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Rio Tinto and BP in clean energy joint venture

Posted: 19 May 2007

A BP and Rio Tinto new jointly-owned company, Hydrogen Energy, will develop decarbonised energy projects around the world.

The venture will initially focus on hydrogen-fuelled power generation, using fossil fuels and carbon capture and storage (CCS) technology to produce new large-scale supplies of clean electricity.

Decarbonised energy projects are based on the conversion of fossil fuel feedstocks such as coal, petroleum coke (a refinery by-product) or natural gas, to hydrogen and carbon dioxide gases, with the carbon dioxide being captured and sent for permanent storage in geological formations deep beneath the Earth's surface.

In power projects, the hydrogen would be used to fuel a gas turbine for generation of industrial-scale supplies of electrical power. Full integration with CCS technology would ensure that 90 per cent of the carbon dioxide which would otherwise have been emitted to the atmosphere would be safely captured and stored.

There is rapid worldwide development of new power generating capacity as older power stations are replaced and new plants built to meet growth in demand, particularly in the rapidly expanding economies of the developing world.

According to the International Energy Agency, about two-thirds of the generating capacity that will be needed in the next 25 years has yet to be built. Much of the growth will be in countries where coal is abundant and so the fuel is expected to be a significant part of the energy mix.

The recent UN Intergovernmental Panel on Climate Change (IPCC) report into the potential to mitigate the effects of climate change recognised that reducing carbon dioxide emissions from power generation will be vital and that technologies such as CCS will have a key role in meeting the challenge.

It also recognises the role of governments in putting in place appropriate regulatory and support mechanisms to enable this to happen.

Hydrogen Energy will benefit from the world-leading capabilities of both parent companies: Rio Tinto's expertise and world-class assets in coal extraction and supply; and BP's experience and expertise in chemical processing, low carbon power generation and carbon capture and storage.

"Coal is a key part of Rio Tinto's energy business and we believe it has an essential role in generating clean power in the future," said Tom Albanese, Chief Executive, Rio Tinto.

"The investment we are making in Hydrogen Energy will allow us to deliver decarbonised energy and carbon capture and storage.

Although initial projects may be based on non-coal feedstocks, they will be significant building blocks in the development of coal gasification on an industrial scale. Investing now means we will be well-placed to create value for shareholders from opportunities in the emerging clean power market," he said.

"Projects such as these have the potential to help deliver the carbon emission reductions which companies and countries around the world are now seeking," said Tony Hayward, BP group chief executive.

"This will only be possible if companies work together and work alongside governments. The combination of skills and experience which BP and Rio Tinto bring will allow us to accelerate the development and deployment of these important new technologies and projects."

Hydrogen Energy, whose final formation will be subject to regulatory approvals, will identify and secure opportunities for decarbonised energy projects worldwide, working with governments to determine appropriate policies and regulatory regimes, and develop and operate the assets, with partners where appropriate.

The projects will typically use coal or petroleum coke as feedstock; although in some cases natural gas may be used.

The previously announced hydrogen-fuelled power projects in Peterhead, Scotland and Carson, California will become part of Hydrogen Energy.

As part of the agreement, Rio Tinto will make a cash payment to BP of some $32million, subject to post-completion adjustments.

Hydrogen Energy will be headquartered in Weybridge in the south-east of England and will initially have a staff of 75 seconded from the parent companies.

The chief executive of Hydrogen Energy is Lewis Gillies, formerly head of BP's hydrogen power business and its chief financial officer is Peter Cunningham, formerly head of business evaluation for Rio Tinto.



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Beach Petroleum

Horizon Oil

Saudi FAL