaic plant in the northern province of Colón.

In this province, a green ammonia production plant is planned to supply the future demand for shipping fuel, with an annual production of 65,000 tonnes and an investment of US$ 500 million.

The global shipping sector considers hydrogen, ammonia and its derivative, methanol, to be viable. The latter, which is also used to make fertilisers, explosives and other commodities, can be obtained from green hydrogen.

A demand of up to 280,000 tonnes of green ammonia per year is projected by 2040, which would require the installation of 4.2 Gw of electrolysis.

Leonardo Beltrán, a non-resident researcher at the non-governmental Institute of the Americas, told IPS about the process of building strategies, institutional vision, and short, medium and long-term goals.

"They have taken giant steps in a relatively short period of time. They already have the infrastructure, the canal. If that demand is met, it could be a game changer. If you can connect the canal to other ports, to the United States or Europe, they could very well have that (green) corridor that would anchor a relevant demand. That would boost on-site and also regional generation," he said from Mexico City.

With support from the Inter-American Development Bank (IDB) and the United Nations Environment Programme (UNEP), Panama is developing pre-feasibility projects on the production of green hydrogen, its conversion to ammonia and the installation of an ammonia dispatch station as a clean shipping fuel, and on the production of green aviation paraffin.

The roadmap found to be more feasible the production of hydrogen in Panama, the import of green ammonia and the processing of green shipping fuel.

Panama aspires to become a regional hub for green hydrogen, obtained from water and renewable energy sources, including gas and ammonia production plants. Infographic: National Energy Board

Also, the country is considering manufacturing green paraffin for aviation, given that it hosts an air transport hub in the region, although testing is in its infancy and involves a much longer process than in the case of shipping.

Harmonisation

The hydrogen strategy is a function of Panama's logistical, energy and climate change needs.

Panama currently has 10 tax-free fossil fuel areas, with storage capacity of more than 30 million barrels (159 litre) equivalent and one liquefied fossil gas area, which are tax exempt and could be the model for future hydrogen generation areas.

In 2021, the country shipped 42.79 million tonnes of fuel to more than 44,000 vessels, a figure that will grow by 2030. By comparison, hydrogen passing through the canal would total 81.84 million tonnes in 2030 and 190.96 million in 2050.

In its voluntary climate contributions under the Paris Agreement, Panama pledged to reduce total emissions from the energy sector by at least 11.5% in 2030, from its 2019 level, and by 24% in 2050.

In parallel, as of 2021, the Panama Canal, through which 6% of world trade passes, is implementing its own Sustainable Development and Decarbonisation Strategy.

The autonomous Panama Canal Authority's plan includes the introduction of electric vehicles, tugboats and boats using alternative fuels; the replacement of fossil electricity with photovoltaics and the use of hydropower, to become carbon neutral by 2030, with an investment of some US$8.5 billion over the next five years.

The canal reduces some 16 million tonnes of CO2 each year.

Tolls and shipping services are its biggest sources of revenue, and thus the importance of developing shipping fuels based on clean hydrogen.

In the first nine months of 2023, 210.73 million long tons (1,016 kilograms) went through the interoceanic infrastructure, down from 218.44 million in the same period in 2022.

Of the total cargoes, one third are fossil fuels. Container, chemical, gas and bulk carriers are the main transports.

Lucero said the country is looking for investments in renewable energy, particularly green hydrogen.

"This market has to be developed in an orderly way. Demand has to be driven; otherwise, the investment will not be profitable. There are uncertainties, but the line that has been taken is that hydrogen is the future and we want to break away from being followers to become leaders, to seize the moment to develop and be prepared when the boom arrives," he stressed.

For expert Beltrán, if the government that took office on 1 July follows this route, it would send a strong signal to the sector and thus pull the shipping sector toward energy transition.

"Replacing imports with local product is more convenient, and the way would be with the available, renewable resource. That would impact local development and contribute to the energy transition agenda," he said.

© Inter Press Service (2024) — All Rights ReservedOriginal source: Inter Press Service