Rapid growth of the global hydrogen economy could bring significant geo-economic and geopolitical change. New trading networks will develop amongst new exporters and importers, which will give rise to new interdependencies and relationships, driving significant shifts in international power dynamics. Yet questions still remain about the role of hydrogen in any future energy system.
In its report, “Geopolitics of the Energy Transformation: The Hydrogen Factor” the International Renewable Energy Agency (IRENA) says that the growth of the hydrogen market will change the geography of energy trade and regionalize energy relations. The report suggests that this will result in the emergence of new centres of geopolitical influence built on the production and use of hydrogen, replacing those relationships developed in the deployment of oil and gas.
There is little question that the traditional oil and gas trade will decline, it’s only a question of over what period. There is wide-spread understanding that to achieve climate goals, the energy system that we know will need to fundamentally change. During the 12th session of the IRENA Assembly held virtually in Abu Dhabi, UN Secretary-General Gutierres stressed the need to triple renewable energy capacity by 2030, phase out coal by 2040, end fossil fuel subsidies and ensure support for a just transition.
Also at the Assembly, Francesco La Camera, Director-General of IRENA said that renewables are the only technology that can get us to our goal. He pointed out the flaws in the current energy system that make it no longer fit for purpose. Firstly, the resilience of the current energy system is not robust – something underscored by the current energy price crisis, predominantly driven by over dependence on natural gas and the politicization of its import and export. His second point was a clear statement that today’s energy system is not compatible with the Paris Agreement. The third problem with the current system is that it is clearly unfair. He believes that renewables complemented by hydrogen is the path to a better, fairer energy system.
Despite continued lobbying efforts by the fossil fuel industry to maintain the role of natural gas in a green future, in 2021 even the IEA said that achieving net zero by 2050 would mean no further investment in new fossil fuel supply projects. Driven by concerns about the urgency of addressing climate change, and country commitments to net zero, the IRENA report estimated that hydrogen will constitute up to 12% of global energy trade by 2050, which represents a remarkable opportunity in the energy sector.
Over 30 countries and regions are already actively planning for a hydrogen future and by 2030 IRENA believes that 30% of hydrogen could be traded across borders – more than the current cross-border trade in natural gas. There are questions to be resolved, not least of which is how that hydrogen will be traded. Manuel Kuehn, head of new energy across MENA at Siemens Energy says that given the energy density gap between LNG and hydrogen, hydrogen is less likely to be transported across great distances. The density gap means the amount of energy required to liquefy hydrogen is high, increasing costs. He did however say that while a number of different transport vectors have been explored, the last few months have seen the industry coalesce around ammonia – another sign of movement towards a global industry.
There are really two visions for the future of hydrogen. The first is that those economies that have created wealth through the export of hydrocarbons will replace that income with green molecules, building large scale centralized production, using the best renewable sources to bring the cost down. As a useful approach to diversifying their economies, countries like Australia, Oman, Saudi Arabia and the United Arab Emirates are already making commitments to green hydrogen. While broader economic transition strategies are likely to be required, as hydrogen will not quickly compensate for losses in oil and gas revenues, it does provide a transition pathway.
The second vision is that new centres of production will spring up everywhere there are renewable sources and water. As Keuhn says, “The versatility of hydrogen is that you can decentralize everything.” Anywhere you can generate electricity and have water can become a hydrogen centre, offering huge development opportunities in those regions with strong renewable potential, especially Africa. Those countries with significant renewable potential could become sites of green industrialisation, using their potential to attract energy-intensive industries. At the same time, having a stake in the hydrogen value chain could boost overall economic competitiveness. The manufacturing of equipment like electrolysers and fuel cells in particular could drive business. As the report says, “Assisting particularly developing countries to deploy green hydrogen technologies and advance hydrogen industries could prevent the widening of a global decarbonisation divide and promote equity and inclusion, creating local value chains, green industries, and jobs in renewable-rich countries.”
China, Japan and Europe have already developed a head start in production, but Chile has already announced a national strategy to become a green hydrogen exporter by 2040. As more players and new classes of net importers and exporters emerge on the world stage, there is the potential for trade in hydrogen to become weaponised and cartelised, following the patterns of the power dynamics that reflected the geopolitical influence of oil and gas. IRENA believes however that such weaponisation is not likely. Francesco La Camera, Director-General of IRENA said, “Hydrogen is not a new oil. And the transition is not a fuel replacement but a shift to a new system with political, technical, environmental, and economic disruptions.”
