AUGUST 20259EUROPEEUROPEHydrogen is a clean alternative to the fossil fuel currently being used for many applicationsproduction and refineries. Replacing this demand is an obvious first step. Green or Blue hydrogen can be produced locally to match demand but even at this level there are challenges in terms of cost competitiveness, capital investment and for green hydrogen, managing the intermittency of renewables as a power source. Taking the next step is interesting ­ there is currently little or no wider market for clean hydrogen, particularly at a significantly higher cost than the energy source it replaces, so who would invest in production? Equally without production, who would convert their existing processes to hydrogen? Addressing this circularity and indeed the cost gap is the current focus of policy makers and potential projects, and the resulting regulatory and incentive frameworks could lift the industry from a local to a more regional industry, but still within national boundaries as it seems unlikely governments would use public money to subsidise hydrogen production for export. How do we then take one further step to internationalise the industry and stimulate cross border trade? One part of the answer is cost. It is increasingly clear that the Middle East for example, benefits from very low-cost solar electricity generation which could make the region a low-cost hydrogen producer; power being a major cost of green hydrogen production. A country without the natural advantages of the Middle East could chose to import this low-cost hydrogen rather than producing at higher cost domestically to meet their energy transition goals. This is the driver behind many of the recent announcements on strategic cooperation, Joint Ventures (JVs) etc between, for example, Japanese companies and potential Middle East or Australian hydrogen producers and increasing interest in imports of Green hydrogen in Europe (e.g. Germany).This is clearly how other commodity markets, including LNG, work but unfortunately hydrogen is more difficult (and expensive) than LNG to ship over long distances although Kawasaki from Japan has built a prototype hydrogen carrier to test the supply chain logistics with Australia and aim to replicate what they have achieved in shipping for LNG. Pipelines offer a potentially economic route for shorter distances, but the industry is searching for a solution to the longer distances required to make hydrogen a truly global commodity otherwise transport costs erode the benefit of being a low-cost producer. One alternative is to convert hydrogen to ammonia, an easier product to ship, which is fine if the targeted demand is for ammonia (fertiliser, co-firing in power plants etc) but this conversion adds cost, particularly if it needs to be reversed at the destination. Transportability (technology and cost) therefore currently represents the major barrier to the ambition of major energy companies to develop hydrogen into a global traded commodity in the short or medium term, but maybe this is less of an issue in reality if the industry develops first as a local/domestic business to meet national transition objectives and then regional in the medium term. This allows time for the development of shipping technology and market volumes that would support the investment. It seems inconceivable though, that hydrogen will not at some point become an energy commodity on a global basis if the shipping challenge is resolved ­ its role in energy transition is too important based on current climate change objectives.
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