At present, commercial hydrogen is mainly produced and consumed at the local level and to increase its role in the energy transition, it is necessary to form a global liquid market for this energy source. Another negative factor in the formation of the hydrogen industry is the efforts of oil-exporting countries such as Russia and Saudi Arabia to maintain leverage over energy consumers by positioning themselves as potential leaders in the industrial production of hydrogen and ammonia (NH3, contains 17.6% hydrogen per weight, and is considered as one of the promising options for hydrogen transportation).
At present, the difficulties associated with the availability and scalability of hydrogen energy technologies raise questions about the extent to which hydrogen will play a role in the energy transition, as well as the degree of decarbonisation of hydrogen projects that need to be implemented. In particular, this concerns those technologies based on “green” hydrogen produced by electrolysis using renewable energy sources (hereinafter – RES), or “blue” hydrogen obtained by traditional gas reforming processes, with CO2 emissions reduced by means of capture, use and carbon storage (CCUS). An important aspect of the participation of pure hydrogen in the decarbonization of the economy is the possibility of increasing its energy share in traditional heavy industry, heating, energy storage and transport to 10-20%.
The experience of decarbonization of hydrogen use in oil refining shows the current unprofitability of such projects. Despite this, large oil companies are investing in cleaner hydrogen, focusing primarily on replacing “gray” hydrogen derived from fossil fuels with green and blue counterparts. This protects the investment position of oil companies in the emerging market, justifying up to 20% of CO2 emissions at refineries. At the same time, the use of expensive pure hydrogen puts a small margin on oil refining. In these circumstances, the Spanish Repsol aims to bridge the gap between the costs of producing gray hydrogen, which is about EUR 1.50 / kg and green hydrogen EUR 5.20 / kg. The cost of the latter can be reduced to EUR 2.50-3.00 / kg by 2030 by improving the efficiency of the cell and reducing the cost of renewable energy, which makes hydrogen produced by RES competitive with blue hydrogen.
The further development of hydrogen energy will also depend on finding the most efficient means of storing and distributing hydrogen, as well as on establishing a cost-effective, low-carbon value chain. Governments can play a key role here by implementing norms and standards of hydrogen use, large-scale carbon pricing, and by stimulating the use of hydrogen as opposed to cheaper hydrocarbon fuels.
Oil and gas companies in their turn insist that government support for hydrogen projects should extend to blue hydrogen, as the scale of such projects may be higher, which will help expand the demand base and reduce costs before the introduction of green hydrogen projects. Implementing such a strategy will allow hydrocarbon players to continue operating existing infrastructure (gas pipelines, underground gas storage facilities) and adapt their business to changes in the energy market, which may occur much faster if a simultaneous CO2 market is developed and a cross-border carbon tax is introduced.
The European Commission’s target on reducing greenhouse gas emissions by 55% by 2030, announced at the end of 2020 (the previous target was to reduce CO2 emissions by 43%) compared to 2005 in the ETS sector foresees a significant contribution into the successful implementation of the European hydrogen energy.
ETS – Emissions Trading System, an emissions trading system introduced in the EU in 2005, which includes energy and heating, energy-intensive sectors of the economy and provides significant penalties for exceeding the acquired emission quotas.
As a part of the above-mentioned goal, it is planned to create 10 million tons / year of green hydrogen production capacity in Europe by 2030 (the installed capacity reaches 5,000 tons / year as of 2018) and 40 GW of hydrogen electrolysis capacity, with the support of the EU aid to hydrogen projects of EUR 46 billion during this period.
Thus, in February 2021, the Hydeal consortium of 30 European energy companies, including Italy’s Snam, Spain’s Enagas and Naturgy, Germany’s Open Grid Europe, France’s Gazel Energie, GRTgaz and Terega, with support from the European Investment Bank, released supply plans of 6 million tons / year of green hydrogen in Europe at a price of EUR 1.50 / kg by 2030 by creating 95 GW of solar energy and 67 GW of electrolytic capacity.
As a part of legislative support of hydrogen energy, the EC envisages increasing hydrogen consumption through a special policy to stimulate demand, including the introduction of minimum quotas for zero or low-carbon hydrogen in industries such as chemical, metallurgical, energy and transport. Legislation on a transboundary carbon tax on energy-intensive imports is also planned to be enacted in 2021, which will facilitate the transition to hydrogen in energy-intensive sectors.