The development of the market is going to take some time. Today the technical potential for hydrogen production significantly exceeds estimated global demand and, despite green hydrogen becoming affordable in Europe during the 2021 gas crisis, widespread affordability is some way off. Given that solar power is now the cheapest form of energy generation in the world, with wind not far behind, those countries most able to generate cheap renewable electricity will be best placed to produce competitive green hydrogen.
While countries such Morocco, Namibia and, indeed, Chile are net energy importers today, they are set to emerge as green hydrogen exporters. Realising the potential of regions like Africa, the Americas, the Middle East, and Oceania could limit the risk of export concentration, but many countries will need technology transfers, infrastructure and investment at scale. Growing trade and targeted investments in a market dominated by fossil fuels and currently valued at $174 billion is likely to boost economic competitiveness and influence the foreign policy landscape with bilateral deals that could look very different to the fossil fuel driven relationships of the 20th century.
The race for technology leadership is expected to take place during the 2020s while demand is not expected to take off before the mid-2030s. By that time, IRENA expects green hydrogen will cost-compete with fossil-fuel hydrogen globally, with the potential for this to happen even earlier in countries like China, Brazil and India. Innovation and policy will shape the current landscape further. In Europe for example, green hydrogen is expected to play a major role and additionality rules mean that no current renewable energy capacity can be repurposed to generate green hydrogen – new capacity must be brought online.
It seems likely that the impact of the geopolitics of clean hydrogen will play out in different stages. It is possible that green hydrogen could strengthen energy independence, security, and resilience by cutting import dependency and price volatility and boosting flexibility of the energy system. However, the raw materials needed for hydrogen and renewable technologies could draw attention to material security. Shortages and price fluctuations could reverberate through hydrogen supply chains and negatively affect cost and revenues.
Concerns also remain about exactly how the wider energy system is going to develop and transition. There is great debate about the difference between solution potential and time frames for action, as well as what type of hydrogen is going to be supported and how. The IRENA report is clear that different solutions will be required in different parts of the economy. Addressing hydrogen use in refineries, steel and shipping are a high priority, while its use in cars, trucks and for short term storage are less of a focus.
Understanding how to prioritise applications doesn’t address the question of how hydrogen is sourced though. While La Camera’s focus was on the vital importance of renewables and green hydrogen – he was equally clear that there is a role for blue hydrogen. This is a somewhat controversial statement from the IRENA chief – environmentally speaking – because while green hydrogen may make sense for certain hard-to-abate sectors, blue hydrogen is made from methane and therefore comes with significant emissions.
Interest in the potential for hydrogen is high amongst fossil fuel companies and states, as the majority of today’s hydrogen is grey, generated from fossil fuels and its creation has an additional emissions burden associated with the reformation process used. What makes hydrogen ‘blue’ rather than ‘grey’ is that associated emissions are expected to be captured and either sequestered or used for some other purpose. And while the cost of electrolysers for green hydrogen may come down rapidly as deployment scales up, the commercialization of carbon capture and storage (CCS) has been beset with problems for decades and it is difficult to see a clear path forward.
In 2020 the entire global hydrogen market was only 90 million tonnes and of that, only 0.03% was created by the 200MW of electrolysers currently in use worldwide. And there was no information on how much of that was powered by renewable energy, and could therefore be considered green. While there are hundreds of gigawatts in the pipeline, many such projects have yet to reach financial close because it’s unclear where the buyers of what will, in the early stages, be expensive hydrogen, are going to be found. This gap between supply and current demand is one of the biggest hurdles to development. Greening existing industrial uses of hydrogen is a fundamental step but as yet the price is not yet commercially viable meaning that deployment may prove difficult in the short term.
One thing seems inevitable however, and that is that interest in the potential of the hydrogen economy is not going to go away. Whether the eventually dominant model is centralized or one of massively distributed generation linked to renewables, this is going to mean fundamental change. That suggests that cross-border trade in hydrogen is likely to grow and be part of a changing network of global energy relationships. We’ve already seen the beginning of shifting dynamics in the conversations about rare earth metal resources and those required in many renewable energy technologies. Whether that change happens within the few years we have left to decarbonize the global energy system by 45% by 2030 (to stay on track for the 2050 targets) remains to be seen, but the direction seems set for the future.