The visit of German Vice Chancellor Robert Habeck to the United Arab Emirates on March 21 marked the beginning of a new partnership between two emerging hydrogen heavyweights. But more importantly, it underscored the role this “fuel of the future” could play in mitigating climate change and freeing countries from current geopolitical bottlenecks.
Hydrogen offers three main attractions over traditional fossil fuels: it is versatile; it burns cleanly, is non-toxic and does not emit carbon dioxide; and it has various potential sources. It can replace natural gas in power generation, industrial and chemical industries, and oil in long-distance transportation. As Russia’s war against Ukraine drags on and European and Asian natural gas prices hit record highs, hydrogen’s appeal is gaining traction.
The widespread use of hydrogen is still at a very early stage, so predictions about its potential vary widely. However, scenarios from bodies such as the International Energy Agency, International Renewable Energy Agency, Hydrogen Council and Bank of America suggest it could supply up to 22% of the world’s energy needs — and 25% of all oil needs — by 2050.
Hydrogen makes up more than nine-tenths of the atoms in the universe, but it is not found in large quantities in pure form on Earth. Rather, it must be obtained from other hydrogen-containing substances such as water or hydrocarbons such as gas and oil.
While hydrogen is the same in use, it is categorized into a variety of “colors” based on the manufacturing process. The most common types are “grey” (from natural gas with no carbon capture and storage, i.e. high carbon intensity), “blue” (from gas with carbon capture and storage that removes 90% or more of the carbon dioxide associated with it). emissions during production) and “green” (by splitting water using electrolysis, using electricity from renewable or other low-carbon sources).
Currently almost all hydrogen is “grey” – made from oil, gas or coal with no carbon capture and storage. There is little international trade and most is produced and used in-house at an industrial facility. It is also difficult to transport over long distances because it has a low density, does not condense into a liquid until very low temperatures, and is composed of very small molecules that could easily escape from containment systems.
It’s also expensive. Green hydrogen costs between US$20 and US$50 per million British Thermal Units (MBtu). Blue hydrogen has a lower price, averaging between $11 and $15 per MBtu. For comparison, natural gas in Japan and Europe has averaged between US$7 and US$11 since 2005, while US-produced gas has been much cheaper, around US$4 per MBtu.
However, international gas prices have risen recently due to a recovery in demand following the Covid-19 pandemic, a lack of investment in new production and reduced Russian supplies in Europe. With natural gas prices in Europe and Asia now hovering around $35 per MBtu, even more expensive hydrogen is starting to become more attractive.
If hydrogen is to reach its potential, production will need to be ramped up enormously – by some estimates by eightfold or more by mid-century – requiring investments of up to $15 trillion. New hydrogen would also need to be low-carbon – blue and green – and reliably certified as such.
In these early years of the industry, a full commercial value chain needs to be created, similar to the global LNG (liquefied natural gas) industry that developed from the 1960s onwards.
In addition, production costs need to be significantly reduced, which can be achieved by greatly expanding the manufacture of electrolysers – systems that split water into hydrogen and oxygen – by improving their performance, and by further developing carbon capture storage for blue hydrogen.
The raw materials for some electrolysers include precious metals such as palladium and platinum, which must be mined in large quantities or replaced with alternatives.
And far-reaching transport options are required from the production sites to the markets. This may include pipelines, as with natural gas, over moderate distances.
However, most international trade will be by ship, possibly as liquefied hydrogen but more likely in a combined form such as liquid organic hydrogen carrier (LOHC), ammonia or methanol.
Countries can also use hydrogen to produce certified low-carbon materials for export, such as steel, creating a local value chain and industrial ecosystem.
Russia, the world’s largest holder of natural gas resources, began developing a hydrogen strategy before invading Ukraine. Now those plans have evaporated, opening the door for other players.
Europe wants to produce much of its hydrogen itself, especially from offshore wind farms. But inevitably European countries – as well as Japan, South Korea and many others – will have to import. Germany prefers green hydrogen for mostly ideological reasons, Japan, Great Britain and others are open to green or blue.
Major exporters of hydrogen will be countries with cheap gas resources — states in the Persian Gulf region and perhaps the US — and those with plenty of cheap renewable energy (wind, solar, or hydro), coastal access, and business-friendly systems.
Saudi Arabia, UAE, Oman, North African countries, Australia and Chile have all emerged as the frontrunners in green hydrogen production. Saudi Arabia’s huge green hydrogen project in Neom, its planned city in the north-west of the kingdom, is probably the most advanced major new venture.
This explains Germany’s great interest in collaborating with the UAE and other Gulf States on hydrogen production and transport.
Habeck won’t be the last senior politician to turn up in the Middle East in search of hydrogen. With net-zero carbon and energy security becoming increasingly important, hydrogen has quickly emerged as a tremendous opportunity for the region to add a new sustainable industry to its hydrocarbon wealth.
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