Hydrogen Central

Hydrogen Civil War Reveals its Winner

hydrogen civil war

Hydrogen civil war reveals its winner.

[Reuters] Hydrogen’s civil war is approaching its denouement. Fans of the element, seen as the missing link in the fight against climate change, advocate either its “blue” variant, made from natural gas with most of the carbon captured and removed, or its “green” one, made using renewable electricity.

An actual war in Ukraine has allowed green to pull decisively ahead.

Much of hydrogen’s excitement relates to its ability to decarbonise heavy industry, one of the trickiest parts of the global economy to clean up. It’s also a handy energy store for when wind and solar power aren’t available. However, only 10% of the 90 million tonnes of hydrogen produced annually is low-carbon, be it blue or green.

The remaining 90% is “grey” hydrogen, used mainly in oil refining and fertiliser production. Its manufacture accounts for more than 2% of the world’s annual carbon dioxide emissions.

The challenge, according to the Hydrogen Council, is to ramp up overall hydrogen output to over 650 million tonnes a year by 2050, with the vast majority of that being of the low-carbon green or blue varieties.

In that light, obsessing over blue or green looks odd. But that hasn’t stopped it happening. Up until last autumn the oil sector-backed blue corner was crowing about the potential for costs under 3 euros per kilogram, based on natural gas prices of under 20 euros per megawatt hour (MWh).

The green corner, whose unit costs tend to be at least 4 euros per kg, hit back with a research paper from scientists at Cornell University in the United States lambasting blue hydrogen’s potential to pollute.

Ahead of November’s COP26 climate talks, the UK government diplomatically advocated both hues in its hydrogen strategy, only for the pro-green boss of the UK’s hydrogen industry association to quit in protest.

However, even before Russia invaded Ukraine on Feb. 24 and imperiled European gas supplies, blue’s star was waning. Since last summer, natural gas prices have risen fivefold to over 100 euros per MWh.

That radically changes the relative cost dynamics. Even with gas at 80 euros per MWh, grey hydrogen works out at 5 euros per kg, Bernstein reckons; blue, which has the added expense of carbon capture, exceeds 6 euros. At this month’s war-driven peaks, both would have topped 10 euros per kg.

Carbon costs are a material factor, too. Each 1 kg of hydrogen produces 9 kg of carbon dioxide. At the pre-Ukraine war carbon price of around 90 euros a tonne that’s nearly an extra euro for each kg of grey, and a smaller but tangible cost for blue hydrogen. This expense will rise with the carbon price.

The conflict has revealed deeper problems for blue hydrogen, according to Graham Cooley, chief executive of $2.8 billion ITM Power (ITM.L), which makes electrolysis kit to split water into hydrogen and oxygen.

Besides wildly fluctuating prices, blue hydrogen’s main input – natural gas – may even become unobtainable if shortages lead to rationing. Conversely, green hydrogen’s main input – renewable electricity – has supply driven by the weather, not post-Cold War geopolitics, and costs determined by long-term fixed-price wind and solar power off-take agreements.

You’d expect Cooley to say as much – last year he opened a gleaming new electrolyser factory in Sheffield, Northern England. But governments look more likely now to target green rather than blue. The European Union recently quadrupled its 2030 green hydrogen target to 20 million tonnes, and hiked electrolyser capacity plans from 80 to 200 gigawatts (GW).

However, green hydrogen is not completely free of supply headaches. Currently, the world excluding China has about 5 GW of electrolyser capacity.

Hitting 15 million tonnes of green hydrogen production by 2030, a distinctly modest target, implies 167 GW of kit, according to Liberum Research. Between them, the big non-Chinese electrolysis players like ITM, Nel (NEL.OL), Siemens (SIEGn.DE), Thyssenkrupp (TKAG.DE) and Plug Power (PLUG.O) as of year-end had only pledged 90 GW by then.

The 2050 ambitions imply a mammoth 4,300 GW of electrolysers, plus an epic increase in wind and solar power generation. Thanks for staying up to date with Hydrogen Central.

Such numbers point to Europe relying on green hydrogen imports and others to ramp up electrolyser supply.

plan by Australian mining billionaire Andrew Forrest to ship 5 million tonnes of hydrogen annually to Germany by 2030 is punchy but unproblematic geopolitically.

Less so is Europe replacing its unhealthy dependence on Russian and Middle Eastern hydrocarbons with an equally questionable dependence on green hydrogen if imports or electrolyser supply chains were controlled by potentially tricky countries like China.

As broad as possible an array of suppliers helps avoid such an outcome. In the meantime, ITM’s share price has jumped nearly 50% since the Ukraine war broke out. Assuming green hydrogen really has won its own internecine conflict, it may have a fair way yet to go.

READ the latest news shaping the hydrogen market at Hydrogen Central

Hydrogen’s civil war reveals its winner, March 31, 2022

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