ASSESSING THE PERFORMANCE DIMENSIONS OF HYDROGEN SUPPLY CHAIN PATHWAYS USING LIFE CYCLE SUSTAINABILITY ANALYSIS (LCSA) AND NETWORK ANALYTICS
Ir. Camilo Fernando
Associate Member Energy Institute | Structural Engineer | MBA Energy Management, MS Offshore Engineering, BE Mechanical Engineering
ABSTRACT
This paper aims to propose a futuristic sustainable hydrogen supply chain model for the hydrocarbon industry and evaluate its performance parameters in the environmental, social, and economic dimensions utilising network analytics. With increasing global calls towards de-carbonization and net-carbon neutrality by 2050, there is a serious drive towards finding alternate low-carbon energy sources in the energy industry. The ‘Decarbonization Revolution’ has driven Reliance Industries Limited (RIL) India towards creating a sustainable clean energy supply chain and making the company net carbon neutral by 2035. Hydrogen, being not only the cleanest form of fuel but also a potential energy carrier, has been gaining momentum as an alternative to fossil fuels across world governments, industries, and international agencies (IEA, 2019). The "Hydrogen Value Chain", both as a fuel and an energy carrier, is examined using network analytics tools to propose a sustainable hydrogen supply chain for the hydrocarbon division of RIL, through the lens of the triple bottom line concept.
EXECUTIVE SUMMARY
Methods
To understand how RIL caters to the hydrocarbon markets, its current business model is analysed using the business model canvas, while viewed through the lens of the canvas’ nine inter-linked supply chain building blocks (Osterwalder et al., 2011), which are graphically visualised using the network analysis tool, Gephi. Next, a detailed literature review is performed that involves two sections. Firstly, the use of hydrogen in the energy industry is briefly discussed, and Gephi is used to fully understand and observe the value chain of hydrogen and its global supply chain. This is done to obtain insights into the energy transition possibilities where RIL can effectively contribute and integrate into its own supply chain.
Secondly, a study on sustainability and performance dimensions using the concept of life cycle sustainability analysis (LCSA) was performed for designing a sustainable hydrogen supply chain network (HSCN) considering environmental, economic, and social aspects at every stage in the overall supply chain. The technical platform for this paper is developed in two stages. First, an innovative business model for RIL is developed that critically evaluates areas where RIL can integrate into the hydrogen supply chain. The network analytic tool, Gephi, is used to show this integration into the hydrogen production focus points. This is followed by an attempt to categorise the environmental, economic, and social impacts of each potential option for RIL, using the LCSA framework discussed in the literature review. For this step, critical ranking parameters are provided on a scale from 1 to 6 (Ciroth et al., 2011) to generate a table highlighting the segment’s risks for every proposed RIL’s hydrogen integration options.
Results
Using the technical platform developed in this paper, it can be observed that RIL can become a producer of hydrogen using its existing infrastructure and technologies. Blue hydrogen can be produced by the steam methane reforming process from its natural gas production channels with Carbon Capture & Storage (CCS) through pipeline networks to offshore underground hydrocarbon reservoirs. The second area where RIL can integrate into the hydrogen supply chain is through direct electrolysis, where RIL can form direct partnerships with solar and wind power companies to produce Green Hydrogen. RIL can also collaborate with nuclear power companies for the generation of Pink Hydrogen. RIL can also partner with existing thermal power plants that use fossil fuels for power generation to create Brown Hydrogen. By using network analytics tools and LCSA concepts, a technical platform was developed to study the global supply chain network of hydrogen and suitable energy transition options for RIL to integrate into the hydrogen market are proposed, considering environmental, economic, and social factors.
1. INTRODUCTION
For this individual project, I aim to propose a sustainable Hydrogen supply chain of the future for the hydrocarbon divisions of Reliance Industries Limited (RIL) India, considering performance parameters in the environmental, social, and economic dimensions. I will be using network analytics tools to understand RIL’s hydrocarbon segment’s current business model and further delve into possible future sustainable hydrogen business models, using relevant supply chain concepts and popular trends in the global energy industry.