In addition, in 2021, the EU is expected to increase the targeted indicator of renewable energy in its energy mix by 2030 from 32% to 38-40%, which will support the development of green hydrogen and ammonia. This year, the European Commission plans to propose changes to the gas market rules and ensure that by 2050 the market share of renewable and low-carbon gases, including green and blue hydrogen, is two-thirds of the total market. Other legislative changes may help to reshape gas pipelines for hydrogen transportation and regulate permitting activities of gas transmission system operators by means of electrolyzers.
Legislative changes, funding programs and the adaptation of the GTS in the interests of hydrogen energy development are supported both at the level of EU authorities and at the level of member-state governments.
As of now, national hydrogen strategies have been adopted by Germany, France, Spain, Portugal and Austria. Poland, which traditionally supports fossil fuels, is developing a strategy to decarbonise the economy, according to which the country plans to build 5.9 GW of offshore wind power and thus ensure the creation of 2 GW of electricity by 2030. It is also expected that by 2025, 500 hydrogen-powered buses will operate on Polish roads. At the same time, Poland, like other Central and Eastern European countries, opposes EU norms that support only green hydrogen – a tougher approach is supported by Austria, Denmark, Portugal, Luxembourg and Spain. To ensure that such a solution is implemented, France and Germany may compromise on the status of hydrogen electrolysis using nuclear energy.
With Western governments advancing the energy transition, which may be accompanied by a significant change in existing formats of demand patterns and a reconfiguration of trade flows, major players in the oil and gas industry see hydrogen as an opportunity to continue their dominance. Large producers such as Saudi Arabia, Russia, Australia and the UAE are trying to gain a foothold in the potentially lucrative global hydrogen market and position the hydrogen industry as a further development of existing production and use of natural gas and the chemical industry.
Saudi state-owned energy company Aramco expects to form a global hydrogen market in the late 2020s and early 2030s. During this period, the company plans to reach the level of large-scale industrial production of hydrogen, confirming its ambitions by sending in September 2020 to Japan the world’s first shipment of blue ammonia (hydrogen transport carrier). Currently, the Kingdom of Saudi Arabia and the UAE are considering the possibility of producing both blue and green hydrogen. Riyadh intends to produce green hydrogen at a facility worth USD 5 billion near town Neom in the northwest of the country, with the participation of the American company Air Products and the local company ACWA Power. In Abu Dhabi, the state-owned oil company Adnoc produces 300,000 tons of hydrogen per year for further operations, and plans to expand production to more than 500,000 tons per year in the coming years.
Unlike Western oil and gas companies, which in their long-term plans take into account the warnings about the price gap between green and blue hydrogen, energy producers in the Middle East, using favorable conditions for solar energy and having significant gas reserves, provide consistent development of initially blue and then green hydrogen to meet the growing needs of the market for low-carbon fuels.
In turn, Russia has ambitions to become a leading producer and exporter of blue hydrogen, exploiting significant fossil fuel resources, transportation infrastructure, nuclear technology and excess energy capacity. Russia’s energy strategy until 2035 takes advantage of the country’s proximity to potential markets in Europe and the Asia-Pacific region, and supports the creation of an internal market that will require infrastructure to transport hydrogen and promote its use as a transport fuel., Implementation of a number of pilot projects under the leadership of PJSC Gazprom, Rosatom state corporation, private companies Novatek and Lukoil has been planned until 2024.
Australia is considered to be another potentially important player in the hydrogen energy market. The country’s relatively large fossil fuel reserves along with wind and solar energy over the next 10 years allow it to become a producer of hydrogen for domestic use and export, and Japan and South Korea are seen by Australia as key potential consumers. Local oil and gas company Woodside Petroleum is implementing plans to build two facilities to produce blue and green hydrogen and export ammonia for energy production in Japan.
The Japanese government has been implementing its own hydrogen strategy since 2017 and considers the use of hydrogen to be one of the promising areas for solving the dilemma of lack of natural resources and the request to meet the needs of an energy-intensive economy.
In 2020, along with the goal of achieving carbon neutrality by 2050, the Japanese government has announced its intention to ensure the country’s leading role in the development of hydrogen energy technologies and increase domestic hydrogen consumption to 3 million tons / year in 2030 and to 20 million tons / year in 2050.
