“Environmentalists are targeting hydrogen as the fuel to help in the transition to a carbonless energy world. Hydrogen has been around for centuries, but always too expensive and challenging. What’s its status now? ”

If you haven’t been paying attention to the debate over our energy future, you have missed the growing focus on hydrogen’s role in getting to a low- or zero-carbon emissions world. From Europe to the Middle East to North America, there are numerous tests of how to generate less-costly hydrogen and how the fuel could be used to reduce carbon emissions. Some of the proposed projects are hopeful of proving up methods and technologies that can become a foundation for significant expansion of the fuel’s use. We are likely years away from knowing the projects’ outcomes, but they all assume they will work and prove financially successful.

This is not the first time hydrogen has been touted as a possible solution for our energy challenges. Its use in earlier times was for powering our transportation. In the 1970s, oil price shocks, petroleum shortages, concern over air pollution and acid rain, all combined to drive interest in clean and domestic hydrogen. Work was done on producing hydrogen from coal or nuclear electricity. The challenges proved too great, and oil prices crashed in the early 1980s, ruining the effort.

The 1990s were marked by concern about climate change. That drove studies of producing hydrogen while employing carbon capture and sequestration (CCS) and renewables, with the fuel again targeting the transportation sector. Another period of low oil prices caused interest in hydrogen to wane. This cycle was revisited in the early 2000s when climate change, high oil prices, and peak oil concerns drove interest in the fuel. Again, the focus was on how hydrogen could reduce transportation sector emissions. Once again, the drop in oil prices reduced interest in hydrogen.

The fuel has a long history. Electrolysis and primitive fuel cells attracted scientists in the 1800s. Hydrogen was an initial fuel for internal combustion engine cars some 150 years ago. It also fueled the balloons and airships of the 1800s and 1900s, and we cannot forget that hydrogen powered the rockets that took American astronauts to the moon in the 1960s. General Motors built its first vehicle powered by hydrogen in 1966. Instead of revolutionizing the auto industry, the GM Electrovan landed in a museum. Fifty years later, the world is still waiting for hydrogen to live up to its promise as a clean energy technology.

The industry joke is that hydrogen is the fuel of the future – and it always will be. Given its association with technology revolutions, it may be too soon to write off its potential to power a new energy revolution. The ability of hydrogen to make an impact on all forms of energy use, not merely transportation, is part of why the interest in the fuel is growing. The fact that hydrogen can be created from a wider range of fuels is another factor influencing the interest. Making it a cost-effective alternative fuel, however, requires overcoming a number of technological challenges.

Interestingly, some of the projects proposed or starting in Europe are based on renewable energy facilities where power costs are low or the power output is wasted during part of the day because it peaks when demand is low. Often, the oversupplied power is paid fees to not produce, which becomes a possible avoided-cost that would help offset the expense of hydrogen. Another region where increased research is being conducted on the economics of hydrogen use is the Middle East, where huge natural gas supplies exist, as well as potentially large solar renewable power. This is why hydrogen fuel is being studied intently.

After reading the various studies about hydrogen and its future published by the International Energy Agency (IEA), various European think tanks, and Wall Street research, we see how critical assumptions about hydrogen’s future costs, especially compared to fossil fuel costs, as well as the adoption of decarbonization targets by governments will be to its success. While many of the studies are aspirational in their discussion of the future potential for hydrocarbon, we question whether this fuel will prove to be much more than another niche energy source. What we do know is that hydrogen is being counted on for some of the long-term decarbonization plans for utilities in the United States. As regulators and politicians are buying into these plans, we wonder whether they have an appreciation for the technical and economic costs associated with hydrogen, or are merely taking the attitude that the fallouts will not happen on their watch?

Many smart people we know are focusing on hydrogen and its potential role in the energy supply of the future. These analysts understand the technical and economic challenges, but they are also optimists about the future based on their long experiences with the oil and gas industry. The ability of this industry to solve significant technological challenges throughout its history is well-known, so maybe it can solve the current challenges facing hydrogen.

There are basically two ways to produce hydrogen – steam reforming and electrolysis. The following are explanations of each process taken from the U.S. Department of Energy’s Office of Energy Efficiency & Renewable Energy’s web site:

“STEAM-METHANE REFORMING"

“Most hydrogen produced today in the United States is made via steam-methane reforming, a mature production process in which high-temperature steam (700°C–1,000°C) is used to produce hydrogen from a methane source, such as natural gas. In steam-methane reforming, methane reacts with steam under 3–25 bar pressure (1 bar = 14.5 psi) in the presence of a catalyst to produce hydrogen, carbon monoxide, and a relatively small amount of carbon dioxide. Steam reforming is endothermic—that is, heat must be supplied to the process for the reaction to proceed.

