Green hydrogen- a global revolution

Rapid growth of the global hydrogen economy can bring significant geo-economic and geopolitical shifts, giving rise to a wave of new interdependencies, according to an analysis by IRENA, the International Renewable Energy Agency. ‘Geopolitics of the Energy Transformation: The Hydrogen Factor’ sees hydrogen changing the geography of energy trade, regionalising energy relations, and it hints at the likely rise of new centres of geopolitical influence built on the production and use of hydrogen, as traditional oil and gas trade declines:‘The push to develop clean hydrogen as a major energy carrier… might lead to an entirely new economic geography’

Francesco La Camera, Director-General of IRENA, said green hydrogen ‘will bring new and diverse participants to the market, diversify routes and supplies and shift power from the few to the many. With international co-operation, the hydrogen market could be more democratic and inclusive, offering opportunities for developed & developing countries alike.’  

That all sounds wonderful, with IRENA warning budding hydrogen capitalists that, economically, ‘the hydrogen business will be more competitive and less lucrative than oil and gas. Clean hydrogen will not generate returns comparable to those of oil & gas today. Hydrogen is a conversion, not an extraction business, and has the potential to be produced competitively in many places. This will limit the possibilities of capturing economic rents akin to those generated by fossil fuels, which today account for some 2% of global GDP. Moreover, as the costs of green hydrogen fall, new and diverse participants will enter the market, making hydrogen even more competitive’. 

Green hydrogen will take over- as the energy system in transformed

IRENA’s vision is certainly radical. Driven by climate urgency and commitments to net zero, IRENA’s 1.5°C scenario envisages that clean hydrogen could meet up to 12% of final energy consumption by 2050. The majority of this would be  zero carbon green hydrogen, produced using renewables, with 5TW of electrolyser capacity in place by 2050, with the rest coming from fossil gas conversion, with carbon capture and storage, so-called blue hydrogen, a low but not zero carbon option.  

Green hydrogen is projected to start competing with blue on cost by the end of this decade, or even earlier ‘in countries such as China (thanks to its low-cost electrolysers), or Brazil & India (with cheap renewables & relatively high gas prices).’ In fact, IRENA says ‘Green hydrogen was already more affordable than grey across Europe during the 2021 spike in natural gas prices. But the uptake will greatly depend on predictable demand, especially in harder to abate sectors where no alternatives exist’. 

It warns that ‘Blue hydrogen is sometimes portrayed as a safe bet, because it allows producer countries to monetise natural gas resources and pipelines that might otherwise become stranded. But the expected cost reduction in green hydrogen coupled with stricter climate mitigation policies means that investments in supply chains based on fossil fuels (blue or grey) - especially assets expected to be in operation for many years - may end up stranded’.

Clearly then there may have to be some major changes. IRENA says that ‘Hydrogen’s transformative reach goes beyond its estimated market value. It is best thought of as a general-purpose energy carrier that can foster innovation across many different industries and sectors. Its geopolitical impact might follow the patterns of steam power, electricity, or the internal combustion engine. Each in their own way, these technologies have transformed the machines and fuels on which much of our modern civilization runs. In the process, they have also affected different aspects of human life, altered global trade patterns, and shaped the global balance of power. While these technologies have brought many benefits to humankind, the benefits have not been fairly distributed. They have therefore saddled societies with new externalities & global challenges’. Will hydrogen do the same?  

Well, hopefully less so if its green (not blue) and if its production is more distributed. IRENA thinks that the advent of green hydrogen is likely to influence the geography of energy trade, further regionalising energy relations: ‘With the costs of renewable energy falling, but those of transporting hydrogen high, the emerging geopolitical map is likely to show growing regionalisation in energy relations. Renewables can be deployed in every country, and renewable electricity can be exported to neighbouring countries via transmission cables. In addition, hydrogen can facilitate transport of the energy renewables produce over longer distances via pipelines and shipping, thus unlocking untapped renewable resources in remote locations. Some existing natural gas pipelines, with technical modification, could be repurposed to carry hydrogen’.

IRENA predicts that ‘countries with an abundance of low-cost renewable power could become producers of green hydrogen, with commensurate geoeconomics & geopolitical consequences. Green hydrogen could be most economical in locations that have the optimal combination of abundant renewable resources space for solar or wind farms, and access to water, along with the capability to export to large demand centres. New power nodes could arise in places that exploit these factors to become centres of hydrogen production and use’.

A new world order? 

IRENA estimates that over 30% of hydrogen could be traded across borders by 2050, a higher share than natural gas today. ‘Countries that have not traditionally traded energy are establishing bilateral energy relations around hydrogen. As more players and new classes of net importers & exporters emerge on the world stage, hydrogen trade is unlikely to become weaponised and cartelised, in contrast to the geopolitical influence of oil and gas’. But a new pattern of industrial activity may emerge: ‘Countries with ample renewable potential could become sites of green industrialisation, using their potential to attract energy-intensive industries’ At the same time ‘Green hydrogen may strengthen energy independence, security, and resilience by cutting import dependency and price volatility and boosting flexibility of the energy system’. 

However, IRENA says there may also be problems: ‘The raw materials needed for hydrogen and renewable technologies could draw attention to material security’. And ‘shortages and price fluctuations could reverberate through hydrogen supply chains and negatively affect cost and revenues’. So, to an extent, it won’t be so new- there may still be familiar resource issues and also market instability issues, much as with global gas and oil trading. You can’t escape markets that easily! But it could all be much greener, at least for some sectors. 

Hydrogen does have multiple possible end uses- for power, heating and transport, although as has been widely discussed in recent years, it may not be suited to all of them. It is argued with some force that electric heat pumps are far better than hydrogen boilers or fuel cells for home heating, and battery-electric cars are still usually seen as winning against hydrogen powered cars. But there are plenty of other areas where hydrogen may win out, including for industrial process heating. Some also think hydrogen could be viable for short range aircraft.  Hydrogen produced using excess green power can also be cavern or old gas well stored and used to generate power again when there is a lull in green energy supply. We are only just starting to explore the options and costs are falling fast as new electrolysis technology emerges. 

The hydrogen economy has been pushed for a long time as a possible way ahead. But now perhaps it is no longer just talk, and we may actually be at the start of finding out whether it will really work- and what the implementation problems will be.