As the US ascent to global supremacy in the 20th century was inseparable from oil, global powers are now vying to control the key energy technologies of the future: renewable energy, batteries, digital networks, electric vehicles, and so on. Countries have a strategic interest in being technology makers, not technology takers in these critical areas. Hydrogen is another battleground for technological and economic supremacy between the established and rising powers of this world.
Hydrogen is the most common element in the universe, accounting for three-quarters of its mass. French scientist Lavoisier named the gas ‘hydrogen’ after the Greek name (hydro = water, genes = to create) after discovering that burning hydrogen produces water, and no carbon dioxide. The energy density of hydrogen is higher than fossil fuels, there is three times as much energy per unit weight embedded in hydrogen as there is for petrol, diesel or jet fuel. It has had a long potted history as the answer to human energy needs – one of periodic hype followed by lengthy hibernation.
One of its first known industrial uses was the fuel for an early combustion engine. In 1806 Swiss engineer Francois Isaac de Rivaz developed an internal combustion engine powered by hydrogen and oxygen (it wasn’t until the 1960’s that GM built a hydrogen powered vehicle). Hydrogen is perhaps best associated with the Hindenberg zeppelin; the gas’ explosive properties resulted in tragedy after the German airship burst into flames in 1937. Later in the 1960’s it was used as rocket fuel for the Apollo missions – those same explosive properties made hydrogen the ideal fuel to escape the Earth’s gravitational pull.
The idea of an economy powered by hydrogen was first touted in 1970. The so-called “Hydrogen Economy” rose to prominence in response to concerns over oil scarcity and America’s dependence on the Middle East. This accelerated in 1973 due to the Arab oil embargo sparked oil price spike. As energy prices returned to gravity during the 1980’s the hydrogen economy dream faded away. But by the late 1980’s the Cold War between the US and Russia, and the latter’s successful development of a hydrogen powered jet (the Tupolev-155) spurred a race to develop the technology between the two superpowers. A decade and a half later and the Cold War was over but concerns over energy independence surfaced anew. Once again hydrogen potentially offered a solution, only for US crude and gas supply to surge on the back of the shale revolution.
By 2008 though it was decarbonisation that held sway over the narrative of the hydrogen economy; then only for any renaissance to be kicked into touch by the Great Financial Crisis. By 2020 hydrogen appeared to have its chance in the sun once more, as decarbonisations place on the political agenda grew louder still. As we’ll see, the most recent hydrogen hype cycle has been driven by the sharp drop in the cost of generating renewable energy. This offers the hope that hydrogen can power much of our economy, while releasing zero carbon in the process.
The hydrogen rainbow
Despite it being so common, but unfortunately nature doesn’t offer up hydrogen in pure form, instead it is most commonly found bound with oxygen in water, and carbon with fossil fuels. Extracting pure hydrogen involves separating the hydrogen molecule present in H2O from the two oxygen molecules. This process is highly energy intensive, and importantly also highly carbon intensive. Hydrogen (a colourless gas) is commonly referred to by a colour, denoting whether the manufacturing process was ‘dirty’ (brown-grey) or ‘clean (blue-green) :
- Brown: The cheapest way to make hydrogen is via coal gasification. However, it is also the most environmentally damaging because of the use of thermal coal in the production process.
- Grey: Produced using natural gas via steam methane reformation, but without emissions capture. For each tonne of hydrogen, the process emits 7 tonnes of carbon dioxide. Currently, almost all of the hydrogen that is produced is grey hydrogen. The cost is highly dependent on the gas price.
- Blue: Produced using natural gas, but with carbon emissions being captured and stored or reused. This is one way in which hydrogen can be decarbonised but due to its production process it remains anchored to the continued use of fossil fuels, requiring expensive and as yet unproven carbon capture.
- Green: Made using electricity generated from from renewable energy to electrolyse water, separating the hydrogen atom within it from its molecular twin oxygen. The problem with green hydrogen is that it requires more energy to produce than is embedded in the hydrogen and suffers significant energy losses (50%-80% depending on the final use). It’s also very expensive – as of 2020 the cost to produce green hydrogen is thought to be be 3-5 times as expensive as grey hydrogen.