“Subsequently, in what is called the "water-gas shift reaction," the carbon monoxide and steam are reacted using a catalyst to produce carbon dioxide and more hydrogen. In a final process step called "pressure-swing adsorption," carbon dioxide and other impurities are removed from the gas stream, leaving essentially pure hydrogen. Steam reforming can also be used to produce hydrogen from other fuels, such as ethanol, propane, or even gasoline.”

“ELECTROLYSIS

“Electrolysis is a promising option for hydrogen production from renewable resources. Electrolysis is the process of using electricity to split water into hydrogen and oxygen. This reaction takes place in a unit called an electrolyzer. Electrolyzers can range in size from small, appliance-size equipment that is well-suited for small-scale distributed hydrogen production to large-scale, central production facilities that could be tied directly to renewable or other non-greenhouse-gas-emitting forms of electricity production.”

How Electrolysis Produces Hydrogen

Like every other fuel, hydrogen has its pluses and its minuses. Cost is a major negative presently. In producing hydrogen by steam reforming, carbon dioxide is a byproduct. Although some of the CO2 can be reprocessed, there will always be some remainder. In a low-carbon world, maybe these emissions can be tolerated and offset in other ways, but if hydrogen produced in this way is to become emissions-free, carbon capture will need to play a role. That means the hydrogen produced is three-times the wholesale price of natural gas. The cost of producing hydrogen through electrolysis is three-times the cost if produced from steam reforming, or nine-times the cost of natural gas.

Part of the reason for the higher cost is the physical details of hydrogen versus other fuels. In last year’s IEA report on hydrogen, it provided a table detailing these comparisons. Energy density is a major challenge. In liquid form, hydrogen has only one-third the energy density of natural gas.

**Exhibit 11. The Density Challenge For Hydrogen Source: Bernstein**

Hydrogen’s Qualities And Comparisons

The issue of energy density is important when considering fuel sources for the long-term. Bernstein, using EIA data, constructed a chart showing how various fuels rank against measures of weight and space requirements compared against gasoline. Both compressed and liquid hydrogen requires more space because their energy content per unit volume is extremely low. While hydrogen is much lighter than gasoline, that advantage is offset by the greater space requirement and low energy content. For transportation uses, this makes hydrogen a questionable option.

The Density Challenge For Hydrogen

Despite hydrogen being costly, its use has grown by more than threefold since 1975, primarily as an input for the oil refining and ammonia businesses. The IEA, in its 2019 report, showed the history of hydrogen production since 1975. In 2018 (latest data available), roughly 70 million tons of pure hydrogen were used, split almost equally between refining and ammonia. In terms of energy, this is the equivalent of 330 million tons of oil (Mtoe), more than the total primary energy use of Germany. Unfortunately, according to the IEA, producing this volume of hydrogen contributed to about 830 million tons of CO2, equal to the combined total CO2 emissions of Indonesia and the United Kingdom.

How The Hydrogen Market Has Grown

The greatest challenge for hydrogen is its cost. It is compounded by the lack of infrastructure to store and distribute hydrogen. In the case of fuel-cell powered cars, the lack of a network of filling stations turns that future into the proverbial “chicken and egg” debate. That is an impediment unless one is going to operate the vehicle within a limited distance, and return the vehicle to a location where it can be refilled much like home-charging stations for electric vehicles.

Jose M. Burmudez, an Energy Technology Analyst in the Hydrogen and Alternative Fuels division of the IEA, speaking on an International Association of Energy Economists (IAEE) webinar, presented a chart documenting that natural gas is the cheapest fuel source for making hydrogen by a wide margin. In fact, all fossil fuels are cheaper fuel sources for hydrogen than renewables, even if CCS technology is employed.

Hydrogen Is An Expensive Alternative

Using IEA cost data, Wall Street broker Bernstein created a chart showing how expensive renewable-generated hydrogen is versus natural gas and coal. In fact, as the chart shows, the capital cost of renewable hydrogen production exceeds all the cost of natural gas and coal, and almost exceeds the total cost of those fuels using CCS technology, not a cheap undertaking. Can this cost structure change? That is obviously the unanswered question, and the one the test projects are being designed to answer.

