Enter The Hydrogen Era

And then, there was hydrogen. Soon after the universe was formed through the Big Bang, the vast expanse of heat that sent time and space hurtling in infinite directions started to cool down. When this happened, the first nuclei began capturing electrons, forming the first two elements: hydrogen and helium. The lightest of all the gases, hydrogen is the first element in the periodic table – with only one proton and one electron – and the most abundant element in the universe. High school textbook facts aside, hydrogen is now a word buzzing with charisma in the energy industry as it could be the answer to decarbonising the world’s industries and spearheading a renewable future.

A quick primer on hydrogen. Current global demand stands at about 75 million metric tonnes, more than three times higher than equivalent consumption in 1975. About 40 million tonnes, or 53%, of this hydrogen is used in oil and natural gas refining, in processes such as hydrocracking or hydrotreating, while most of the remainder is used in the fertiliser industry to produce ammonia. Only a scant amount, 0.5% - is used in other applications.

But it isn’t about where hydrogen has been, but where it could go that has the world, energy and otherwise, excited. Over the past decade, many leading nation have started policies researching and supporting investment in hydrogen technologies, with at least 50 targets, mandates and policy incentives in place, and more arriving. There is a North-South divide in this, since hydrogen technology is being pursued by the likes of the European Union and Japan in their quest for a low or net-zero carbon future, while hydrogen is not mentioned at all in the most recent energy plans of countries such as Indonesia, Thailand, Pakistan or Nigeria. But the potential for hydrogen are a low-carbon replacement for heavy-carbon sources such as coal and fossil fuels is vast. In industry, where most of today’s hydrogen is used, hydrogen could increasingly be used in methanol and steel production, replacing the pollutant-heavy coal that coal, for example, plays in steel-making. In transport, hydrogen fuel cells are the future of road transportation, with alternatives also being developed for aviation and shipping. Hydrogen could also be blended in with existing natural gas networks without any major change in infrastructure for heating and cooling, while hydrogen-linked battery technologies are also the leading options for storing renewable energy from sources such as solar and wind farms. It could also be directly burnt in gas turbines as power generation; or more accurately, hydrogen-based ammonia could plan that role. With all these options in place, and the government backing to make it happen, it is not inconceivable that hydrogen demand could triple again over the next 30 years to over 200 million tonnes by 2050.

The problem is supply. Hydrogen is almost entirely supplied through fossil fuels, with an estimated 6% of global natural gas and 2% of coal dedicated solely to hydrogen production. So while hydrogen can be the replacement for carbon-intensive industries and fuels, the production of it is already carbon-heavy, with hydrogen production releasing some 830 million tonnes of carbon dioxide annually, more than the UK and Indonesia combined. Renewable hydrogen production is possible, mainly through water electrolysis but infrastructure is scant because costs can be three times higher. This is why it is much cheaper to produce hydrogen in regions like the Middle East, Russia and North America, because natural gas is the largest component of production cost at between 45-75% - while the likes of Japan, China, India and South Korea have to import expensive natural gas to make even more expensive hydrogen.

Which is why the world is now no longer just talking about hydrogen, but an entire rainbow of hydrogen colours. There is brown hydrogen, directly extracted from coal using gasification. Then there is white hydrogen that is a by-product of industrial processes or black/grey hydrogen that is produced from natural gas using steam-methane reforming. Yellow hydrogen is produced through solar grid electricity via electrolysis while pink/red/purple hydrogen is a carbon-free option created through nuclear power that is politically-unfriendly. But the colours that are getting everyone the most excited are in the green-blue spectrum: turquoise hydrogen produced through the thermal splitting of methane that leaves solid carbon rather than carbon dioxide as a by-product; green hydrogen formed through water electrolysis with zero carbon emissions; and then blue hydrogen that is conventional black/grey or brown hydrogen but with all carbon dioxide emitted sequestered through Carbon Capture and Storage (CCS) technology.

The ideal solution is green hydrogen, but costs and infrastructure may prevent this from ever being the only solution. The same caveat applies to turquoise hydrogen. Like it or not, blue hydrogen, which is probably the cheapest of the low/zero-carbon solutions but has opposition from certain quarters – will still play a major role in satisfying future hydrogen demand, which in itself should start a virtuous loop of reducing carbon emissions in industries where hydrogen as a fuel can take hold. The world’s leading energy supermajors and majors are already preparing for this. BP has announced plans to build the largest blue hydrogen production facility in the UK by 2030, while the US climate envoy for the Biden administration John Kerry is calling on the US oil and gas industry to embrace ‘huge opportunities’ in hydrogen. Shell has invested in a tech start-up developing a hydrogen-based zero-emissions aviation engine, while even state oil firms are making moves: Malaysia’s Petronas is expanding its investment into green and blue hydrogen along with advanced CCS projects, while the ever-vigilant Equinor is already part of the EU’s largest green hydrogen project that expects to have 10 GW of capacity by 2040 using renewable offshore wind farms. Crude oil giant Saudi Arabia has plans to become the world’s largest hydrogen exporter through a combination of blue hydrogen from its natural gas reserves and green/yellow hydrogen from solar power plants being built at the city of Neom along the Red Sea by 2025. And Hyundai Oilbank has a unique solution as well: it has signed up to import LPG from Saudi Aramco and convert that into blue hydrogen onsite at its Daesan refinery complex in South Korea’s Seosan province, which could be a model that proves that clean hydrogen does not necessarily have to be produced where the source fuel originates to make the best commercial sense.

If the buzzwords for the 2000s and 2010s in the energy industry were LNG and shale, respectively, then the buzzword for the 2020s is likely to be hydrogen. Too many moves are being made by governments and too many investments approved by industry titans for this to be ignored. After all, a net-zero world will benefit everyone. And it seems that the first ever element created in this universe maybe the key to a more sustainable future.

Market Outlook:

•  Crude price trading range: Brent – US$63-65/b, WTI – US$60-62/b
• Global crude oil benchmarks edged up on a cocktail of opposing-factors, including fears of supply disruptions as Yemeni Houthi militants launched a fifth recent attack on Saudi Arabian oil infrastructure in Jubail and renewed fear of demand weakness as Covid infections rises alarmingly in certain regions, especially Europe, Brazil and India
• The likelihood of prices returning to the US$70/b level is also unlikely, given that OPEC+ has signalled that it will begin easing supply quotas from May onwards – a decision supported by kingpin Saudi Arabia – but could be timely given recent fuels demand recovery in the US, UK, China and India, the latter having posted its stronger oil consumption figures in 15 months

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