The International Energy Agency released a comprehensive new report last week entitled “The Future of Hydrogen.” In it, the IEA casts light on the possibilities – and significant challenges – facing a form of energy that is gaining increasing interest worldwide.
Can hydrogen, the smallest of molecules and a colorless, odorless gas whose vapors are lighter than air, become a major part of a future clean energy system? Many researchers are beginning to think so. It ignites easily and burns with an almost invisible flame. It is clean burning producing no CO2. When combined with oxygen in a fuel cell, hydrogen produces heat and electricity with only water vapor as a by-product.
It is packed with energy. So it’s become a big topic of conversation in gatherings of energy experts these days. According to the IEA report, the next decade will prove critical for hydrogen to fulfill its possibilities.
Hydrogen not so new
Behind the new interest in hydrogen lay the rise of renewables and the expectation of larger amounts of wind and solar energy coming into power grids. Rising shares of variable renewable power will require planning for system flexibility, long-term and seasonal storage and long distance transport.
Hydrogen holds potential to help provide these services, in large part due to the process of water electrolysis that produces hydrogen gas. When electrolysis is powered by electricity from renewable sources, it creates a carbon-free form of energy that can be stored in great quantities, transported by pipeline and ship, and applied directly in industrial applications or reconverted to electricity.
Interestingly, the new IEA report notes that hydrogen as the ‘new thing’ is not so new. In fact, electrolytic hydrogen using clean electricity generated from hydropower was a major source of industrial hydrogen for decades before the 1970s, when the process was displaced by natural gas. Today, global hydrogen production relies mostly on fossil fuels to produce large amounts for heat-intensive industrial uses like steel making. Some 6% of the world’s demand for natural gas derives from the need for hydrogen production, according to the report.
Great possibilities and challenges
The IEA report highlights a wide range of ways in which hydrogen could play an important role in future clean energy systems. But the new report does not see an easy path to clean hydrogen, as the cost of hydrogen production from fossil fuels is well below that of clean hydrogen for now. Nevertheless, real long-term possibilities for clean hydrogen exist, including that produced from renewables and very low carbon hydrogen produced from natural gas with carbon-capture, storage and utilization (CCUS).
Looking at all the ways by which hydrogen and hydrogen-based fuels and feedstocks (synthetic methane, synthetic liquid fuels and ammonia) can be produced, the report finds that the cost advantage of fossil fuels will probably continue in most places. The cheapest source of hydrogen will still be more expensive than natural gas in 2030. Hydrogen, of course, must be produced using energy, and being so small and light it is hard to manage. Its conversion to liquid hydrogen and other forms such as ammonia, transport by ship, and later reconversion to hydrogen gas is expensive.
Yet the IEA sees real potential to reduce costs and scale up. The report discusses in detail how demand for low carbon hydrogen might grow in high-temperature heat production and industries such as steel, chemicals and oil refining. It provides analysis of the transport, buildings and power sectors to indicate how the cost of low-carbon hydrogen might develop favorably relative to other energy options. Related: Gasoline Prices Soar As Largest East Coast Refiner Is Set To Close Shop
For example, the limited low-carbon fuel options in the shipping and aviation sectors could open opportunities for hydrogen-based fuels. In the buildings sector, the report sees significant opportunity in blending hydrogen into existing natural gas networks for heating large buildings. And in power generation, the report sees good opportunities for hydrogen to play a role in large scale and long-term storage to balance seasonal variations, though not in the near future.
While the IEA report discusses these possibilities in detail, it makes clear that overarching public policy support such as carbon pricing and low-carbon targets will be critical for hydrogen to fulfill its potential in any sector.
Seeing pathways to 2030
The IEA report sees the next decade to 2030 as a critical time of opportunity for hydrogen to develop as a future fuel. It sets out pragmatic, near-term policies and actions needed to help stimulate commercial demand for cleaner hydrogen.
The report highlights five main areas of public policy, including: establishing long-term targets, supporting demand creation, and promoting R & D. It provides examples of these policies in four key economic sectors or value chains where it sees the best opportunities to scale up hydrogen supply and demand. The four value chains are the following:
- Industrial clusters, especially key clusters of industrial activity located near coasts and ports, where much of the existing demand for pure hydrogen already exists. In these locations there is diverse industry, existing pipeline networks, potential CO2 storage sites (for hydrogen production from natural gas and other fuels with CCUS), and nearby ports for an international hydrogen shipping trade. The report highlights the North Sea region, which offers particular advantages for clean hydrogen development with its numerous ports, strong industrial base and high potential for offshore wind power.
- Use of existing natural gas infrastructure. The report sees advantage with even 5% blending to foster new hydrogen demand. It points to new projects around the world that are already demonstrating hydrogen blending in the gas grid for use in buildings, including hydrogen from renewable power and hydrogen from natural gas with CCUS. The report also looks at the possibility of the conversion of existing gas grids to supply 100% hydrogen, which it sees as feasible though unlikely before 2030.
- Focused support for specific transportation options, with government targets requiring fuel-cell vehicles to make them more competitive. The report notes that hydrogen-powered vehicles are not cost-competitive today, but have the potential to become much more competitive with targets set by governments, which are already in place in many countries. It notes that large vehicles and trucks might be well-suited to hydrogen, but even the whole global truck fleet (approximately 56 million heavy- and medium-duty vehicles) might not be enough units to achieve required cost reduction in fuel cells. Thus, governments imposing overarching policy frameworks such as fuel economy standards, renewable fuel obligations and low-carbon fuel standards, as well as significant R&D, will be critical in this sector.
- A need to get international shipping routes for the hydrogen trade going. Since the cost of hydrogen production varies among countries and regions, shipping hydrogen between them could emerge. Europe and Japan, having relatively high costs and strong policy support for hydrogen, are likely importers. Big exporters would be the US, Australia, Chile and the Middle East and North Africa. The report sees particular opportunity to export to the world’s largest LNG importers: Japan, Korea and China. This offers particular promise for Australia, which is already the largest LNG exporter in the region, is currently developing new electrolyzer facilities, and is writing a national Hydrogen Strategy.
The next LNG?
Robin Mills, chief executive of Qamar Energy in Dubai, wrote earlier this year that hydrogen today resembles the early days in LNG in the 1960s and 70s. He noted that there is now a limited window for the “hydrogen economy,” and that building it will require governments to make clear commitments and invest directly in initial deployments.
The new IEA report makes much the same point, stating that “lessons from the successful growth of the global LNG market can be leveraged,” but that “international hydrogen trade needs to start soon if it is to make an impact on the global energy system” (IEA report, p. 167). It goes on to state that, in the next few years, “’Ambitious pragmatism’ will be essential to build momentum, to support the development of low-cost and low-carbon hydrogen on a large scale, and to help position hydrogen to be ready to compete and seize longer-term opportunities” (IEA report, p. 171).
For now, investors will want to carefully monitor the actions of governments and industry leaders to see signs of such ‘ambitious pragmatism.’
By Alan Mammoser for Oilprice.com
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