Fossil Fuels Produce Cheapest Hydrogen

While we understand the cost challenge, it is interesting to see the difference in hydrogen’s cost by region of the world. The IEA produced a chart showing the cost using natural gas with or without CCS for the United States, Europe, Russia, China and the Middle East. It should be noted where the hydrogen cost is the highest – Europe and China. Europe is experimenting with projects designed to produce hydrogen with renewable energy that is essentially free, but highly interruptible. The hydrogen will be used for energy storage, rather than relying on batteries for power backup.

U.S. And Middle East Are Least Costly

Solving the cost problem is critical for hydrogen’s success. The push to solve this problem is driven by the realization that hydrogen can power not only cars, but also trucks and ships, as well as being a raw material for refineries, chemical plants and steel mills, all of which have few alternatives to today’s polluting fuels. The IEA has pointed out that these sectors tend to cluster at major industrial ports, offering opportunities to build combined infrastructure. Critical, as the IEA’s analysis shows, is that more than 200 projects underway still rely heavily on direct government funding, making them highly dependent on continued support.

Integrated Hydrogen Plants Lower Costs

What is also interesting is that with cheap natural gas in the U.S. and the Middle East, the cost of producing hydrogen is lower than elsewhere. That may explain why Saudi Arabia is promoting a hard look at the economics of hydrogen. That research is being undertaken by researchers at the King Abdullah Petroleum Studies and Research Center (KAPSARC) in Riyadh, headed by Adam Sieminski, formerly the head of the United States Energy Information Administration (EIA). He recently moderated a discussion sponsored by the IAEE on the role of hydrogen in the circular carbon economy. Besides presentations by Dr. Burmudez of the IEA, Eric Williams, a Research Fellow at KAPSARC, and Fareed Alasaly, a Senior Advisor to His Royal Highness the Saudi Minister of Energy, and the Chairman of the G20 Energy Sustainability Working Group under the Saudi G20 Presidency 2020, spoke. Mr. Williams is currently overseeing the writing and publication of a series of reports on the Circular Carbon Economy to be delivered to the G20, the leading economies of the world, later this year. Numerous global energy agencies and think-tanks are preparing the reports.

This examination is a part of the discussion about developing the circular carbon economy, which can lead to a low-carbon economy that meets the climate change initiatives of the Paris Agreement. The circular economy focuses on material flows rather than energy and emissions. The circular carbon economy (CCE) builds on those principles, but the priority is managing energy and climate flows to reach a carbon balance or net zero, in order to achieve climate goals. CCE builds on the Reduce, Reuse and Recycle aspects of the circular economy, but it adds Remove as an aspect. The four Rs are elements of the energy and carbon management system. More input from one R means less is needed from another R.

How Circular Carbon Economy Works

Hydrogen can become an important input to the CCE because of its diverse applications and potential to eliminate carbon emissions. The fact that hydrogen can be produced from hydrocarbons or renewables means its production can be tailored to local resources and needs. However, widescale deployment of hydrogen needs government policies, as the business case of hydrogen is limited without a price being assigned with carbon.

Multiple Fuel Sources for Hydrogen

This is how the contribution from Blue and Green hydrogen can impact the CCC to achieve the environmental goals of the Paris Agreement (see Exhibit 19, next page). The versatility of fuels to produce hydrogen is another attraction for its use.

**Exhibit 19. How Hydrogen Cloud Could Impact CCE Source: KAPSARC**

How Hydrogen Could Impact CCE

The conclusion that comes from our examination of hydrogen is that without some major technological breakthrough that reduces the cost of producing it substantially, the economic hurdle will not be overcome. That means the only way hydrogen could become an important energy source is with government intervention in the energy market and assigning a price to carbon, or subsidizing the hydrogen fuel. At this point in time, as governments around the world struggle to reopen their economies and repair the financial damage done to their citizens and businesses by the response to the pandemic, it is difficult to see them embracing carbon prices, which raises energy costs for their people and companies. This is why the strong push, especially in Europe, for tying net-zero carbon emission policies in government stimulus efforts to rebuild their economies following Covid-19. We suggest energy executives, analysts and investors worry more about the debates over the economic rebuilding efforts than the short-term moves in oil prices, demand and supply. The long-term future of the oil market will be impacted by the success of governments instituting carbon prices.

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Energy Musings

Will Hydrogen Play A Key Role In Our Energy Future?