My reason for selecting this topic is two-fold. First, I have gained valuable insights and experience in designing and commissioning of offshore oil & gas projects as an offshore engineer with RIL. However, with the increasing global calls towards de-carbonization and net-carbon neutrality by 2050, there is a serious drive towards finding alternate low-carbon energy sources in the energy industry. Secondly, I want to deepen my knowledge on supply chain management by exploring and using network analytics tools as a lens, to further develop my skillsets.
THE COMPANY - RELIANCE INDUSTRIES LIMITED
Let me start by giving a brief introduction about the company Reliance Industries Limited (RIL) and its hydrocarbon segment. RIL is India’s most profitable and largest private sector conglomerates with a record sale of USD 104.6 billion between April 2021 & March 2022, becoming the first Indian company to generate an annual revenue of more than USD 100 billon (Pratap, 2022). As of May 2022, RIL had a market capitalisation of USD 228.6 billion, ranking 54th in the Forbes Global 2000 list, employing 236,334 personnel across five primary segments, namely, Oil to Chemicals (O2C) [Assets: USD 41.6 billion], Oil & Gas [Assets: USD 4.5 billion], Retail [Assets: USD 2.32 billion], Digital Service [Assets: USD 8.4 billion] & Financial Services [Assets: USD 3.3 billion] among others as shown in the appendix (Reliance Industries Limited, 2022b). The hydrocarbon segment of RIL comprises of the upstream ‘Oil & Gas’ and downstream ‘Oil to Chemicals’ segments. The upstream segment involves in the exploration, development and production of natural gas and crude oil. The downstream segment operates in the hydrocarbon refining, petrochemicals, and fuel retailing sectors.
To understand how RIL caters to the hydrocarbon market, it is imperative to critically evaluate its current business model. The business model canvas is utilized to carefully analyse how RIL creates and delivers value to its markets, while viewed through the lens of the canvas’ nine inter-linked supply chain building blocks (Osterwalder et al., 2011). A graphical visualization of the nine building blocks using network analysis tool Gephi as shown in Figure 1.
RIL’s (Reliance Industries Limited, 2022c) key activities involve the exploration and production of natural gas & crude oil, the refining & production of petrochemicals along with the marketing, trading, sales of products and services the offer. The predominant value proposition of RIL in the hydrocarbon sector is the production of oil & natural gas for the upstream segment and petrochemicals for the downstream segment. The major customer segments that RIL caters to are a segmented and multi-sided market involving industrial sectors like steel and fertilizer companies, power generation sectors, transportation sectors and domestic household sectors. The supply channels that RIL utilizes to deliver products are either direct company owned or indirect partner distribution and delivery channels that include pipelines from production plans, gas stations and ship/truck-based transportation across the supply chain. RIL secures and builds on its reputation and brand value by forging various customer relationships that include long term contracts in the steel & fertilizer industry segments, various government & privately owned power industries and fuel outlets in the transportation segments by ensuring reliable, competitive & quality supply across the network.
RIL’s key resources are its intellectual and human capital, along with other physical and financial assets, that include the world’s largest hydrocarbon refinery complex at Jamnagar in the north-western state of Gujarat, along with major oil & gas processing and production facilities adjacent to offshore blocks like KG-D6, off the coast of Kakinada in the south-eastern state of Andhra Pradesh. Key Partners include the various governing and regulative organisations in the Government of India, along with other major oil & gas companies such as ONGC, Cain Energy, etc, where RIL forms a relationship of coopetition for the joint development of offshore oil & gas fields utilizing existing infrastructure. RIL also partners with key contractors such as British Petroleum and Saudi-Aramco for project management, technology, and capital transfer, while partnering with energy distribution companies such as Indian Oil, Hindustan Petroleum, and state-run power companies for its downstream supply chain. Revenue streams of RIL include transaction revenues from B2B & B2C sales, while recurring revenues are generated from the licencing and dynamic pricing contracts for the supply of natural gas, crude oil, and refined petrochemicals to the customer segments. RIL’s cost structure comprise of direct and indirect taxes, capital and operating expenditures that arises with the investment, operation, and maintenances of its assets both onshore and offshore, along with dividend payments to its shareholders among others.