At present, domestic hydrogen production in Japan reaches 1.3 million tons / year and is consumed mainly by local refineries and chemical plants; only 1-2% of hydrogen is supplied by pipelines or in the form of compressed or liquefied hydrogen by tank trucks in the interests of industrial consumers and gas stations.
At the same time, a number of innovative companies ensure the development of the hydrogen industry in Japan. Thus, in December 2020, the Ahead consortium implemented a demonstration project to import hydrogen from Brunei using methylcyclohexane (MCH derived from hydrogen and toluene), as opposed to ammonia as a carrier. The engineering company Chiyoda is developing a commercial hydrogen supply chain to Japan until 2025, using the expertise gained in the import project with Brunei. Another Japanese company Hystra plans to start importing liquefied hydrogen produced in Australia using brown coal within this year. Hystra project participant Kawasaki Heavy Industries plans to develop a 160,000 cubic meter liquefied hydrogen tanker by 2025 that can carry 10,000 tons of hydrogen cargo. The company has experience in building the world’s only specialized liquefied hydrogen tanker Suiso Frontier and building for Hystra Japan’s first hydrogen import terminal near town Kobe.
Japanese energy companies, which are under pressure from the government and need to reduce CO2 emissions from coal use, are considering co-burning ammonia. In 2021, a pilot project for the combustion of 20% ammonia together with coal at the Hekinan power plant with a capacity of 4.1 GW near town Jera has launched. The start of commercial operation of the project is scheduled for 2025. It is expected that as a result of the development of direct combustion of ammonia or hydrogen on commercial gas turbines, ammonia imports to Japan will increase significantly.
Japan is also trying to use hydrogen and ammonia to enhance its role in the global energy market by gaining more (as compared to what the country has in the case of oil and LNG imports) control over the supply chain and reducing costs through direct participation in hydrogen projects. In this context, Tokyo is working with its Middle East oil supply partners to develop ammonia supply chain projects, as well as studying investments in pure ammonia in Australia, New Zealand, Chile, Russia and the United States.
As a part of implementation of the national green hydrogen strategy (2020), Chile is trying to achieve production costs of USD 1.30 / kg by 2030, and in the long run – less than USD 1 / kg of green hydrogen. Due to the significant natural potential of RES, primarily wind and solar, the Chilean government expects to build 1,800 GW of capacity over the next 10 years (increase existing capacity by 70 times) and become the most competitive exporter of green hydrogen in the world. The declared goal of the program is to produce 25 million tons of green hydrogen annually and revenue of USD 30 billion per year from liquefied energy exports by 2050, with a market share of 50% in Japan and South Korea and 20% in China. Initially, Chile prioritizes the use of green hydrogen within the country in the following areas: oil refining, heavy industry, heavy-duty mining, heavy-duty trucks, intercity buses and the mixing of hydrogen with natural gas in gas networks. The state-owned oil refining company Enap, which uses 24,500 tonnes / year of blue hydrogen (produced mainly by LNG imports), estimates that locally produced green hydrogen can be much cheaper.
In the northern mountainous regions of the country, the local explosives manufacturer Enaex and the French energy company Engie have started a feasibility study for the production of green ammonia from hydrogen produced by solar power generation. It is planned that the pilot plant with a capacity of 18,000 tons / year will supply the Enaex ammonium nitrate plant, which currently imports raw materials from Trinidad and Tobago and the United States. In the future, following 2030, the project will be able to provide up to 700 thousand tons of green ammonia exports per year. The American company AES is also studying the feasibility of implementing, together with Enaex, a large-scale green ammonia project in Chile based on the use of more than 800 MWt of RES capacity.
In the southern region, Chilean Andes Mining and Energy (AME) company is collaborating with state-owned Enap, Italian electricity producer Enel, German car manufacturer Porsche and engineering giant Siemens on a project to synthesize methanol gasoline (MTG ExxonMobil, Methanol-to-Gasolin technology) using green hydrogen obtained by wind power generation. With funding from the German Ministry of Economics and Energy in the amount of USD 45 million, AME plans to begin construction of a demonstration plant for the production of transport fuel and methanol based on atmospheric CO2 and green hydrogen (wind power generation) in April 2021. During further development of the project and entrance into the EU market, AME envisages construction of a commercial plant worth USD 800 million to produce 140 thousand tons of methanol per year (or its gasoline equivalent). The investment decision on the implementation of the next stage of the project with a capacity of 1.4 million tons / year is scheduled for 2023.
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