Chevron Turns to the Sun to Cash In on This $1.4 Trillion Opportunity

Chevron (CVX 0.37%) recently revealed plans to build its first solar-to-hydrogen production facility in California. The project would turn non-potable water from its existing operations into an emissions-free fuel source with help from the sun. The clean hydrogen will help support the state's growing need for lower-carbon energy.

This investment will be Chevron's first solo commercial hydrogen project. It will help the oil and gas giant get in the position to cash in on the emerging hydrogen market, which Deloitte sees growing to $1.4 trillion by 2050. It could be a major growth driver for Chevron.

Turning undrinkable water into clean fuel

Chevron plans to develop a 5-megawatt (MW) hydrogen production facility in California. The oil company plans to use solar energy, land, and non-potable water (i.e., unsuitable for human consumption) from an existing oil and gas field in the state. Chevron will use "produced water," which is water produced as a byproduct of its other operations. While that water isn't fit for drinking, it's suitable for producing hydrogen.

The company will produce hydrogen through a process called electrolysis. It uses electricity to split water into hydrogen and oxygen. The hydrogen will then get compressed and transported to facilities that use it as a fuel. Oxygen is the only emission. The hydrogen fuel will, in a sense, act as an energy storage vehicle for solar energy. End users can consume that emissions-free fuel on demand, even when the sun isn't shining. Converting solar into hydrogen is therefore a potential solution to help address the intermittency issues of the renewable energy source.

Chevron expects the plant to produce about 2.2 tonnes of hydrogen per day starting next year. That's enough to power 54,000 homes or fuel a vehicle for 132,000 miles. The hydrogen Chevron produces at the facility will most likely be used as a transportation fuel.

Building out a lower carbon energy platform

While the California plant will be the first Chevron-only commercial electrolytic hydrogen project, it's not the energy giant's first foray into the lower carbon fuel. Last September, Chevron acquired a majority interest in ACES Delta, a joint venture with Mitsubishi Power. ACES Delta is developing the Advanced Clean Energy Storage project in Utah. It will use electrolysis to convert renewable energy into hydrogen. Chevron and its partner will store the emissions-free fuel in solution-mined salt caverns. The first project aims to covert and store up to 100 metric tons of hydrogen per day. The partners can dispatch the stored fuel on demand to support Mitsubishi Power's operations and other transportation, power, and industrial customers.

These projects are part of Chevron's plans to grow its hydrogen production to 150,000 tonnes per year to supply industrial, power, and heavy-duty transportation customers with lower emissions fuel. Hydrogen is one aspect of Chevron's plan to invest $10 billion through 2028 in building several lower-carbon energy businesses. It's also investing to grow its renewable natural gas production, renewable fuel output, and carbon capture and storage capabilities.

The company is investing $2 billion on lower carbon projects in 2024, including expanding its Geismar renewable diesel project that should start up this year. It has also been setting the stage for future growth by exploring new lower-carbon opportunities worldwide. For example, it expanded its Bayou Bend carbon capture and sequestration hub on the U.S. Gulf Coast by acquiring nearly 100,000 acres and is investing in two carbon sequestration projects in Australia. It's also collaborating with the government of Angola on lower carbon business opportunities, including hydrogen.

These investments position Chevron to capitalize on several potentially large market opportunities. That could help the energy company continue growing when the demand for oil and gas finally starts subsiding.

Tapping into a potentially enormous market

Green hydrogen could become larger than the global liquefied natural gas (LNG) market by 2030 (a market Chevron participates in) and hit $1.4 trillion by 2050. That's leading Chevron to start investing in the sector, positioning it to cash in on this massive market opportunity. It's one of several lower-carbon businesses it is building, which could fuel growth in the decades ahead. That upside to lower carbon energy makes Chevron a compelling long-term investment opportunity.