A test of oil-eating microbes is underway at a retired fossil-fuel field in Central Valley

Microbes can break down everything, including methane and plastic. Now, a startup is pioneering their use to consume oil and produce clean hydrogen.

Houston-based Gold H2 has completed a field trial at a retired oilfield in California’s San Joaquin Basin, successfully producing hydrogen underground using its novel biotechnology in what it says is a world first.

The most common form of clean hydrogen is produced using machines that can split apart water, but the process is expensive compared with producing it with fossil fuels. Gold H2 is working to bring down costs of the green fuel by utilizing existing resources and infrastructure.

The startup introduces a proprietary blend of microbes and nutrients into nearly depleted oil reservoirs. The microorganisms then break down the oil in the reservoir, excreting hydrogen in the process that the startup can pump to the surface.

The startup’s value proposition to an oil company is, “Let’s utilize this oil that you’re unable to produce, and rather than go and abandon these assets, let’s produce what’s down there in a clean and cost-effective manner,” said Chief Executive Officer Prabhdeep Singh Sekhon.

Gold H2 has a path to producing hydrogen at a cost of about 25 cents per pound, which could make it cost-competitive with natural gas, Sekhon said. The company’s process emits some carbon dioxide running its hydrogen purification system, though Gold H2 estimates that the emissions would be comparable to green hydrogen produced by electricity and well below gas derived from fossil fuels. The company is finalizing other field trials in the U.S. and globally, with one planned for the third quarter in Texas.

But scaling the process to reach commercial scale, let alone be cost-competitive with other forms of hydrogen, remains challenging. Other startups are also trying to find and tap underground deposits of hydrogen, some of which could be nearly 100% pure. In comparison, Gold H2’s field test produced hydrogen at a 40% purity, which is “incredibly low,” said Musfika Mishi, a technology and innovation analyst for BloombergNEF. That means Gold H2 will have to purify and process the hydrogen it produces to strip away other gases, an expensive process.

Federal incentives for clean hydrogen are on the chopping block as part of Republicans’ tax bill. The current Senate version eliminates a production tax credit, which would probably keep U.S. demand low for clean hydrogen — which can be used in place of fossil fuels for hard-to-abate sectors such as shipping and aviation. The Senate is considering a path to saving the credit. Because of the uncertainty, Gold H2 is targeting building projects abroad and sees potential in Canada, the Middle East, Europe and Brazil, Sekhon said.

“We’re definitely — I don’t want to say insulated — but preparing for international deployment,” Sekhon said.

Ma writes for Bloomberg.