This blog is part of The Great Hydrogen Debate, a five-part series to better understand what a hydrogen economy would look like, and the effort required to achieve it. This is our third piece of the series, read our first blog, "The Great Hydrogen Debate: Key questions about the hydrogen economy," our second, "The Great Hydrogen Debate: Will Hydrogen Become The Bulk Energy Carrier Of The Future?" and our third, "The Great Hydrogen Debate: How Will Hydrogen Be Transported In A New Global Energy Trade?" Next Wednesday we will be publishing our final blog for this series.
Identifying which industry will be the catalyst for widespread hydrogen adoption is the holy grail of the hydrogen economy. With nearly 90% of hydrogen consumed today in refining and ammonia production, many are investigating the prospects of other industries – power generation or transportation – in growing overall hydrogen demand. The question also becomes more nuanced because not all hydrogen is created equal – with grey hydrogen being the dominant form today, but a significant push for green hydrogen production and consumption in the future. In our third, and final debate, we tackle this “holy grail” question in an attempt to map out the path towards a hydrogen economy.
To recap the debate format, we broke down each question into three clear hypotheses to reflect what we felt were the key points of contention most important to you. In preparation for the session, each member had the option to present a figure to support their positions, though some opted to “let their skills do the talking.” The figures consist of topics you asked about, internal cost analyses, and third-party data – presented here for your reference.
Transportation fuel will be the main driver and leading application for hydrogen.
The debate kicked off with a team member taking the position that the hydrogen economy is about the expanded use of hydrogen and, out of all the sectors, transportation is the only sector large enough to move the needle in terms of supply and demand. The position was immediately shot down by another team member stating that “it didn’t work before, why would it magically work now?” When asked to elaborate, the team member referenced the Shell Sky Scenario (left figure), explaining that even in Shell’s bullish scenario for hydrogen adoption, we would not see a significant uptick in the road transportation sector until after 2050 – and even by the end of the century it would still be a minor energy source compared to electricity. When other forms of transportation were brought up, referencing one of the very first debates the group had – heavy-duty, aviation, shipping – the group quickly agreed that its energy demand is still a minor portion of the energy system and even the prospects of hydrogen are not promising, outside of heavy-duty vehicles.
Our in-house mobility expert chimed in adding that at the end of the day it comes down to costs – not just vehicle costs but fueling infrastructure costs. In terms of vehicle costs, the team member cited the Toyota Mirai initially priced at $57,000 in the U.S. given it was the first commercially mass-produced fuel cell vehicles in the market. Without significant cost reductions, the outlook for fuel cell vehicle adoption is grim – even in the optimistic case, new car sales are not expected to break 1 million by the end of the decade (right figure). Then there’s fueling infrastructure – “it’s just way too expensive and nobody wants to build them right now.” Some data points were thrown around by the group - $1.5 million for a single hydrogen fueling station – as the reason why there are barely 300 public hydrogen fueling stations around the world. One team member added – likely putting the final nail in the coffin – that the cost of an electric vehicle charging station is 0.05% of that cost.
The first debate of the day wrapped up with the group largely forgetting that the opening argument was actually in support of the transportation sector being the main driver in widespread hydrogen use. Despite the large addressable market, the economic fundamentals are still currently too large of a hurdle. Though the group did agree that this could drastically change with very targeted investments – in the range of multi-billion-dollars – from government.
Hydrocarbon production, processing, and refining will catalyze green hydrogen production.
All eyes were on the resident green hydrogen specialist to kick off the second debate – “we all know you agree” snarked one team member. The opening statement was made – the industrial sector will be the primary driver of the hydrogen economy because a hydrogen economy really means a low- or zero-carbon hydrogen economy. One team member voiced a disagreement, but the group largely ignored it – typical reaction for much of the debates so far. The idea of a low- or zero-carbon hydrogen economy was elaborated with the point being made that the idea of a hydrogen economy is not about increasing hydrogen usage initially, but about evolving the existing use of hydrogen. This meant that the refining and petrochemicals industry will be the primary driver – with major companies active in the space today building electrolyzer capacity and eventually infrastructure for hydrogen storage and transport. An analogy was made to the rise of electric vehicles – it occurred because the electric grid was constructed first for all sectors and the rise of electric vehicles piggybacked on the existing infrastructure – the same will happen for green hydrogen.
It was becoming clear that the debate was quickly turning into a “chicken or the egg” discussion, but the group agreed that demand is more important than supply in the early phases of the hydrogen economy and demand for green hydrogen will come from the industrial sector. A team member quickly added that we are already witnessing increasing activity with companies “one-upping” each other with large-scale electrolyzer projects – “you build 1 GW, I build 2 GW” – that pushes down costs with larger manufacturing capacity, automation, and scale-up know how (above figure). Another team member added that refining is not the only industry that has shown strong interests in green hydrogen – steel emerged as the next opportunity to drive green hydrogen use and if a country like China were to decide to use hydrogen in its steel production it would drastically shift the demand landscape for the positive.
Despite the initial contrarian arguments the group came to a consensus that the near-term growth opportunities for green hydrogen will be from existing demand industries – refining, petrochemicals, and ammonia production. This first step will lead to a domino effect of new infrastructure build out to shift green hydrogen production from being on-site generation and self-consumption to an eventual commodity energy carrier for other industries.
Hydrogen will become a bulk energy carrier and the drop-in replacement for natural gas in our energy system.
The last debate of the day and the series had an overarching theme that was prevalent in the previous debates – hydrogen will likely be one of several energy carriers in the future energy mix. There was little support by the group in the idea and the conversation quickly shifted toward the various reasons of “why not” instead of “why.” The first team member to open up the discussion made the blanket statement that shifting to 100% hydrogen is just plain difficult and costly. Starting with building an analogous pipeline network to the current stay natural gas infrastructure, the team member highlighted the exorbitant cost of a new build hydrogen pipeline and investments required even in a retrofit strategy (above figure). But the pipeline is not the only issue – converting customers over to hydrogen is also a logistical issue. The caveat was provided that while in a few demonstrations or towns it might be possible to switch over every household from natural gas to hydrogen, the likelihood of it being universal is close to none.
The conversation shifted away from the technical details with a team member highlighting that the challenges of hydrogen becoming a bulk energy carrier goes far beyond that. Several governments across the world want to electrify – not shift from natural gas to hydrogen – adding that burning hydrogen for heat is the best way to lose money, especially when electric heating is a clearly better solution. When the idea of just blending hydrogen into existing natural gas pipelines, that was quickly shot down as overly complicated with some countries already shelving the idea. It was becoming clear that the team agreed hydrogen would not become the future bulk energy carrier, but what would it be?
As the conversation ended there was growing consensus that the bulk energy carrier of the future will likely be electricity with hydrogen serving as a complement when electricity is not a viable option. “The hydrogen economy is just an electrified economy” said one team member as the group concluded for one last time.
From the debate on the three hypotheses, it became clear that there is no clear answer to how the hydrogen economy will emerge. While transportation has the potential from an addressable market perspective to boost hydrogen demand, the outlook for fuel cell vehicles is unclear as electric vehicles have surpassed it as the powertrain of the future. Even with initial disagreements, a true hydrogen economy will be a green hydrogen economy – first with on-site generation and self-consumption, but eventually leading to a global renewable energy trade. Lastly, after three sessions of debating, it became even more clear that hydrogen – or any other form of energy – will unlikely become the bulk energy carrier in the future energy system.
Next week we conclude The Great Hydrogen Debate next Wednesday providing our 2021 predictions for the hydrogen economy. Please make sure to subscribe to our energy newsletter for our latest energy news.