PRESSING ISSUES – THE DECARBONIZATION REVOLUTION
The rapid industrialization and globalization of supply chains across every possible sector, has propelled humanity into a period of great scientific, economic, and technological advancements. However, such advancements and global connectivity also come with substantial risks and dangers that could adversely impact the long-term sustainability of our environment and society. The recent COVID-19 pandemic and global climate change due to greenhouse gas emissions from industrial activities are indicators of this danger. Accordingly in December 2015, 196 countries came together to ratify a legally binding international treaty on climate change, called the ‘Paris Agreement’ (UNFCCC, 2022) with a goal to limit global warming to below 2 degrees Celsius compared to pre-industrial levels. This was a landmark event in world history, wherein a binding agreement brought together all countries to combat global climate change by aiming to reach net-carbon zero by 2050.
The ‘Decarbonization Revolution’ has driven RIL towards creating a sustainable clean energy supply chain and making the company net-carbon neutral by 2035 (Reliance Industries Limited, 2022a). Hydrogen, being not only the cleanest form of fuel but also a potential energy carrier, has been gaining momentum as an alternative to fossil fuels across world governments, industries, and international agencies (IEA, 2019). The goal of this project is to critically examine the ‘Hydrogen Value Chain’ both as a fuel and energy carrier, using network analytics and up-to-date literature review on Hydrogen life cycle sustainability analysis for proposing a sustainable hydrogen supply chain for RIL, through the lens of the triple bottom line concept.
2. LITERATURE REVIEW
The literature review for this project is conducted in two parts. First the use of hydrogen in the energy industry is briefly discussed and the hydrogen value chain is explored using network analysis tools. Second, the concept of Life cycle sustainability analysis (LCSA) is used to further investigate into the hydrogen supply chain network design. This is followed by building up the technical platform using LCSA concept to critically evaluate areas where RIL can participate in the hydrogen value chain. I will be using network analytics to fully understand the value of hydrogen as shown in the appendix and observe its global supply chain to get further insights on the possibilities where RIL can effectively contribute and integrate into its own supply chain.
Hydrogen Value Chain
From the figure 2, it is clear that the Hydrogen value chain is linked to many other cross-sector supply chains throughout every stage of its life cycle, namely the production, supply and distribution and end use sections (Hydrogen TCP, 2022). Starting at the hydrogen production stage, hydrogen has multiple sources of production that can be illustrated using colour code to highlight the various methods of production. Principally hydrogen can either be produced directly from fossil fuels like coal or natural gas using techniques such as steam methane reforming (SMR) or direct cracking/gasification, or produced via electrolysis process, a.k.a. Power to H2, where electricity is used in electrolysers to process water into hydrogen and oxygen (Synnøve Bukkholm et al., 2021). Grey hydrogen refers to the former technique where hydrogen is obtained directly from fossil fuels and there is no carbon capture or storage (CCS) process to trap the CO2 produced. Blue hydrogen is similar to grey hydrogen in terms of hydrogen production, but the carbon emissions produced are effectively captured and stored in underground offshore gas fields. Green hydrogen refers to the production of hydrogen from electrolysers, only if the energy used for such process is sourced from renewable energy sources like wind and solar power. If the energy for hydrogen generation is sourced from nuclear power plants, then the resulting hydrogen is called pink hydrogen. If the energy source is from fossil fuels, then the hydrogen produced is called brown hydrogen. Other methods of H2 production do exists such as from biomass and R&D production methods (Hydrogen TCP, 2022).
The hydrogen supply and distribution stage show that hydrogen can be stored either as a gas or a liquid under various pressure and purity ranges. It can also be shipped, either through pipelines or ship/truck transportation, in its pure form or mixed with other compounds such as methane, ammonia and methanol (Mitsubishi Power, 2021). The hydrogen end users are a separate supply chain of consumers and power to power distributers, where excessive renewable energy from solar and wind power can be used to produce hydrogen when supply outstrips demand, which is the then stored and transformed back to electricity using fuel cells when the demand surges through grid integration services. Consumers include primary applications such as mining and mineral processing, in industrial applications as a feed stock, high grade heat producer or in other de-carbonization processes, and finally in the production of fertilizers. Hydrogen can also be converted into synthetic fuels for decarbonization of shipping and aviation fuels. It can also be used as fuel in the transportation sector, either directly in internal combustion engines or for producing electricity onboard fuel cell electric vehicles. Hydrogen also has use in residential applications being the supplier of energy and heating.