Where is hydrogen used today, and where could it be used in the future?
As of 2020 pure hydrogen is most widely used as a chemical feedstock for oil refining and to manufacture ammonia fertiliser. There are a number of other applications in which hydrogen is mixed with other gases, for example methanol and hydrogen based steelmaking. Around 70 million tonnes of hydrogen is currently produced per year. Less than 100,000 tonnes (0.2%) of the hydrogen is ‘green’ while the rest is ‘grey’.
Although it has a high energy density by weight, hydrogen is not particularly dense by volume. For example, hydrogen carries one quarter the energy per unit volume of natural gas, whatever the temperature or pressure. It is also very difficult to store, requiring compression to 700 times atmospheric pressure, refrigeration to minus 253 degrees Celsius or combining with an organic chemical or metal hydride. It can embrittle metal, escapes through the tiniest leaks and…it is highly explosive. The inherent safety issues tend to suggest that hydrogen be used for industrial contexts where the risks can be managed and controlled. Hydrogen also uses a lot of energy to manufacture, and depending on the process emits large amounts of carbon dioxide. The extraction of hydrogen is also heavily reliant on scarce commodities. Iridium for example, is an ideal if expensive catalyst for the electrolytic production of hydrogen from water.
These challenges tend to tip hydrogen’s potential end market to very limited locations and end uses. For example, as it stands hydrogen is not attractive for the shipping industry; operators must be able to ensure that, wherever they go in the world, they will find the necessary infrastructure and fuel to power their ships. One of the ways the space issue could be resolved for shipping at least is by using ammonia, a compound of hydrogen and nitrogen. It has a foul smell but it is easy to liquefy, is already transported at scale across the globe, and has almost twice the energy density of liquid hydrogen. However, even ammonia is no panacea. At present some 176 million tonnes of ammonia is produced per year, primarily for fertiliser. However, the process is both energy and carbon intensive, using ‘grey’ hydrogen extracted from natural gas. To produce carbon free ammonia would require a dramatic expansion in renewable energy and that would only be for fertiliser, let alone the demand from other applications.
Other transport sectors, especially those that travel between fixed locations are potential candidates to use hydrogen. For example, train operators in Europe are looking to switch aging diesel locomotives to hydrogen, especially in regions where tracks haven’t been electrified. The world’s first hydrogen train trundled through rural Germany in the autumn of 2018. Meanwhile, the first hydrogen train stations, servicing trains in France are scheduled to be operational from early 2023.
When it comes to powering road cars, hydrogen has long been touted as a potential alternative to the internal combustion engine or lithium-ion batteries. Elon Musk, boss of electric car company Tesla famously dismissed the use of hydrogen fuel cells in road cars as “mind-bogglingly stupid”, deriding the technology because of its inefficiencies. Although refuelling times are likely to be close to those offered by conventional internal combustion cars, the safety concerns over highly explosive hydrogen are unlikely to win over consumers. Other transport sectors such as long-range trucking are likely to be more promising at least initially. Hydrogen powered planes are likely to be somewhere further off; in the case of flight, nothing propels an aircraft as efficiently and economically as fossil fuel.
Hydrogen appears unlikely to get a strong foothold in heating. Electricity has certain economic and technical advantages over hydrogen as the preferred source for heat. The first is that last-mile distribution of electricity is much cheaper and safer than last-mile distribution of hydrogen. The second is that around one third of industry’s energy use is wasted between ‘final energy’ (e.g. energy input into a boiler) and ‘useful energy’ (e.g. energy output from that boiler). In just the same way that an induction hob is twice as good at transferring energy into your cooking – not to mention better for air quality – electrical industrial heating can simply be more efficiently targeted and managed than combustion.
