ABU DHABI: Abu Dhabi National Oil Co or Adnoc has agreed to take a 35% stake in Exxon Mobil Corp’s proposed hydrogen project in Baytown, Texas, which is likely to be the world’s biggest once built.

The backing from the United Arab Emirates’s (UAE) national oil company is “another proof point of the overall momentum” behind the project, Dan Ammann, president of Exxon’s low-carbon division, said in an interview.

Exxon sees the plant starting up around 2029, about a year later than originally planned in part due to a disagreement with the Biden administration over whether the facility qualifies for tax credits under the Inflation Reduction Act.

“We’ve been quite clear with the administration and the relevant government entities on our view on that,” Ammann said. “We’re obviously waiting to see the final resolution of that process.”

Hydrogen is one of the key pillars of Exxon’s and other Big Oil’s low-carbon strategy.

They believe clean-burning fuel can utilise existing infrastructure like refineries and pipelines to help decarbonise heavy industry and create ammonia that can be used for fertiliser or shipped as fuel.

But despite the potential, large projects across the world have struggled to get off the ground due to a lack of customers.

Adnoc is the third major industrial partner to join Exxon’s project, which would produce one billion cubic feet of hydrogen per day and one million tonnes of ammonia a year.

Jera Co, Japan’s biggest power provider, signed a non-binding agreement in March to buy half of the ammonia and in June Air Liquide SA said it could use its pipelines.

The project will provide hydrogen for the refinery and local users and ammonia for export, said Michele Fiorentino, Adnoc’s executive vice-president for low-carbon solutions and business development.

“We’re really looking at building a portfolio of blue hydrogen supply capabilities,” Fiorentino said in an interview.

“We’re developing production capacity in what we estimate being the most cost competitive regions to do so.” Those are Adnoc’s home in the Persian Gulf and in the United States, he said.

This would be Adnoc’s second acquisition in the United States after the UAE oil giant in May agreed to buy a stake in NextDecade Corp’s liquefied natural gas export project in Texas.

The UAE, first among major Gulf oil producers to declare a 2050 net-zero target, is looking to technologies like hydrogen and carbon capture to help cut emissions even as it looks for ways to keep selling hydrocarbons to new industries.

Adnoc and Exxon didn’t disclose the value of the proposed transaction, which Fiorentino described as “very material.”

The project is among the lower-cost blue hydrogen proposals, he added.

The main sticking point for the Texas facility remains the government’s 45V tax credit. Under the current guidelines, incentives are earmarked for projects that produce so-called green hydrogen by using water and renewable energy.

Exxon’s plant will produce blue hydrogen from natural gas, which create carbon dioxide emissions.

Still, executives believe it should should qualify for the tax credits because an accompanying carbon capture project would remove 98% of those emissions.

 - Bloomberg