Sustainability and Performance Dimensions
The United Nations Brundtland Commission’s definition on ‘Sustainability - as the ability of meeting the demands of the present, without undermining the ability of future generations to meet their own’ (Brundtland, Khalid, 1987) has been influential in creating a highly prominent global view on the subject. However, Troullaki et al, (Troullaki, Rozakis & Kostakis, 2021) highlights that it has also been criticized as being vague and ambiguous (Mebratu), (Purvis, Mao & Robinson, 2019), (White, 2013). From the research works of Troullaki et al (Troullaki, Rozakis & Kostakis, 2021), it is clear that sustainability has been gaining popularity in academic and industrial supply chain circles since the early 2000s. However there have been several approaches to this concept, namely ‘Sustainability Science’, ‘Sustainability Assessment’ and ‘Life cycle sustainability assessment (LCSA)’. Of these approaches, the LCSA is the most recently developed which assesses the sustainability of a process or system by integrating the social, environmental, and social parameters (Iribarren et al., 2019). Initially developed by (Klöpffer, 2008) the LCSA approach integrates selected parameters that measures the economic and social impacts and builds upon existing Life cycle assessment (LCA) methods that measure environmental sustainability as per ISO 14040:2006 (ISO-Norm, 2006), thereby enabling a holistic analysis on the trade-offs between the three dimensions of sustainability (Ciroth et al., 2011). Both the United Nations Environmental Program (UNEP) and the Society of Environmental Toxicology and Chemistry (SETAC) have considered the LCSA as a possible approach to integrate the ‘Triple Bottom Line’ (TBL) aspects of sustainability namely People, Profits, and the Planet (Iribarren et al., 2019). In short, the relationship can be summarised in the below formula: -
LCSA = (environmental) LCA + LCC + S-LCA (Ciroth et al., 2011)
Were,
LCSA = Life Cycle Sustainability Analysis,
(environmental) LCA = Environmental life cycle assessment,
LCC = Life cycle costing,
S-LCA = Social life cycle assessment,
Thus, for designing a sustainable hydrogen supply chain network (HSCN) it is necessary to study the environmental, economic, and social aspects at every stage in the overall supply chain. Li et al (Li, Manier & Manier, 2019) provides a comprehensive study into the distribution of studies related to the three aspects, which show that most hydrogen supply chain models have been based on mono-objectives, that were focusing on minimization of total network and operating costs. Only a few models on HSCN focused on all the three objectives such as (Almaraz, Sofía De-León et al., 2014), (Almaraz, Sofía De-León et al., 2013), (Almaraz, Sofia De-Leon et al., 2015), (Han, Ryu & Lee, 2013). Dagdougui (Dagdougui, 2012) suggests that HSCN models that focus only on minimizing total costs might lead to inadequate solutions for environmental and social aspects. A suitable example would be from papers (Almansoori, Shah, 2009) and (Almansoori, Shah, 2012) which are focused on cost reduction alone, where long transportation links are installed between regions of low hydrogen demand instead of building a new production facility, which is much cheaper from an economic viewpoint but might have serious safety and environmental concerns. In his paper, Yusuf, (Iribarren et al., 2019) summarizes the goal and scope of developing a HSCN using the LCSA framework in the figure 3 below.
3. THE TECHNICAL PLATFORM
The technical platform for this project is developed in two stages. First, an innovated business model for RIL needs to be developed that critically evaluates areas where RIL can contribute to the Hydrogen supply chain. I will be using network analytic tools for showing this integration in the Hydrogen production focus point. This is followed by an attempt to categorize the environmental, economic, and social impacts at each potential option for RIL, using the LCSA framework discussed in the previous chapters. For this step, I will provide critical ranking parameters on a scale from 1 to 6 (Ciroth et al., 2011) as shown in figure 4 to generate a table highlighting the segment’s risks for every proposed RIL options.
RIL & Hydrogen
From the figure 5, it can be seen that RIL can become a producer of hydrogen using existing infrastructures and technologies. Blue hydrogen can be produced by steam methane reforming process from its natural gas production channels, with CCS through pipeline networks to offshore underground reservoirs. The second area where RIL can integrate into the Hydrogen supply chain is through direct electrolysis process. RIL can form direct partnerships with Solar and wind power companies to produce Green Hydrogen. RIL can also collaborate with nuclear power companies for generation of Pink Hydrogen. RIL can also partner with existing thermal power plants that use fossil fuels for power generation to create Brown Hydrogen.
