Europe’s most powerful supranational organization, the European Commission has earmarked the energy transition as one of the most important topics for the coming years. The European Green Deal is one of its most ambitious plans to mobilize at least €1 trillion in public-private investments over the next decade. Recently the highly anticipated hydrogen strategy was leaked revealing how Europe's top policymakers intend to expand the fuel's value chain from production to transportation, storage, and consumption.
A central ‘theme’ in Europe’s sustainability effort is the decarbonization of its industry, which requires high temperatures currently produced by burning coal and natural gas. Hydrogen is extremely promising as it is applicable throughout the energy value chain. Although production through electrolysis is preferred for sustainable purposes, steam methane reforming is used much more often due to low costs. The EC’s hydrogen strategy intends to tackle these challenges and establish a 40 GW market by 2030.
Imports and energy security
The EU is blessed with the availability of some of the world’s largest hydrocarbon deposits in its near abroad. At the same time, it is a strategic disadvantage that most of these reserves are located in sometimes unfriendly and unstable regions such as North Africa, the Middle East, and former Soviet countries. Energy security is an important topic for a continent that is mostly dependent on imports.
Therefore, strengthening energy security is an important goal by increasing domestic production and reducing dependence on foreign exporters of hydrocarbons. Also, domestic hydrogen production provides an economic stimulus to local energy conglomerates such as Siemens which has made electrolysis-related technologies a top priority.
Europe’s hydrogen plan
Currently, 8 million tons/year of ‘grey’ hydrogen are produced in the EU through steam reforming which emits a significant amount of CO2. In theory, these facilities can be enhanced with carbon capture and storage technology to limit environmental damage and produce 'blue' hydrogen. The leaked document speaks of ‘blue’ hydrogen as a bridging method. Further along the road, however, electrolysis capacity needs to be expanded to produce ‘green’ hydrogen. Related: 3 Oil Stocks With Good Upside And 3 To Avoid
For the plan to become a commercial success, costs need to decrease significantly and compete with fossil fuels. Currently, 'grey' hydrogen can be produced for €1.5/kg, which needs to become the target price for future ‘green’ production. According to the International Energy Agency, the production of ‘green’ hydrogen is around €3.50 to €5/kg. Two factors are the main drivers for cost reductions: availability of cheap electricity and innovations in the production of electrolyzers. Government commitment and a long-term strategy are essential in inducing companies to invest.
The EC’s leaked strategy
Currently, the European hydrogen economy has a turnover of €2 billion. The EC’s has set an ambitious goal of €140 billion by 2030. Besides the obvious geopolitical and technical advantages, some 140.000 jobs could be created along the way.
Although previously similar efforts have been made, strong support from EU institutions in Brussels and several national governments make a convincing case concerning the hydrogen strategy. Germany recently unveiled a €9 billion plan to set up its hydrogen economy. In the Netherlands, also, government officials are waking up to the opportunity as businesses have lobbied intensively.
Furthermore, the EC announced it will launch a Clean Hydrogen Alliance that would strengthen and extend supply chains in Europe. According to the Commission the chemical industry, steel factories, and transportation are the most obvious beneficiaries where demand is expected to be the highest.
Although the leaked strategy is ambitious and timely framed, Europe as a whole needs to do some catching up. Notably, certain Asian countries have taken an interest in hydrogen long before the EU did so which is reflected in their investments in hydrogen-related technologies. While financial support in the EU stands at €0.50 per capita, Japan has invested €3 and China even €4.
Although there is a financial disadvantage, the EU excels through an integrated approach. The EC's President Ursula von der Leyen, for example, declared hydrogen part of the new industrial policy. Originally the strategy was intended for publication on Wednesday 8 July. Despite the leak, expect EU officials to enthusiastically present the complete document as hydrogen is regarded as a critical part of Europe’s future energy system.
By Vanand Meliksetian for Oilprice.com
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