Adani secures India's single largest foreign investment
France's oil supermajor TotalEnergies to invest $12.5 billion in a new green hydrogen joint venture with Adani.
Economy and Business
Adani secures India’s single largest foreign investment
From today’s Mint:
French multi-energy major TotalEnergies will invest at least $12.5 billion for a 25% stake in a new clean energy services company Adani New Industries Ltd., according to an exchange filing by Adani Enterprises on Tuesday. Adani New Industries will be created by billionaire Gautam Adani-promoted Adani Enterprises Ltd. in partnership with TotalEnergies.
Adani New Industries aims to invest over $50 billion over the next 10 years in green hydrogen and associated ecosystem, said a statement by Adani.
Gautam Adani is India’s second richest person with a net worth of around $100 billion. Globally, he is the seventh or ninth richest person, depending on whether you believe Forbes or Bloomberg.
TotalEnergies, previously known just as Total, is one of the world’s seven largest private sector oil and gas companies dubbed as “supermajors”. Currently, it has a market capitalisation of $144 billion.
Even for TotalEnergies, a $12.5 billion investment is huge. For Adani, it is a big win. A nearly ₹1 lac crore foreign investment at one go is unprecedented in India’s corporate history. The only other investment that was in this ballpark was orchestrated by India’s richest person, Mukesh Ambani, with Saudi Aramco. That $15 billion deal collapsed over valuation disagreement. [The proceeds of Flipkart’s 2018 acquisition by Walmart for $16 billion mostly went to foreign investors.]
This deal centres around the production of green hydrogen.
Hydrogen is a highly combustible gas. The famous airship Hindenburg was propelled by hydrogen and went up in flames in 1937 after just a few trips. Since then, better ways to handle the gas have emerged, creating many new uses along the way.
As the Economist explains in this excellent article, the gas is “used for the production of almost all the world’s industrial ammonia. Ammonia is the main ingredient in the artificial fertilisers which account for a significant part of the world’s crop yields. Without it, agricultural productivity would plummet and hundreds of millions would face starvation.”
Hydrogen is not naturally found on Earth in its gas form. It is found in combination with other molecules — the most common being water or H2O, from which it is extracted. Water undergoes a chemical process through which hydrogen and oxygen are separated. This process utilises electricity, which mostly comes from burning fossil fuels.
The fact that more energy in the form of electricity goes in to producing hydrogen than what comes out from using that hydrogen makes the gas costly and carbon-intensive, limiting its application to essentials such as fertilisers. The only way to expand hydrogen’s potential is to generate green hydrogen using renewable sources of electricity, such as solar or wind.
The greatest value in this deal will be unlocked once hydrogen can be produced at scale using green methods. That is because the hydrogen market is expected to explode from 90 million tonnes at present to 500 million tonnes by 2050.
At the moment, hydrogen looks like a tool of last resort in the fight against climate change. Parts of the economy that cannot be otherwise decarbonised such as steel, aviation and long distance land transport are looking at hydrogen to change that.
Another potentially game changing application would be for energy storage. Currently, the most widely used energy storage medium is lithium battery. But, mining and production of lithium take years to ramp up and are environmentally fraught. Batteries also take time to charge and degrade with time, as any mobile phone owner can attest. Hydrogen can change that. Surplus electricity from solar and wind can be converted into hydrogen by breaking up water molecules. Using it for energy storage won’t be much different than using fossil fuels.
The complexity of the industry is evident from the fact that despite looking to invest $50 billion, Adani New Industries will only be able to produce 1 million tonnes of hydrogen annually by 2030 in a market that’s already close to 100 million tonnes a year.
The Economist shared an energy industry joke that “Hydrogen is the fuel of the future—and it always will be.” Hopefully, Adani’s bet will chip away at the joke’s punchline.