Lotus eyes building first US hydrogen pipelines

A lack of existing assets and doubts about the conversion potential of natural gas pipelines has prompted the manager to establish its own hydrogen pipeline platform.

Europe could have 28,000 kilometres of hydrogen pipelines by 2030, and 53,000 kilometres by 2040, across 21 countries. That’s according to a plan outlined by the European Hydrogen Backbone, an industry body of 31 energy infrastructure companies.

Some 60 percent of that plan would include repurposing existing pipelines, with 40 percent of the plan being to build new dedicated hydrogen pipelines. In the US, no such plan exists on either front, but this might be about to change, thanks to Lotus Infrastructure Partners.

“There is really no hydrogen midstream platform that exists right now in the United States, at least not that I know of. So there is a very limited set of operating midstream assets that already exist,” explained Himanshu Saxena, CEO of LIP, which recently spun out from Starwood Capital.

“If you produce hydrogen right now in this country, it’s hard and expensive to transport. Most of the hydrogen pipeline network that exists in the US at the moment is owned by some very large industrial companies to serve themselves and their own customers. And those pipelines are very concentrated geographically.”

But what the country lacks in pipeline, it makes up for in policy following last year’s passage of the Inflation Reduction Act, which introduced for the first time tax credits for hydrogen production, paying producers up to $3/kilogram of hydrogen from 2023 until 2032, depending on the CO2 emissions reduction.

“There’s a lot of demand that is starting to develop for green hydrogen, and green ammonia, both in the US markets and overseas,” Saxena said. “The IRA has accelerated the green hydrogen adoption by perhaps as much as 10 years.”

NeuVentus is a hydrogen transportation and storage platform established by LIP and owned wholly by it. “Lotus will own NeuVentus, but the management team has a stake in the business, as is typical for businesses like these,” explained Saxena.

NeuVentus is a new venture then in a new sector. Infrastructure Investor understands that the investment will come from Starwood Energy Infrastructure Fund III, which, as per its core-plus remit, will seek to make both brownfield and greenfield investments.

“For NeuVentus, we won’t build assets on a speculative basis. We will generally sign long-term contracts to rent capacity in these pipelines and salt cavern storage facilities,” Saxena said. “We as a manager have always been ahead of the curve and our investors are quite aware of that. For example, we invested in our current ammonia project four years ago; we were the only manager at that time with exposure to ammonia. Now, several folks are trying to develop new ammonia projects.”

The amount of capital Lotus has deployed towards the project remains undisclosed, though Saxena has indicated that it is subject to change. “This could be a platform that we invest several hundred million dollars in, maybe even more as time passes,” he said. “It will all come down to what the market is telling us.”

Nevertheless, there are more risks involved with hydrogen that cannot be simply contracted out. One includes leakage, which is often cited as an argument against transporting hydrogen through pipelines.

“Leakages are bad,” Saxena explained. “But though it’s a new space, we’re not dealing with technology risk. With the right materials and the right engineering, salt caverns and pipelines won’t leak hydrogen, provided they are built to deal with hydrogen – one of the smallest molecules – in the first place.”

Another risk that people discuss is increased competition from converted natural gas pipelines in the future, although this will be less of a threat for LIP, which will be creating new pipelines.

“Pipelines that were built to transport natural gas are completely different from those built to transport hydrogen,” Saxena explained. “They use different materials, and their specifications are completely different. Given the smallness of hydrogen, it is easy for it to escape a typical natural gas pipeline. Research has shown that it may not be safe to include even small percentages of hydrogen in current natural gas pipelines. A lot of research is underway to determine what level of hydrogen can be safely introduced in the current natural gas pipeline network. [The] jury is still out on that.”