Energy Transition

Green hydrogen could fuel Gulf of Mexico wind build as 'logical next step' in US offshore: Aegir

Offshore oil province's lower wind speeds and uncertain coastal state governors could be overstepped by need for broad industrial decarbonisation, says Danish analyst group

Port of Galveston, Texas, on the US Gulf coast
Port of Galveston, Texas, on the US Gulf coastFoto: US Army Corps of Engineers
  • Tim Ferry

Growing interest in development of the Gulf of Mexico's (GoM) offshore wind resource could be fuelled increasingly by US climate law incentives for production of green hydrogen, according to a new report from Copenhagen-headquartered analyst group Aegir Insights.

The GoM region, particularly Texas and Louisiana, is already a national hub for production of grey hydrogen – derived from fossil gas without carbon capture – consuming 90% of America’s current supply in its massive industrial chemical, fertiliser, and oil refinery sectors.

But with new, long-term tax credits built in to the US Inflation Reduction Act (IRA) signed by President Joe Biden in August and the opportunity to apply for funding to establish ‘clean hydrogen’ hubs under the federal H2 Hubs programme, “green hydrogen production is poised to be the main driver and off-take route for offshore wind in the GoM”, said Aegir.
The GoM holds some 500GW of commercial offshore wind potential, according to the National Renewable Energy Laboratory, and the Bureau of Ocean Energy Management (BOEM), regulator of energy development in federal waters, last year established a 30-million-acre ‘call area’ for prospective development.
The call area has been winnowed down into two wind energy areas (WEAs) – one off Lake Charles, Louisiana, and the second off Galveston, Texas. Aegir estimates they hold nearly 15GW of potential, and BOEM looks poised to set auctions as early as April.
“The GoM has been on the radar for offshore wind for a long time and has hosted the majority of all US offshore energy operations for decades,” Rikke Norgaard, chief commercial officer for Aegir, told Recharge. “Despite challenges, it is a logical next step for the offshore wind industry in the US.”
GoM WEA waters are less deep than in zones being auctioned off in the US Atlantic – and much shallower compared to acreage in first offshore wind round off the Pacific coast where floating wind technology will be required, averaging around 20 metres.

But the region faces challenges including lower wind speeds of around 7.4 metres per second (m/s), weaker than either the Atlantic or Pacific coasts, as well as frequent hurricanes that will require more robust industrial infrastructure, adding to development and operation costs.

Aegir forecasts a levelised cost of energy (LCOE) for the Lake Charles WEA at $69/MWh, while the larger Galveston WEA will range from $60-$71/MWh, depending on water depth.

Political ambivalence is another hurdle facing offshore wind deployment in the US Gulf, particularly in Texas where the industry has made little impression despite the larger Galveston WEA off its coast, and is not expected to be cost competitive with onshore wind or solar or fossil gas this decade.

Neighbouring Louisiana, however, is targeting 5GW of offshore wind capacity by 2035 in its Climate Action Plan, sponsored by governor Jon Bel Edwards. Still, even political support will not necessarily drive industry growth in the power markets of Gulf coastal states where prices are lower than the national average.

Federal incentives targeting both offshore wind and green hydrogen development could change this picture.

“Renewable hydrogen is expected to be a significant route-to-market for offshore wind in both Texas and Louisiana, through PPAs [power purchase agreements] with hydrogen producers,” Norgaard noted, adding that “utilities may buy green hydrogen to blend into natural gas used in co-fired power plants.”

The IRA offers 30% investment tax credits (ITC) for offshore wind development, and its green hydrogen incentives can drive down production costs to $3 per kilogram, among the lowest in the world.

The Infrastructure Investment and Jobs Act (IIJA) of 2021 further provides funding for the creation of green and “blue” hydrogen – generated from fossil gas but with carbon capture and storage utilisation – hubs.

Louisiana announced its intention to join neighbouring Arkansas and Oklahoma in forming such a hub, and organisations in Houston see an opportunity there as well.
The economic development agency Greater New Orleans foundation last fall won $50m in federal funds plus an additional $25m in matching state grants for the establishment of a green hydrogen hub through an IIJA-funded initiative.

Aegir noted the global drive into green hydrogen may also present opportunities for export to markets in Asia and Europe, with the European Union expressing ambitions to importing 10 million tonnes by 2030.

The Gulf's massive offshore oil & gas sector, which accounts for 98% of US offshore production, has a substantial footprint of fabricators, shipbuilders and ports that is already being redeployed for the offshore wind sector.

The combination of factors should drive a more diverse range of bidders into the coming auction, Norgaard suggested: “Gulf offshore wind is an opportunity that would attract a range of players with larger decarbonisation strategies, beyond the usual developers.”

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Published 6 January 2023, 14:56Updated 6 January 2023, 14:59
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