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Alex Kimani

Alex Kimani

Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. 

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Why Natural Gas Producers Are Betting Big On Hydrogen


With president-elect Joe Biden having vowed to return the United States to the 2015 Paris Climate Accord as a matter of urgency, the clean energy sector is about to gain a big ally in Washington. 

But not so much the fossil fuel sector, by far the biggest contributor to greenhouse gas (GHG) emissions. In fact, the EIA released a damning report that in 2018, carbon dioxide (CO2) emissions from burning fossil fuels were equal to ~75% of total U.S. anthropogenic GHG emissions and ~93% of total U.S. anthropogenic CO2 emissions (based on 100-year global warming potential).

But make no mistake about it, the sector has no plans to go out with a whimper and has for years been packaging natural gas as a suitable and credible fuel bridge that will remain dominant for decades as dirtier fossil fuels gradually make way for renewable energy.

Unfortunately, whereas that narrative might have been valid a few years ago, it is increasingly becoming a hard sell as solar and wind costs continue to fall at an unprecedented clip.

Although cleaner than coal and oil, natural gas is still orders of magnitude dirtier than the dirtiest renewable energy sources when accounting for lifecycle emissions.

The natural gas industry fully understands this and is now courting yet another renewable ally: Hydrogen.

Lifecycle GHG Emissions Intensity of Electricity Generation Methods

Comparison of LCA Results Between Sources

Source: World Nuclear Association

False narrative

Hydrogen as a fuel source has been on the market for decades. Still, it has never really been able to break the glass ceiling of mass-market appeal, mainly due to a host of technical and cost issues. 

Indeed, battery power has mostly been winning the race to replace the internal combustion engine (ICE) more than any other alternative fuel type. EV companies like Tesla Inc. (NASDAQ:TSLA) have already hit the fast lane while hydrogen-powered fuel cell electric vehicles (FCEVs) appear to have stalled on the start line. 

A case in point is California, one of the greenest states in the United States. The golden state boasts a grand total of 20,992 EV charging stations compared to just 40 public hydrogen fueling stations.

But now, Wall Street believes that the hydrogen fuel economy has finally reached a tipping point, and hydrogen could soon develop into a globally-traded energy source, just like oil and gas. Related: Biden Plans To Kill Keystone XL Oil Pipeline

London–based global information provider IHS Markit has reported that a growing number of oil, automotive, and other companies have been proactively investing in hydrogen technologies

The analyst says that countries across the globe are investing in hydrogen either as a tool to meet ambitious decarbonization goals or an opportunity for export. 

For instance, hydrocarbon exporting countries in the Middle East well endowed with high solar insolation; coal-rich countries like Australia, gas-rich countries like Russia as well as highly industrialized energy-importing countries in Asia and Europe are all showing a keen interest in hydrogen.

More importantly, zero-carbon hydrogen has recently been injected into a UK gas network for the first time in a groundbreaking trial that could help to reduce carbon dioxide emissions. The 20% hydrogen and natural gas blend is being used to heat 100 homes and 30 faculty buildings at Keele University in Staffordshire. If successful, the project could be expanded to cover wider parts of the country and possibly be adopted by other countries.

Natural gas remains the most dominant fuel source in the U.S. electricity generation mix, but maybe not for much longer.

Source: EIA

Cheap renewables

Renewable energy has lately become more affordable, accessible, and more prevalent than ever before thanks to technology improvements, competitive procurement and a large base of experienced, internationally active project developers.

In fact, according to the International Renewable Energy Agency (IRENA), solar and wind power generation are now fully competitive with fossil fuel power plants, with the global weighted average levelized cost of electricity (LCOE) for utility-scale solar PV cells having declined 75% to below USD 0.10/kWh since 2010. Related: Canada Is Cleaning Up Its Oil Sands

But solar costs are still declining.

At an LCOE of $0.085/kWh for photovoltaic cells and $0.185/kWh for concentrating solar projects, solar power(utility-scale + residential rooftop) remains more expensive than other renewable sources, including hydro, onshore wind, geothermal, and bioenergy. However, this IEA prediction says solar power is about to become one of the cheapest, if not the cheapest, ways to generate electricity by 2025.

The capacity-weighted average is the average levelized cost per technology, weighted by the new capacity coming online in each region. The capacity additions for each region are based on additions from 2023 to 2025. Technologies for which capacity additions are not expected do not have a capacity-weighted average and are marked as NB, or not built.

2O&M = operations and maintenance.

Source: EIA


Favorable hydrogen economics

On the other hand, cheap green hydrogen could quickly make natural gas irrelevant.

Green hydrogen is hydrogen produced by the electrolysis of water using 100% renewable energy, thus making it a zero-carbon source. 

Unfortunately, less than one percent of the world's hydrogen production is of the green type, with the vast majority being derived from natural gas reforming. Indeed, 95% of the hydrogen produced in the United States is currently made by natural gas reforming i.e., gray hydrogen.

The big problem here is that producing large amounts of green hydrogen requires massive amounts of renewable energy; For instance, the UK government's independent Climate Change Committee estimates that the country would need 30x its current offshore wind capacity in order to produce enough green hydrogen to replace all gas boilers in the UK.

But that might be about to change.

Last year, the world's green hydrogen leaders joined hands with an ambitious goal to drive a 50-fold scale-up in green hydrogen production over the next six years that could lead to a major fall in green hydrogen prices.

The Green Hydrogen Catapult Initiative is a brainchild of founding partners Saudi clean energy group ACWA Power, Australian project developer CWP Renewables, European energy giants Iberdrola and Ørsted, Chinese wind turbine manufacturer Envision, Italian gas group Snam, and Yara, a Norwegian fertilizer producer.

The companies hope to drive 25GW of green hydrogen production by 2026, a scale that could significantly drive down hydrogen costs to below $2/kg thus making the fuel source competitive with fossil fuels in power generation. The companies hope to drive 25GW of green hydrogen production by 2026, a scale that could significantly drive down hydrogen costs to below $2/kg thus making the fuel source competitive with fossil fuels in power generation.

If successful, natural gas' days as the most dominant fuel source in the U.S. electricity generation mix could be numbered.

By Alex Kimani for Oilprice.com

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Leave a comment
  • Randall Hunt on February 09 2021 said:
    So many exaggerations and falsehoods in this article. First off, the usual blather about solar/wind being cheaper on a LCOE basis. LCOE doesn't account for the need for a parallel, reliable energy system, nor batteries, if one goes that route. So wind/solar are far more expensive. Second, all the hydrogen hype you mention is just that: hype. We are not even close to having economic green hydrogen, as much as you want to cheerlead. Maybe you can become an objective reporter someday, not a renewables propagandist.

    Randall Hunt

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