Analysis using LCSA
Now that we have the different options of hydrogen production, I will now utilize LCSA principles to calculate the options’ impact on the environment, economy, and society. The result of this analysis is summarized in figure 6. As can be seen, every option is unique with multi-dimensional criticality factors.
LCC or Life Cycle Costing is an aggregation of all costs directly related to a product over its entire life cycle (Ciroth et al., 2011). The impacts assessed include Capital cost, Levelized cost and Annualized cost (Santoyo-Castelazo, Azapagic, 2014). Capital cost refers to the CAPEX and OPEX of the plant. CAPEX refers to the direct costs such as building, piping, equipment, and installation costs together with indirect costs such as legal expenses, engineering, contractor, and contingency fees. OPEX incorporates cost of operating the plant such as utilities, labour, maintenance, supply, plant overheads, taxes, and insurance. The levelized costs or unit energy costs represent the cost of energy generated over the lifetime of a power plant, expressed per unit of energy (Santoyo-Castelazo, Azapagic, 2014), which is highest for fossil fuels generated electricity and renewables, while lowest for direct methane reforming produced blue hydrogen (IEA, 2019). Annualized cost refers to the annualized value of the total net present cost. Fossil fuels have the highest annualized cost in contract with the Capital cost, while renewables have the lowest cost.
S-LCA or Social Life Cycle Assessment is termed as ‘the social impact (and potential impact) assessment technique that aims to assess the social and socio-economic aspects of products and their potential positive and negative impacts along their life cycle’ (Ciroth et al., 2011). The impact parameters assessed are Human health, Safety & Security and Public acceptance (Santoyo-Castelazo, Azapagic, 2014). Human health impact refers to the human toxicity potential (HTP) which is highest for fossil fuels and lowest for green energy. Safety & Security refers to the occupational accidents and public hazards, which is highest for fossil fuel and nuclear energy. Finally, Public acceptance parameter refers to the public acceptance of different electricity technologies based on their distrust or uncertainty towards development of unknown technologies (Santoyo-Castelazo, Azapagic, 2014). Nuclear and fossil fuel energies receive the highest impact in this parameter which relates to the public opposition towards nuclear power and polluting fossil fuels. Public acceptance of green energy can be complicated due to land acquisition issues, hence the higher score for green energy.
Results
It can be concluded from the above LCSA assessment that the best option for RIL would be to use options A & C, having LCSA scores of 7.4 and 7.3 respectively. Option A of producing Blue hydrogen through Natural Gas reforming with CCS technology has an impact score of 2.4 for the environment, 2.3 for the economy and 2.7 for society. Option C of producing Green hydrogen through electrolysis from renewable energy has an impact score of 1.6 for environment, 3.7 for economy and 2.0 for society. By successfully entering the hydrogen market through the above options, RIL can contribute to India’s energy security by providing an alternate low-carbon fuel to meet its ever-increasing energy demands.
4. CONCLUSION AND DISCUSSION
By using network analytics tool, Gephi, to study the global supply chain network of hydrogen and use of LCSA concepts to develop a technical platform, I have proposed suitable options for RIL to integrate into the Hydrogen market considering environmental, economic, and social factors. The analysis neatly fits into the current hydrogen production scenario where only 2% of Hydrogen is currently produced from electrolysis from renewable energy (IEA, 2019). The primary source of global hydrogen supply comes from natural gas accounting for 75% of global production amounting to 70 million tonnes of hydrogen (MtH2) per year. Coal is the secondary source accounting for 23% of global hydrogen supply. It is estimated that by 2030, the cost of producing green hydrogen would fall due to renewable energy becoming more affordable due to improvements in technology and economies of scale (Hall et al., 2020). It is recommended that RIL moves into this option C after performing a careful market research analysis.
