Hydrogen is increasingly seen as a critical product for the energy transition as it offers the flexibility to decarbonise parts of the global energy economy that renewables cannot reach, including mobility, industrial processes and domestic heating. Indeed, the European Commission view clean hydrogen as “…. the missing part in the puzzle to a fully decarbonised economy[1] ”. However, those active in the energy sector for a while will get the feeling that we have been here before, so will hydrogen now really develop as a key product in the energy transition and realise its full potential as a globally traded commodity rather than remaining a local, or at best, regional alternative for traditional energy sources ?

The answer to the first question seems to be an increasingly confident yes. Electrification of the energy sector with renewable energy is making significant inroads into decarbonisation targets but despite the increasing competitiveness (and scale) of renewables, it is not on its own the entire solution. It is increasingly evident that in order to meet climate change goals and the associated “net zero” targets being announced by an increasing number of governments and corporates around the world, we need to go beyond renewables and electrification to broaden the range of tools we bring to bear on the problem. Clean hydrogen offers something close to the flexibility that has made fossil fuels so indispensable in today’s energy economy as it can be used as a feedstock or a fuel;  it can be transported as an energy carrier and it can be stored for future use. Hydrogen is a clean alternative to the fossil fuel currently being used for many applications.

However, the first challenge is what do we mean by clean hydrogen? Hydrogen produced thorough electrolysis of water (splitting the H2 from the O) using renewable electricity (“Green hydrogen”) produces no CO2 emissions from the process. In comparison hydrogen produced by traditional thermal processes (“Grey hydrogen) emits CO2 from both the production of the heat required for the reaction (steam methane reformation - SMR) and as a by-product of the process itself. Adding carbon capture and storage enables some of the CO2 emissions (65-90% depending on the technology) to be captured to create cleaner hydrogen (“Blue hydrogen), butdefining where a source of hydrogen sits on a sliding scale of clean(emission intensity) and valuing this will be important for international trade.

The second challenge is how the market will be developed. A substantial amount of Grey hydrogen is already produced for use in various processes including the chemical industry, fertiliser production and refineries. Replacing this demand is an obvious first step. Green or Blue hydrogen can be produced locally to match demand but even at this level there are challenges in terms of cost competitiveness, capital investment and for green hydrogen, managing the intermittency of renewables as a power source. Taking the next step is interesting – there is currently little or no wider market for clean hydrogen, particularly at a significantly higher cost than the energy source it replaces, so who would invest in production? Equally without production, who would convert their existing processes to hydrogen? Addressing this circularity and indeed the cost gap is the current focus of policy makers and potential projects, and the resulting regulatory and incentive frameworks could lift the industry from a local to a more regional industry, but still within national boundaries as it seems unlikely governments would use public money to subsidise hydrogen production for export.

How do we then take one further step to internationalise the industry and stimulate cross border trade? One part of the answer is cost. It is increasingly clear that the Middle East for example, benefits from very low-cost solar electricity generation which could make the region a low-cost hydrogen producer; power being a major cost of green hydrogen production. A country without the natural advantages of the Middle East could chose to import this low-cost hydrogen rather than producing at higher cost domestically to meet their energy transition goals. This is the driver behind many of the recent announcements on strategic cooperation, Joint Ventures (JVs)etc between, for example, Japanese companies and potential Middle East or Australian hydrogen producers and increasing interest in imports of Green hydrogen in Europe (e.g. Germany).

This is clearly how other commodity markets, including LNG, work but unfortunately hydrogen is more difficult (and expensive) than LNG to ship over long distances although Kawasaki from Japan has built a prototype hydrogen carrier to test the supply chain logistics with Australia and aim to replicate what they have achieved in shipping for LNG[2]. Pipelines offer a potentially economic route for shorter distances, but the industry is searching for a solution to the longer distances required to make hydrogen a truly global commodity otherwise transport costs erode the benefit of being a low-cost producer. One alternative is to convert hydrogen to ammonia, an easier product to ship, which is fine if the targeted demand is for ammonia (fertiliser, co-firing in power plants etc) but this conversion adds cost, particularly if it needs to be reversed at the destination. 

Transportability (technology and cost) therefore currently represents the major barrier to the ambition of major energy companies to develop hydrogen into a global traded commodity in the short or medium term, but maybe this is less of an issue in reality if the industry develops first as a local/domestic business to meet national transition objectives and then regional in the medium term. This allows time for the development of shipping technology and market volumes that would support the investment. It seems inconceivable though, that hydrogen will not at some point become an energy commodity on a global basis if the shipping challenge is resolved – its role in energy transition is too important based on current climate change objectives.

1. Questions and answers: A Hydrogen Strategy for a Climate Neutral Europe, European Commission 8 July 2020
2. https://www.reuters.com/article/us-japan-hydrogen-kawasaki-heavy-idUSKBN29V0SW