EU claims central role in global H2 market
The European Commission has set out a detailed import-oriented strategy to shape the development of the hydrogen economy well beyond its borders
The European Commission’s hydrogen strategy, unveiled in July to support its broader green deal roadmap, aims to align the EU’s natural gas consumption with its 2050 climate-neutrality ambition. While it confirmed a bias for green hydrogen, created using renewable power, it is amenable to blue hydrogen projects, where CO₂ is captured and stored, at least for the time being.
The EU executive also hopes to raise neighbouring countries’ interest in renewable and low-emission hydrogen production to further its global climate goals while boosting the bloc’s role in the commercialisation of the fuel.
The Commission explained in a study that, while the 2050 potential for EU hydrogen production “largely exceeds” expected demand, public acceptance of building ever more wind and solar farms could be the limiting factor.
The Commission’s import-oriented hydrogen strategy champions the creation of a global market. It hopes to encourage a shift towards carbon-neutrality beyond its borders and give the EU a leading role in the development of that market.
The EU seems particularly attracted by North Africa’s abundant potential for renewable power production
The EU seems particularly attracted by North Africa’s abundant potential for renewable power production—with the region’s strong winds and ample sun coupled with available land. “Producing clean hydrogen there might be a useful source for us,” said Kadri Simson, EU energy commissioner, at the unveiling of the hydrogen strategy.
The hydrogen strategy also appears to support its broader geopolitical ambitions. Frans Timmermans, the Commission’s vice-president for the green deal, added that “we should bring these forms of energy very quickly to Africa—it is enlightened self-interest to do that”.
In addition to the 40GW of electrolyser capacity planned within the EU by 2030, the Commission hopes to see 40GW of electrolysers in EU-neighbouring countries “with export to the EU”.
Supporting African hydrogen production aligns with the EU’s geopolitical strategy for greater engagement with the continent. A communication on an Africa-EU partnership in March set a goal to align the energy systems of the two continents with “green transition and energy access” as top priorities.
As a further indication of the Commission’s global ambitions, it will develop a benchmark for euro-denominated hydrogen transactions by 2021 “to consolidate the role of the euro”.
The EU’s enthusiasm to lead the development of a global hydrogen market is understandable. A report released in August by Italian gas infrastructure company Snam, together with research organisation BloombergNEF and industry lobby outfit International Gas Union, estimates that hydrogen might meet one-quarter of global energy demand by 2050, with annual sales reaching $700bn.
Means of transport
The potential of hydrogen to decarbonise heavy industry sectors that are difficult or impossible to electrify, such as steelmaking, may also spur individual member states into action.
Following the unveiling of its hydrogen strategy in June, the German government signed a partnership agreement with Morocco for the production of hydrogen, with the fuel possibly arriving through one of its planned LNG terminals. The Brunsbuttel terminal, set to become operational in 2022, announced in June that it will explore opportunities to import liquid hydrogen with potential distribution into the local gas grid, which will be connected to the terminal.
Adaptation of LNG terminals to receive hydrogen in liquid form or in transformed chemical substances, such as ammonia or methanol, facilitates the diversification of hydrogen sources. However, the Snam report indicates that high costs may well make transportation in these forms uncompetitive to markets that are also served by pipelines.
$700bn – Annual hydrogen sales in 2050
The cost of shipping hydrogen in liquid or chemically bound forms is $3-7/kg—although this may decrease towards $2/kg. By comparison, transporting hydrogen in pipelines is estimated to cost a fraction of this and is “similar to that of natural gas”.
According to the Commission, the production cost of renewable hydrogen is €2.5-5/kg ($3-5.9/kg) and it estimates this could fall to €1.1-2.4/kg by 2030.
While the Commission appears to view natural gas and hydrogen as overlapping contributors to the energy transition, it is simultaneously betting on a fast and cheap conversion of the natural gas network into hydrogen infrastructure. “Adapting the natural gas infrastructure costs only 25pc of the cost of completely new infrastructure,” Timmermans said at the unveiling of the hydrogen strategy.
However, the maximum viable distance for hydrogen pipelines has not been established. An EU official told Petroleum Economist that “the distances over which it is economically interesting [to] transport hydrogen by pipelines are in general lower than for natural gas due to the intrinsic properties [lower density] of hydrogen.”
In the absence of a technological breakthrough, the cost of shipping liquid hydrogen is likely to remain a significant proportion of the overall cost of hydrogen to the end-user. Countries such as Japan, with little potential for domestic hydrogen or natural gas production, or pipeline delivery, are likely to be served by liquefied hydrogen. As transporting liquid hydrogen is more expensive than transporting LNG, such countries would find it hard to make shipped green hydrogen cost-competitive with blue hydrogen that is domestically made from imported LNG.
Technological developments in pyrolysis—which transforms natural gas into hydrogen with solid carbon as a waste-product—and advancements in carbon capture and storage may also boost the competitiveness of blue hydrogen and maintain a role for natural gas.
Amid increasing concern about methane leakage in natural gas supplies, continuing reliance on natural gas for hydrogen production may complicate its climate credentials. The Commission’s strategy includes certification of renewable and low-carbon hydrogen, and its dedicated methane strategy is due in September. It is expected to outline additional initiatives to lower emissions across the gas supply chain.
Nuclear-powered so-called yellow hydrogen production (and grid-powered hydrogen, depending on what supplies the grid) may further complicate the credentials of hydrogen, with divisions among EU member states likely to remain.
Marco Alverà, CEO of Snam, said at the unveiling of his company’s report that “a smart way to scale up hydrogen production is blending it with natural gas in existing gas pipelines… We envision a future where clean hydrogen produced in southern Italy or North Africa can be transported through our pipelines to serve Central and Northern European needs.”
The opportunity for blending-in hydrogen is treated with greater caution by James Watson, secretary general at industry body Eurogas. He says that while “you can blend relatively easily, the complexity comes [with] end use… if you are running chemical processes that require 100pc hydrogen, having 80pc methane and 20pc hydrogen is not going to cut it.”
The Commission hopes to see 40GW of electrolysers in EU-neighbouring countries
The Commission may attempt to ensure interoperability of EU gas distribution networks by updating EU gas quality standards—but this may just create a different hurdle to rapid adoption. After all, the EU took six years to agree standards that harmonise the quality of biomethane for injection into EU gas grids.
The lack of EU blending standards is also an obstacle to its importation through existing gas interconnectors. The Commission explains in a study published earlier this year that without “harmonised regulation… hydrogen injection into cross-border transmission pipelines cannot be considered a viable option.”
There is 1.5-2.3GW of electrolyser capacity announced or under construction in the EU, according to the Commission, with another 22GW “envisioned”. It estimates investment of €24-42bn is required to reach its aim of 40GW of electrolysers by 2030, with an additional €65bn needed for supporting storage and transportation assets.
The EU will invest in hydrogen infrastructure and capacity buildout through its €5.6bn InvestEU programme, €10bn Just Transition Fund and €47.5bn React-EU regional funding programmes. The Commission hopes to achieve ambitious levels of private leverage to secure the total infrastructure investments required before 2030.
That said, each programme may boost its allocation to hydrogen projects following the European Council agreement in July to go beyond the Commission’s 25pc proposal for climate mainstreaming of the EU’s 2021-27 budget, with 30pc of the €1,074.3bn set to be spent on measures that support climate action.