At present there’s a tremendous amount of attention in governmental and traditional media circles given to the promise of a “hydrogen economy.” In general, traditional media and its journalists are non-technical, so coverage tends to follow along with the press releases from the fossil fuel industry and major automotive players who are continuing to try to push the string of fuel cell light vehicles up hill.
Governments are putting billions into the promise of the hydrogen economy, prodded by oil and gas lobbyists, as pointed out in CleanTechnica in different pieces recently. Germany is committing $10.76 billion. Canada is committing $1.2 billion (USD). The numbers are obviously attracting attention, and naturally the traditional press is getting many things wrong.
Eric Reguly, European Bureau Chief for Canada’s Globe and Mail, gets it more right than not in a piece published yesterday, “The myth of the green hydrogen revolution.” He does provide context for the current size of the global hydrogen market, but misses the mark on what hydrogen is actually used for today, and why the market will actually shrink. So does everyone else, to be fair.
Created in 1974 to ensure the security of oil supplies, the International Energy Agency has had a poor track record of projections related to the energy transition, but is very reliable in terms of historical statistics. In its The Future of Hydrogen report from 2019, the IEA let slip one of the other dirty little secrets of clean, green hydrogen: the majority of it is used in the petroleum industry in refineries, and that’s been the major source of market growth for the past 30 years.
That’s right, the global $120 billion annual market in hydrogen is 55% devoted to refining petroleum products. As Norwegian oil and gas giant Equinor and the McKinsey global consulting firm, among others, are predicting peak oil demand before 2030, and declining global demand after that, the hydrogen market is actually going to shrink substantially.
The governmental money isn’t necessarily wasted, of course. The 35.7 million tons of hydrogen consumed outside of the oil and gas industry, mostly for ammonia, are necessary to decarbonize, and should be decarbonized with green hydrogen, not the fig leaf of “blue” hydrogen. And the useful non-fuel derivatives of petroleum will mostly still be required. Roughly 20% of a barrel of oil is turned into products which aren’t burned, and there’s no reason to think that we won’t be pumping crude out of the ground for those byproducts long into the future. That reduces the drop in demand, leading to an annual demand of perhaps 48.7 million tons. And there will be new markets for hydrogen, although it’s unlikely that they will ever equal the petroleum industry’s refinery demand.
When we’ve electrified everything and no longer burn fossil fuels, we might see 60 million tons annual demand for hydrogen, perhaps 80% of current demand.
That will take some electricity. At 37% and 25% capacity factors for wind and solar respectively, and a 50:50 split of generation, the 48.75 MWh of electricity required to electrolyze a ton of hydrogen out of water would require about 439 GW of wind and 650 GW of solar. That’s less than we’ve already built. If China kept building at 2020 rates, the global requirement of electricity for green hydrogen would be met by that country alone in well under 10 years.
As wind and solar continue to drop in price down to the range of $20 per MWh by 2030, wholesale, and we continue to build lots of capacity, it’s reasonable to assume green hydrogen will have a wholesale cost just under a dollar USD, as most of the cost is energy. That is very close to current hydrogen spot prices of around 80 cents, per Platt’s new daily price index for the commodity. There’s potential to leverage even lower prices in periods of excess capacity at lower price points, but electricity providers do want to make money. Some of the current non–oil and gas industry uses of hydrogen will likely see an uptick in prices.
Per the literature and my bottom-up calculations, the current hydrogen product generates 830–1,000 million tons of CO2 annually. That’s a big number, and eliminating most of that through green hydrogen is a very good goal. At the median of wind and solar’s CO2e per kWh, that’s a reduction of roughly 98% at current rates, and that will only improve as wind and solar supply chains and distribution continue to decarbonize.
Governmental expenditures on hydrogen are very useful, in other words, but should be very carefully targeted to where they actually add value, which is almost entirely in displacing black and gray hydrogen in non–oil and gas markets with green hydrogen.