Shell closures spell trouble for hydrogen in a prime passenger-vehicle market

A Shell Oil Co. subsidiary has shuttered almost all of its hydrogen fueling station network for light-duty vehicles in California, dealing a setback to an energy source that could reduce carbon emissions.

The development presents problems for motorists who drive fuel cell vehicles in a key market for several automakers that believe passenger cars powered by hydrogen fuel cells will resonate with consumers.

Shell Hydrogen vice president Andrew Beard cited "supply complications and other external market factors" as reasons for the closures of seven stations in a letter to hydrogen customers.

Yet Shell's decision runs counter to burgeoning momentum for hydrogen, which includes $8 billion in federal spending designed to promote its use and ensure consistent demand.

A decision to close the stations was made in early 2024, a Shell spokesperson said Monday. It follows the discontinuation of its network buildout, which came last fall. Shell has closed seven stations, and is exploring its options to divest one remaining light-duty location in Torrance, Calif., the spokesperson said.

The company will continue to operate three heavy-duty hydrogen refueling stations in Southern California. Fuel cells are a better fit for use in medium-and-heavy duty markets, said Mike Austin, senior research analyst with Guidehouse Insights. "These stations probably weren't getting much volume and had limited potential for growth," he said.

But for automotive companies still targeting fuel cells for use in passenger vehicles, the loss of seven stations in prime Bay Area locations will sting. Northern California is one of two regions with a critical mass of infrastructure needed to support passenger vehicles powered by hydrogen fuel cells, the other being Southern California. In addition, Hawaii has one refueling station.

The closed Shell stations accounted for seven of the 59 public hydrogen fueling stations in the United States, about 12 percent, according to U.S. Department of Energy data. Their closures may hinder broader efforts to make hydrogen fuel cells an alternative and complement to battery electric vehicles.

"It is disappointing to learn that Shell has opted to close down its light-duty hydrogen refueling stations and focus on heavy-duty applications," the Hydrogen Fuel Cell Partnership in California said in a written statement provided to Automotive News. "However, the hydrogen mobility market is nascent and continued progress and setbacks are to be expected."

Since 1999, the nonprofit organization has sought to coalesce automotive, energy and government stakeholders to expand fuel cell use and promote a zero-emission future. It counts Toyota Motor Corp. and Hyundai Motor Group, the two automakers that offer hydrogen fuel cell vehicles, among its members.

Their vehicles are not big sellers. In 2023, Toyota sold 2,737 Mirai fuel cell vehicles in the U.S., while Hyundai sold 241 of its Nexo crossovers, according to the Automotive News Research and Data Center.

On Tuesday, Toyota acknowledged the developments may be disruptive.

"Toyota recognizes that certain Mirai customers in California may experience refueling challenges due to recent closures of hydrogen stations," the company said in a written statement. "We will continue to work with affected Mirai customers to help identify ways to address their concerns by a case-by-case basis."

Affected customers can call 800-331-4331 to speak with a Mirai customer service specialist about potential fueling options.

Hyundai deferred comment to the Hydrogen Fuel Cell Partnership.

Despite the low sales, observers should be cautious about drawing conclusions between current demand and long-term fuel-cell possibilitiers in passenger vehicles. While the closures mark a challenge, "the underlying root causes are multifaceted and extend beyond the immediate context of light-duty mobility applications," said Sebastian Schrapp, a managing director and partner at BCG who co-leads the consluting firm's hydrogen and industrial goods group.
Both Toyota and Hyundai remain bullish on hydrogen. Toyota said it remains committed on working to support California's hydrogen refueling infrastructure both now and in the future. Hyundai made hydrogen's role in the future of global transportation the centerpiece of its high-profile presentation at the CES technology expo in Las Vegas last month.

The automaker is not alone in believing hydrogen fuel cells have a role in light-duty transportation. Honda is developing a CR-V fuel cell variant, which will be built at its Performance Manufacturing Center facility in Ohio starting this year. BMW is conducting a global pilot project involving about 80 hydrogen-powered iX5 crossovers.

Honda said Wednesday the Shell developments did not affect their plans.

The company “has made significant investments in hydrogen refueling infrastructure in California and we believe a strong refueling network exists to support fuel cell electric vehicles,” a Honda spokesperson said. “ We are excited about our plans to launch a new FCEV this year to provide another zero emissions option from Honda in California.”

But more companies, including Shell, say they believe hydrogen's most effective application in the transportation sector may come in heavy-duty trucks and industrial applications. Shell intends to invest as much as $1 billion per year in hydrogen and carbon capture and storage, the company spokesperson said.

"We maintain that hydrogen is an important low-carbon energy solution for the future, and will continue to invest in hydrogen in a disciplined manner," the company said in its written statement.

As part of its Hydrogen Hub initiative, the Energy Department selected seven U.S. regions to share $7 billion to build epicenters where hydrogen producers and infrastructure providers can congregate. The department will spend an additional $1 billion to solidify demand in the early years of those operations.

The Hydrogen Fuel Cell Partnership pointed to the Hydrogen Hub program as one reason for long-term confidence in hydrogen's ascendance despite the Shell closures.

"While this news will cause temporary challenges, we are seeing the Hydrogen Hubs and corridors develop, new vehicles being highlighted, and additional hydrogen infrastructure advancements occur that give optimism for hydrogen mobility as a significant tool in our global decarbonization efforts," the group said in its written statement.