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Is Green Hydrogen Being Overhyped?
May 27,
2023
By
Cyril Widdershoven
-
Green hydrogen is being hyped as fuel of the future by business and
governments alike.
- Technical and commercial
constraints remain unresolved while European nations are making huge
commitments to green hydrogen.
- Saudi Arabia’s Prince
Abdulaziz recently questioned market dynamics of hydrogen.
The
global discourse on addressing climate change, energy transition, and
investments is currently dominated by the topic of green hydrogen. The
media frenzy surrounding the expanding array of projects, subsidy
schemes, and international strategies is fueled by the influence of
Washington's IRA plans and the EU's energy strategic projects. It
appears as if the choice for a post-hydrocarbon world has already been
made, with green hydrogen or its derivative, green ammonia, emerging
as the favored options. Western parties remain highly optimistic, as
large-scale renewable energy initiatives are closely tied to these
alternatives. However, it is crucial to bring realism into the
discussion. This aspect should be addressed sooner rather than later.
During the Qatar Economic Forum in Doha, Saudi Ministry of Energy
Abdulaziz bin Salman highlighted the skepticism, stating, "People talk
about hydrogen as the fuel of the future... but who is going to be the
offtaker?" Abdulaziz bin Salman emphasized that hydrogen lacks a clear
market price, which inhibits its development. He questioned the
prevailing discussions on various types of hydrogen, such as blue,
green, purple, or pink, by emphasizing the need for identified
offtakers and clear policies in this regard. Amin Nasser, CEO of Saudi
Aramco, previously stated that blue hydrogen costs $250 per barrel of
oil equivalent (boe), which suggests that customers in the EU, Japan,
or South Korea would not be willing to procure it at such prices.
Additionally, Bloomberg reported that despite the exponential growth
of the green hydrogen project list, investors remain unconvinced about
financing them.
Currently, there is a proliferation of hydrogen projects being
proposed, but only a mere 7% of them have secured financing to
commence construction. Bloomberg New Energy Finance has highlighted
that this financing reality sharply contradicts the expectations set
by the IRA and EU strategic plans. Financial institutions remain
highly skeptical about the feasibility of economically and affordably
producing large volumes of green hydrogen. According to some industry
insiders who spoke to Bloomberg, while there are numerous project
announcements, very few are actually being realized on the ground.
Related: Will OPEC+ Surprise The Market With Another Output Cut?
Another critical aspect that has been previously mentioned but
continues to be underestimated is the deficiency in infrastructure. It
is vital not only to establish infrastructure for utilizing hydrogen
in power plants but also to facilitate its transportation to end
users. These overlooked factors are causing concerns among financial
institutions and banks. The absence of sufficient infrastructure
presents significant risks for investors due to the large-scale nature
of hydrogen projects.
Simultaneously, even if all the proposed projects are implemented, it
is important to address the realistic fact that they collectively
account for only 3.5% of the EU's projected energy needs by 2030.
Project developers and financial institutions are also deeply
concerned about the narrow focus taken by Western governments, which
primarily revolves around energy transition and hydrocarbon
substitution. There is a pressing need for greater regulatory clarity,
and government financing remains crucial. An illustrative example is
the EU Hydrogen Bank, holding $3.2 billion, which is intended to
support future fuel markets, while the full implementation of EU
regulations for green hydrogen production is not expected until 2028.
The current hype surrounding green hydrogen fails to adequately
address the existing technical challenges, which cannot be resolved
within a few years. Research reveals significant technical hurdles
that hinder a comprehensive economic assessment of the use of green
hydrogen or ammonia. Two prominent challenges are evident: the small
size of hydrogen molecules poses safety and greenhouse gas-related
risks that must be mitigated. If these challenges remain unresolved,
transportation and infrastructure developments will not materialize.
For instance, a German energy giant aiming for 75% green hydrogen
usage in its gas plants has highlighted that Germany's current grid
can only transport 20% of hydrogen. Similar limitations exist in the
Netherlands and other European countries. In this context, the EU's
ambitious target of importing 10 million tons of green hydrogen by
2030 is at significant risk. Converting existing LNG regasification
plants and infrastructure to accommodate green hydrogen
transportation, as some suggest, would be exorbitantly costly and has
not yet been factored in.
BloombergNEF has emphasized that while the availability of green
hydrogen is already under pressure, the demand side is not yet
established. Without a clear understanding of who the customers will
be, no project can be deemed bankable or economically viable. Brett
Ryan, Head of Policy at Hydrogen UK, bluntly states, "There's no point
producing huge volumes of hydrogen if you don't have off-takers who
are ready to actually use that hydrogen." This sentiment is echoed by
major green hydrogen producers such as Saudi Arabia and the UAE.
Without a market price, which does not currently exist, or robust
reference prices in a still nascent commodity market, it will be
nearly impossible to realize the proposed projections for green
hydrogen. The green hydrogen market finds itself in a "chicken or egg"
situation. While many renewable energy projects align themselves with
green hydrogen as a potential economic driver, the reality must be
acknowledged. Considering the significant influx of intermittent
renewable power generation, the market needs to recognize that without
off-takers for green hydrogen or green ammonia, the overall financial
outlook will be far bleaker than anticipated. A market based on both
supply and demand is essential. Presently, viable options are scarce,
even in prosperous markets like Northwest Europe. Green hydrogen is
expensive, and if it cannot be efficiently transported, it ceases to
be truly green and becomes a potential waste of financial resources.
Prince Abdulaziz's warnings should be heeded by project developers,
not as a death knell but as a cautionary message.
The early phase of the development of a hydrogen economy is full of
risks. Relying on hype alone does not establish a foundation for
stability but instead exposes inherent risks.
By Cyril Widdershoven for Oilprice.com
Green Play Ammonia™, Yielder® NFuel Energy.
Spokane, Washington. 99212
www.exactrix.com
509 995 1879 cell, Pacific.
exactrix@exactrix.com
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