Brazil Energy Journal – Blue Hydrogen – Oil, Gas and Power

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Insight

Hydrogen gas (“hydrogen”), a non-metallic natural resource equivalent to oxygen, nitrogen and carbon in the periodic table, is a versatile energy carrier and raw material, derived primarily from the splitting of molecules water or the reaction of fossil fuels with steam or controlled amounts. of oxygen. Hydrogen has primarily been used as an input to a range of industrial processes and, if produced using low or zero emission sources, can enable deep decarbonisation in the energy and fuel sectors. ‘industry.

The main classifications of hydrogen are based on the sources of its production, directly reflecting the carbon footprint resulting from the production process. Thus, Hydrogen is classified in several ways, commonly translated into colors:

In this edition, the focus will be on Blue Hydrogen, produced from fossil fuels and with carbon capture stages (Carbon Capture Usage and Storage – CCUS) in its industrial process, in compliance with the principles of the energy transition.

Carbon capture use and storage

Although the international community is concerned about renewable energies (such as low-carbon hydrogen), global hydrogen production still relies mainly on industrial processes without carbon capture, use and storage – CCUS:

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In the context of the energy transition, Carbon Capture Usage and Storage – CCUS has the potential to reduce the release of CO², representing for example the difference between the production process between Gray Hydrogen (without CCUS) and Blue Hydrogen ( with CCUS).

Carbon storage aims to permanently trap CO² from hydrogen production in deep geological formations, ensuring that it does not return to the atmosphere. Salt caves, depleted oil and gas deposits and deep saline aquifers can be used for this purpose.

In addition, the captured CO² has several features, such as Enhanced Oil Recovery, which involves injecting CO² into active mature fields to increase pressure, resulting in increased oil recovery.

Legal framework

The Brazilian Federal Constitution establishes that the Brazilian Federal Government owns: (i) the natural resources of the continental shelf and the exclusive economic zone, and (ii) the mineral resources, including those of the subsoil1 that will guide the hydrogen exploration and production regime.

Thus, if the Hydrogen (White Hydrogen) is found outside the Continental Shelf or Exclusive Economic Zone, even in underground reservoirs, it will not be an asset of the Federal Government. Nevertheless, within the aforementioned limits, it will belong to the federal government and there must be a subsidy for its exploration (a matter not yet clarified by Brazilian legislation).

Thus, there are no hydrogen regulations yet in Brazil. Moreover, the fact that hydrogen can be obtained from several sources raises certain questions regarding the legal framework. Indeed, different regulatory bodies may be involved in its regulation, such as the National Agency for Petroleum, Natural Gas and Biofuels (“ANP”) and the National Agency for Electric Power (“ANEEL”). In this sense, hydrogen regulation needs to be institutionally aligned to avoid conflicts and ensure regulatory certainty.

As for blue hydrogen, it is derived from fossil fuels and is considered a by-product of the oil and gas industry. Thus, according to Law No. 9.478/97 (“Petroleum Law”), its regulation would appear to fall under the authority of the ANP, although hydrogen is not specifically listed as such.

Concerning the Carbon Capture Usage and Storage – CCUS, no regulation requires specific authorization. We think that a subsidiary application of the environmental rule within the framework of the authorization of exploration and production of natural gas can be an alternative in the implementation of the CCUS.

The Brazilian Blue Hydrogen Scenario

The Brazilian hydrogen economy is driven both by the guidelines of the National Hydrogen Program (“PNH2”) and by the national policy to improve the energy transition and reduce carbon emissions, such as established by Law No. 12,187/2009 (“National Climate Change Policy Law”). ) and the objectives defined by the Paris agreement.

In addition to the many pull factors surrounding Brazil’s hydrogen production capabilities, the country is further developing its own PNH2 which will be designed through dialogue between the federal government, the states and the market.

Therefore, given the global trend to work on the development of the hydrogen economy, the Brazilian National Energy Policy Council (“CNPE”) has already determined the drafting of the PNH2 and the allocation of the electricity and oil and gas. Research, development and innovation (“RD&I”) provided for by the regulations in force for Hydrogen development projects.

On June 23, the CNPE approved a resolution on the PNH2 and its governance in order to develop the hydrogen economy, with an emphasis on its use as an energy vector, and to create a management committee to establish guidelines strategies to be carried out by the thematic chambers, but it is still in the process of being approved by the President of the Republic. The PNH2 comprises 6 strategic axes: (i) strengthening of the scientific and technological bases; (ii) human resource training, (iii) energy planning; (iv) legal and regulatory framework; (v) market opening and increased competitiveness; and (vi) international cooperation.

Although there are no existing regulations for Brazilian blue hydrogen, there are certain attractive factors for the production and export of blue hydrogen:

Hydrogen Project Funding

Brazilian Development Bank – BNDES has a specific line of credit to support the implementation, expansion, modernization, construction, integration and assembly of facilities and/or services for the refining of petroleum and biorefinery, for the production of synthetic fuels, hydrogen and bioproducts, and for fuel storage.

New gas market

Law No. 14 134/2021, known as the New Gas Law, opened the natural gas market to private actors by attracting new investors to develop its activities in the country.

Increase in the natural gas network

It is also expected that Brazil’s gas network will be increased and integrated throughout the application of the resources allowed by the new gas law. Some projects are already under construction and licensed.

Strong carbon storage prospect

Brazil is one of the largest countries in territorial extension and has a vast area covered by sedimentary basins, both onshore and offshore, and also located near emitting sources. Several studies provide for the possibility of storage at different sites. One of them is the pre-salt caves, one of the most important areas in Brazil for oil extraction.

Prospects for CO2 storage in Brazil

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Next perspectives

Bill 725/2022, also known as the Hydrogen Bill, aims to amend the Petroleum Law to consider hydrogen as an energy carrier for a transition to a low carbon economy . It establishes the competence of the ANP to regulate, authorize and monitor the activities of the hydrogen chain in Brazil. The Hydrogen Bill also stipulates minimum standards for the incorporation of hydrogen volume in gas pipelines: (i) 5%, as of January 1, 2032, and (ii) 10%, as of January 1, 2032. January 2050.

Other upcoming regulatory discussions may relate to the applicability of RenovaBio (decarbonization public policy set by Executive Order No. 9,888/2019), as well as state and federal tax incentives for blue hydrogen.

Finally, it should be noted that blue hydrogen figures as an important energy resource in the context of the global decarbonization movement. Although there are no regulations yet in Brazil, the energy industry is eagerly awaiting the production of blue hydrogen and is already exploring its opportunities. Finally, it should be imperative that any future legislation is compatible with the speed and environment of open innovation that the Hydrogen chain needs to increase its market share in the energy matrix.

Footnote

1 Article 20, V and IX, Brazilian Federal Constitution

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© Copyright 2020. Tauil & Checker Advogados, a partnership under Brazilian law with which Mayer Brown is associated. All rights reserved.

This article provides information and commentary on legal issues and developments of interest. The foregoing is not a complete treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action regarding the matters discussed here.

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