Clean hydrogen — potential lifeline for energy giants
Clean-burning fuel could provide a lifeline for giant energy companies
On particularly cold winter days, the vast majority of Britain’s energy comes from burning natural gas. That will have to change radically — and soon — if the country is to hit its legally mandated target of net zero emissions by 2050.
As other countries adopt similar targets, they too will have to find an alternative to natural gas. That leaves fossil fuel companies with a ticking clock.
Hydrogen burns cleanly, leaving only water behind. That’s made it an attractive alternative fuel source — not just for governments, but also for oil companies trying to ensure their continued relevance.
Major oil and gas companies such as Shell, Equinor and BP have spent tens of millions of dollars on pilot projects. Now, in the face of record low oil prices, frozen international travel and shareholder unease over greenhouse gas emissions, investing in hydrogen has taken on a new urgency.
Hydrogen also burns very hot, making it useful for heavy industries such as cement- and steel-making. These sectors have long relied on coal, and established renewables such as wind and solar can’t deliver the necessary heat.
Supplying hydrogen could potentially become a huge new market that oil companies could dominate quickly thanks to their existing expertise in transporting and selling gas.
“Some oil and gas majors see it as a lifeline,” says Rachel Kyte, dean of the Fletcher School at Tufts University in the US and former special representative on sustainable energy at the United Nations.
With European governments unveiling tens of billions of euros in new spending to restart economies and satisfy climate commitments, hydrogen development could get a major funding kickstart. Germany, for example, has allocated € 9 billion ($15.75b) to the nascent industry.
Despite all the interest, major obstacles remain before hydrogen can fully replace fossil fuels in any sector.
The world currently produces more than 110 million tonnes of hydrogen annually, according to BloombergNEF (BNEF). Most of that is used to make ammonia, needed in fertilisers and to convert crude oil into more valuable products such as petrol and diesel.
About three quarters of that hydrogen is derived from the chemical conversion of natural gas, through a process that also produces carbon dioxide, or CO2.
If that CO2 is released into the atmosphere, the resulting fuel is known as “grey hydrogen”. When the CO2 is captured and buried underground, it’s known as “blue hydrogen”, a cleaner alternative. The cleanest form — “green hydrogen” — is derived from water, through a process that runs on renewable electricity.
While all three types of hydrogen are equally clean-burning, green hydrogen has by far the least negative effects on the environment. It’s also the most expensive: the price today can run as high as US$7.50 per kilogram, compared to US$2.40 per kg for blue hydrogen, according to the Global CCS Institute, a think tank aimed at accelerating carbon capture and storage development.
Less than 1 per cent of the world’s current hydrogen fuel supply is green. Scaling up renewable electricity production enough to reach 100 per cent will be difficult, especially since consumers and businesses are also seeking renewable power for their homes and workplaces.
Hydrogen could be useful for transport, but it’s more likely to find a bigger market in heating and industry.
Blue hydrogen could be a particularly effective tool for oil and gas companies looking to re-purpose their existing investments — namely pipes. The same infrastructure that today carries natural gas up to the surface could instead be used to move carbon dioxide in the opposite direction. This isn’t purely theoretical. A hydrogen production facility in North Dakota has been capturing and burying as much as 3 million tonnes of carbon dioxide each year since 2000.
Others are more bullish about the future of green hydrogen. The price of renewable electricity is falling much faster than the prices of natural gas and carbon capture; the same goes for the price of the industrialscale electrolysers used to separate the hydrogen atoms in water from the oxygen atoms.
With the help of government policies, BNEF projects that by 2050, green hydrogen could cost less than a third of what it does today. Annual sales could reach US$700b by then, compared to about US$1.5 trillion currently for oil and gas.
Governments are investing in both green and blue hydrogen. Britain, for example, plans to spend £800 million ($1.5b) to create carbon capture and storage clusters.
The Netherlands is planning to spend € 2.8b on offshore wind turbines to power green hydrogen production for heating and energy. Equinor is investing millions of euros to build a green hydrogen facility in Norway that will power ships.
The spending is more than worth it, says Marc Elliott, an analyst at Investec Securities in London. “If we’re going to decarbonise,” he says, “I view hydrogen as the best silver bullet we’ve got.”