Value creation in hydrogen and the path ahead as a fuel to secure the transition

For hydrogen to truly embrace significance in energy’s future it must sustain values, say Boston Consulting Group’s Sanjay Purswani, Senior Knowledge Analyst, and José Luis García, Lead Knowledge Analyst.

The road to climate neutrality will require an unprecedented transition away from fossil fuels and toward renewable, clean energy sources that align with global decarbonisation efforts. One of the most promising emerging fuels is low-carbon hydrogen, which could provide an economical pathway to achieve climate neutrality and, so open a new frontier for global trade.

The appeal of low-carbon hydrogen lies in its robust technical properties, including high energy density, versatile combustion, zero-carbon emissions potential, and compatibility with existing infrastructure. Hydrogen is already in wide use: About 80 million metric tons (Mtpa) of grey hydrogen - which uses natural gas as feedstock - was generated globally in 2020. Of this substantial amount, 43% was used in production of ammonia as fertiliser, while another 15% went to produce methanol. Currently, most grey hydrogen is used in refinery applications.

Low-carbon hydrogen is a particularly strong contender for a crucial role in decarbonising hard-to-abate sectors such as steel, ammonia production, refinery operations, and power generation. From 2020 to 2050, the increasing adoption of hydrogen is projected to remove 41 Gigatons (Gt) of CO2 from the environment, generating annual demand of ~343 Mtpa for low-carbon hydrogen per two-degree scenario.

Aiding target realisation

In the Paris climate agreement, low-carbon hydrogen contributes in reducing emissions from hard-to-abate sectors.

In light of low-carbon hydrogen’s potential, it’s unsurprising that considerable momentum is building around the fuel. Many countries have published reports on strategic roadmaps, policy benefits, and commercial lift-off, creating a regulatory push and commercial opportunities. Globally, developers have announced 1,000-plus low-carbon hydrogen and derivatives projects, expected to reach 68 Mt capacity by 2030.

Most of these projects are in the feasibility stages - advancement to final investment decision (FID) will be dependent upon financing, offtake agreements, and, in the case of green hydrogen, manufacturing capacity of electrolysers.

Demand for low-carbon hydrogen is projected to primarily concentrate in regions such as the EU, North America, India, China, Japan, and South Korea, whereas supply is distributed across all continents. The anticipated disparity between demand and supply is likely to drive global trade of low-carbon hydrogen. Interestingly, in an era marked by deglobalisation trends, the hydrogen economy offers the prospect of establishing a globally distributed and geographically diversified energy market. Green hydrogen, produced using electrolysis, is set to take the lead because of potential for lower CO2 emissions. But blue hydrogen - produced from steam methane reforming or other high-temperature processes with carbon capture - is also expected to play a substantial role, particularly in the short-to-medium term.

In this forecast, global trade in low-carbon hydrogen - anticipated to surpass 8 Mt by 2030 in a nascent market - will foster development of shipping and import/export infrastructure, effectively establishing trade corridors for green hydrogen and derivatives.

Driving economic goals

This emerging global market offers a promising avenue for rising economies, not only to bolster their economic prospects but also to strategically diversify and fortify energy supplies - particularly pertinent in regions like the EU. Hydrogen will propel industry around the world, increase opportunities for qualified employment, and enhance R&D capabilities.

Low-carbon hydrogen goes beyond facilitating global markets; it possesses remarkable capacity to capitalise on existing infrastructure. Current natural gas pipelines retrofitted to serve low-carbon hydrogen can also make use of existing power generation turbines and fueling stations. Given the extensive global use of ammonia and methanol, along with associated infrastructure for shipping, storage, and transportation, a compelling opportunity arises for low-carbon hydrogen derivatives.

Low-carbon hydrogen presents a unique opportunity for various regions to bolster their economies while contributing to global decarbonisation targets. Seizing this chance will be pivotal for countries and industries alike. We are at an inflection point in the low-carbon hydrogen landscape, witnessing the launch of inaugural commercial projects and strategic manoeuvring of companies to position themselves in the market.

Challenges persist

However, it might take longer than 2030 for low-carbon hydrogen to achieve full, unsubsidised cost competitiveness compared with its grey counterpart. Low-carbon hydrogen must overcome several hurdles, including securing financing, forging long-term agreements with electrolyser manufacturers and off-takers, and addressing supply chain limitations and midstream deployment intricacies (such as logistics, storage, infrastructure). And the low-carbon industry must do it all while navigating the nascent stages of normalisation, policy formulation, and regulation.

Although the inherent value of hydrogen is unquestionable, its immediate impact is poised to materialise in specific applications - notably refinery operations, ammonia production, heavy-duty transport, and steel manufacturing.