Green hydrogen needs faster energy transition

Low-carbon hydrogen will play a limited role in the global energy transition unless governments get tough on decarbonisation. That is one of the key findings for the green hydrogen sector in the 2023 edition of BP’s ‘Energy Outlook’ report.

Oil giant BP last week published its 2023 forecast for how the energy transition will evolve until 2050. This is its first ‘Energy Outlook’ report to factor in the impacts of the Russia-Ukraine war and the ground-breaking US Inflation Reduction Act.

BP considered the energy transition based on three possible scenarios:‍

• ‍New Momentum: This looked at how the global energy mix would change over the next three decades if the energy transition continued at its current rate, including the increased emphasis we have seen on decarbonisation.‍
• Accelerated: This considered future changes if governments accelerated the current energy transition with a concerted effort to speed up decarbonisation, including by reducing carbon emissions 75% by 2050 (compared to 2019).‍
• Net Zero: This included the policy approach of the Accelerated scenario, and also assumed big shifts in societal behaviour and preferences that supported greater action on energy efficiency and the adoption of low-carbon energy. It is the most ambitious of the three scenarios considered in the BP report.

The report said low-carbon hydrogen, both ‘green’ and ‘blue’, would be important in the energy mix in the Accelerated and Net Zero scenarios. This is because it would complement renewables-based electrification of the energy system, and also act as a carrier of low-carbon energy for business activities that are difficult to electrify.

However, it warned that low-carbon hydrogen would be more limited under the New Momentum trajectory, because of the limited focus on faster decarbonisation. This is one of the most important elements for an increased rollout of green hydrogen.

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Stepping on the gas

Low-carbon hydrogen capacity is set to grow slowly until 2030 due to the long lead-in times for projects and the need for policies to incentivise use of low-carbon hydrogen in place of cheaper alternatives. BP predicted that most demand until 2030 would be to replace grey hydrogen in refineries and ammonia and methanol production.

Growth would accelerate in the 2030s and 2040s driven by falling technology costs, and tougher carbon emissions policies to boost the competitiveness of low-carbon hydrogen for use in the industrial and transport sectors. Overall, it said low-carbon hydrogen demand would grow tenfold between 2030 and 2050, with major uses in iron, steel, chemical and cement production; and transport fuels, including aviation.

But how will green hydrogen fare compared to green hydrogen? Blue hydrogen is currently cheaper to produce than green hydrogen, but this cost advantage is set to narrow because of the supportive policies in the US Inflation Reduction Act.

Overall, green hydrogen could account for 60% of low-carbon hydrogen production globally in 2030 in the Accelerated and Net Zero scenarios, growing to 65% in 2050.

This backs predictions we have seen elsewhere in the market that blue hydrogen is at risk of becoming a stranded asset class as green hydrogen gets both cheaper and has stronger environmental credentials. It is likely to fare best in regions where green hydrogen production remains significantly more expensive.

Finally, the report touches on a theme that we will develop at the next meeting of our Power-to-X Leadership Council. It reiterates that off-takers in need of pure hydrogen are best to buy that from producers geographically close to them, as it makes sense to transport hydrogen via pipelines or trucks, while derivatives such as ammonia and methanol are best transported by ship. This is positive for developers as it underlines there will still be a market for green hydrogen even in more expensive regions.

Overall, it said 70% of green hydrogen used in the European Union in 2030 would be made in the EU, and that will stay at around 60% in 2050. Other imports would come from nearby regions including the Nordics, the UK and North Africa.

This should be heartening for developers. Energy is a global market and shocks can travel around the world. However, the drive for energy security means that producers of green hydrogen should be well-placed for the future if they locate their production operations near customers. Hydrogen is a global market, but it isn’t a free for all.