The cement, steel and petrochemical industries require extreme heat during the production process, in turn leaving a massive carbon footprint. One of the potential technologies that could be used by the steel industry is known as direct reduced iron (DRI). This uses hydrogen instead of coke to separate the oxygen from the iron ore. Other industries are considering using hydrogen to power their plants. As with other sectors it is infrastructure that matters as without a reliable source no company is going to want to switch to an alternative. However, once a hydrogen network starts to form other industries may decide to build on it, bringing down costs and enhancing the value that hydrogen can bring.
Hydrogen can also be used as a way to store energy. Hydrogen can store energy for long periods without discharge. In contrast, current battery technology typically sees rapid discharge of power which means it is unsuitable for storing power for long periods of time. This becomes important in regions where renewable energy is highly seasonal, for example solar in the summer and wind power in the winter. Storing larger amounts of hydrogen means a market for trading it becomes more attractive – large consumers are likely to want to pay for access. The one big drawback with storing hydrogen is that the whole process is highly inefficient; using power to manufacture hydrogen only to then use that hydrogen later to convert to power results in around 40% of the energy being wasted. However, that inefficiency might be a price worth paying for if it enables electrification to be introduced at scale.
The price of hydrogen
Unlike other commodities there isn’t currently a publicly traded hydrogen price – either as a result of physical or futures trading. At present, each consumer of hydrogen has a dedicated supply line (e.g. pipeline) from the producer. There isn’t a situation of ‘many buyers’ competing with ‘many sellers’ in which hydrogen can be bought and sold and so price discovery can proceed. Instead price reporting agencies attempt to do a cost based estimate of what suppliers of hydrogen are able to provide it. Rotterdam is planning on introducing a network of hydrogen pipelines which could enable better price discovery to take place (from S&P podcast)
According to S&P the price of conventional hydrogen (I.e., ’grey’) at the US Gulf averaged $1,250 per tonne in late 2020. In comparison, the price of ‘green’ hydrogen was estimated to be $2,800 per tonne (a premium of 125%). However, geography makes a big difference to the price with the cost of renewable energy and the degree of competition for hydrogen an important factor in bringing down the cost. For example, S&P estimated that conventional hydrogen prices were $450 per tonne more expensive in Western Europe and green hydrogen around $1,500 per tonne higher than available in the US Gulf (around $4,300 per tonne). Although production costs elsewhere in the world are thought to be as high as $7,500 per tonne.
By far the largest operational cost in the production of green hydrogen is the cost of electricity. If renewable energy costs become more competitive over time and taxes on energy are reduced then ‘green’ hydrogen should become more competitive. The other significant cost is the electrolyser used to generate hydrogen from water. Between late 2020 and the middle of 2021 the price of iridum tripled due to supply problems in South Africa (responsible for 80-85% of global output), coupled with speculative demand driven by its potential to be used to manufacture ‘green’ hydrogen. The price spike illustrative of the technical and economic challenges involved.
To make green hydrogen economics stack carbon prices may have to rise significantly higher. According to Agora Energiewende (a German think-tank), carbon prices need to be €300 per tonne – 6 times current prices – in order to ensure green hydrogen simply breaks-even during the 2020’s. However, other analysts expect the cost of green hydrogen to decline significantly by 2030, reducing the need for higher carbon prices to incentivise innovation. The uncertainty over how green hydrogen costs could evolve highlight the uncertainty present in energy transition innovation.
An opportunity to rebuild the world order
In theory the production of ‘green’ hydrogen isn’t shackled to the same geographical constraints as fossil fuels. As a globally traded commodity, hydrogen could then remake the map of geopolitics, ending reliance on fossil fuel exporting nations and improving energy security for importers. The vision of some hydrogen economy advocates is one where hydrogen replaces most of the societal, economic and geopolitical positions now occupied by fossil fuels. Countries such as Saudi Arabia, the UAE and Australia are already positioning themselves for a future where their power and influence may be more a reflection of their hydrogen capacity, and less about conventional fossil fuels and commodities.
Related article: How high do carbon prices need to be?
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