The primary aim of this project is to equip the manager with key insights into the LCSA method and I have used relevant assumptions on ranking the impacts on the economic, environment and society perspectives using the equation of LCSA only at the production stage of hydrogen. However, Li et al (Li, Manier & Manier, 2019), warns against using such a simplistic evaluation approach, as in real life the challenges constantly change with time and locations and people’s perspective keep changing. Hence the manager needs to ensure that the data and modelling correctly represents the broader hydrogen market by performing realistic energy systems modelling which is vital for effectively defining decarbonization scenarios. Life cycle sustainability assessments on the whole hydrogen supply chain needs to be undertaken to fully understand the implications and implementation of future technologies (Hydrogen TCP, 2022). This can be taken up as a possible study for the future since mapping of the value chain is the first step towards the design of a sustainable supply chain system and hydrogen, having many universal applications will be the key towards a future integrated energy systems that will drive us towards a carbon-natural future.
APPENDIX
Beginnings of the Company and its Businesses
RIL was founded in 1973 (Pratap, 2022) by one of India’s most iconic and successful business pioneers, Late Mr. Dhirubhai Ambani, as a company that operated in the import and export of polyester and textile fibres. Today RIL is run by his son Mr. Mukesh Ambani, who has a net worth of $90.7 billion and the 10th richest billionaire in the world.
India’s climate change problem
The Indian Union’s carbon dioxide emissions are currently the world’s third largest at 666 million tonnes per year, behind China (2912 million tonnes/ year) and the United States of America (1,286 million tonnes/year) (Outlook, 2021) as over 80% of its energy needs are met by coal, oil and solid biomass with demand arising predominantly from the power, industry, transport, building and agriculture sectors. The Indian union continues to import about 85% of its crude oil, 30% of coal and 50% of natural gas resources (Hall et al., 2020). Having a massive population of 1.3 billion people with 900 million of them getting access to electricity in the past two decades alone, India’s energy needs are rapidly ever increasing due to rapid industrialization and urbanization of its population. It is estimated that by 2045, the demand for crude oil is expected to double to 11 million barrels per day (MBPD) and by 2024 the natural gas demand is expected to grow by 25 billion cubic meters (BCM). Thus, to achieve the climate goals of the Paris agreement, India needs to transition quickly into a cleaner energy source that can keep pace with its ever-increasing energy demands, yet efficiently reduce CO2 & greenhouse gas emissions. Maria v.d. Hoeven, Executive director, IEA, states that the current energy supply and consumption models across the globe are unsustainable from an environmental, economic, and social dimensions (IEA, 2019) which is also the case for RIL’s current business model.
Hydrogen and its potential
Hydrogen, the most abundant element in the universe, is one of few near-zero emission energy carriers. When used in a fuel cell or combusted in a heat engine, the only exhausts are water or water vapour. However, Hydrogen is not an energy source but an energy carrier (Mitsubishi Power, 2021), meaning that hydrogen required energy for generation and can be used similar to electricity, the difference being hydrogen’s chemical energy carrier is composed of molecules and not only electrons, making it easier to store for longer periods, transport over longer distances and used in existing infrastructures and applied in business models originally conceived around fossil fuels (IEA, 2019).
The use of Hydrogen in the energy industry is not a new phenomenon, as hydrogen has been used to power the first air-balloons and internal combustion engines over 200 years ago. Hydrogen was also used as rocket fuel that put mankind on the moon back in the 1960’s. However, it is only in the current era that affordable, safe, and versatile technologies are being made available for hydrogen, in order to produce, store, transport and utilize energy. The market demand for hydrogen is primarily from the global fertilizer industries for ammonia manufacture, and oil refining by the hydro-carbon industry.
The International Energy Agency (IEA) states that Hydrogen has a vital role to play in securing a clean, safe, and affordable energy of the future (IEA, 2019). Hydrogen offers a means to decarbonise a wide range of segments where it is difficult to effectively combat carbon emissions, such as transportation sector, chemicals, and iron & steel industries. Hydrogen can help to improve the overall air quality and reinforce energy security. In a nutshell, Hydrogen can contribute towards a sustainable and resilient energy future in two aspects. Firstly, the industries utilizing hydrogen for their consumption can use hydrogen produced from alternate cleaner sources rather than traditional high carbon emission hydrogen production methods. Secondly, Hydrogen can be utilized for a wide range of applications such as an alternative to fossil fuels, an alternative means of energy storage from renewable energy and as a means to reinforce and connect different parts of the energy system.
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