GLOBAL HYDROGEN MARKETWho will dominate the game?July 2020Published: July 2020, Warsaw Authors: Maciej Giers, Ludmiła Jaworska, Łukasz Antas (www.esperis.pl) Copyright: Esperis LTD biuro@esperis.plGLOBAL HYDROGEN MARKET – THE STATE OF THE PLAYHydrogen, as an energy source in transport and industry, is nothing new. Its applications have been known and used for decades. But it is the ambitious climate policy, and climate goals as well, that have spotlighted hydrogen in recent years. The EU Hydrogen Strategy, published on June 8th, tries to tackle the future challenges and boost the hydrogen market in Europe. But the question to be asked is how big the market could be not only European, but also global perspective.The current global hydrogen market is still in an embryo. It is estimated that around 74 mtpa of hydrogen are produced globally. The U.S. produces around 10 mtpa of hydrogen, slightly more than the EU. Also Poland with its 1 mtpa production has its place on the global map of hydrogen producers. But regardingcurrent market situation there are two aspects to be mentioned. Hydrogen is mostly used as a resource in chemical and refinery processes and its application as transportation fuel is still marginal. Secondly, around 95% of hydrogen is as for now produced by transformation of fossil fuels. These are so called black, grey, blue or turquoise hydrogen. Some of them are produced with CCS or CCSU technology, which makes the fuel low carbon.Only 5% is emission free green hydrogen produced with renewables. In the European context it is also worth mentioning that as for now long-distance transport of hydrogen is not yet fully competitiveHYDROGEN PRODUCTION METHODSHydrogen producedfrom renewablesProduced from fossil fuelsGreenPurpleTurquoiseBlueGreyIn the electrolysis process water splits into hydrogen and oxygen; the electric energy in the process comes from a nuclear reactorIn the electrolysis process water splits into hydrogen and oxygen; the electric energy in the process comes from a nuclear reactorHydrogen is produced in the process of pyrolysiswith usage of natural gas withoutCO2 emissionProduced as grey hydrogen but during the process CO2 is captured for further usageProduced from fossil fuels; emission of greenhousegases occursBlackExtracted from a synthetic gas produced fromcoalwww.esperis.pl | 2There are four main methods of hydrogen transportation – compressed or liquefied hydrogen, metylocyclohexane (MCH) and ammonia. All options cause significant energy losses.Transportation of liquefied hydrogen consumes significant volumes of energy during the liquefaction process, whereas the MCH method causes energy losses during dehydrogenation. Ammonia production consumes significant volumes of energy during synthesis and decay. Yet it is ammonia that has the highest energy efficiency (34-37%), far above the energy efficiency level of MCH (25%). When it comes to short-distance deliveries, hydrogen can be transported via existing (modified) or new pipelines. It can also be mixed with natural gas in existing gas pipelines.It is not easy to project the size of the market in the years to come. Some analysis predict an estimated growth of global hydrogen demand to 500 mtpa in 2050 (Hydrogen Council). More circumspect forecasts predict that the demand could double to the level of 150 mtpa or even not surpass 100 mtpa (Deloitte). In spite of the discrepancies it is to be said that the hydrogen demand will not significantly grow by 2030. But if hydrogen is to become „the fuel of the future‟ it could start to play important role in the years 2040-2050. It can also be assumed that a regulatory framework and subsidies could boost the market growth in some regions more than in others. Without doubt the EU could become such a region. It is expected that the demand could grow to 16,5 mtpa by 2030. But will the EU be the biggest hydrogen market in the world?HYDROGEN TRANSPORTATION FORMSPureCompressedhydrogen (via pipelines)hydrogenenergy efficacyLiquefied hydrogen H²30-33%Methylcyclohexane MCH25%Ammonia NH³34-37%www.esperis.pl | 3FAR EAST AND PACIFIC REGION – GLOBAL HYDROGEN BALANCE POINT?It is estimated that by 2050 the market in Asia will be the balance point of global hydrogen market. China, Japan, Singapore and South Korea could constitute from two third up to 75 per cent of global demand. The scenario is even more likely to become real taking into account involvement of these countries in development of hydrogen technologies. Thus, one should take a closer look at the region.Japan – a leader, but for how long? Japanese companies carry out numerous pilotage programmes in the field of hydrogen technologies and supply chain. In April a carrier from Brunei Darussalam shipped MCH to Japan, that was subsequently dehydrogenated. The cargo came from AHEAD project in the Brunei LNG terminal in Lumut. The project is carried out by Brunei Darussalam and four Japanese companies – Mitsubishi, Mitsui, Chiyoda and Nippon Yusen Kabushiki Kaisha. It is expected to deliver maximum amount of 210 tonnes within the year 2020. But that is not the only Japanese project aiming at creating a complete hydrogen supply chain in ASEAN/EAS countries. The Japanese involvement has its roots in ambitious goals of creating a hydrogenbased economy. It is assumed that in 2025 there would be 200.000 fuel cell vehicles (FCV) in Japan and five years later, in 2030, even 800.000. In comparison, in 2018 there was only 2.700 FCVs in Japan. It is the transport sector that will dominate the structure of Japanese hydrogen demand. But later on hydrogen could play more and more important role in energy and heating sectors. According to the official strategycommercial consumption of hydrogen in Japan in 2030 is estimated at 300.000 tonnes per annum. Japan aims at consumption of ca. 10 mtpa in the future. However, it is worth mentioning that hydrogen is not to fully replace conventional energy sources in Japan. It is estimated that 2-20% of gasoline cars could be replaced by FCVs. In energy and heating sectors it would be 30 and 20% respectively.It is estimated that by 2050 the market in Asia will be the balance point of global hydrogen market. China, Japan, Singapore and South Korea could constitute from two third up to 75% of global demand.China – potential hydrogen giant? It might turn out that the Japanese market will not be the biggest one, because it is China that has a vast potential in building hydrogen economy. Despite relatively low demand now (800.000 tonnes per annum) in the next decade China could consume 20% of global hydrogen supply. In 2040 it alone might constitute 50% of global market. The Chinese authorities themselves confirm ambitious goals – from 2020 to 2030 one million FCVs should be sold and 1000 refuelling stations should be built in China. In 2018 China subsidised the development of fuel cell technologies with an equivalent of 11 billion euros. An example of state financial aid is Yunfu industrial park in Guangdong province. State subsidies and tax reliefs have made many companies move there. As for now, the whole Chinese hydrogen supply chain is located there.DEVELOPMENT OF HYDROGEN BASED TRANSPORTwww.esperis.pl | 4India – as big as China? India published its first hydrogen strategy in 2006. Ten years later, in 2016, the document was updated. According to the local sources some 100 companies in India work on the hydrogen technologies development. One of them is Tata, that works on Indian hydrogen bus. Yet there is no rapid growth of hydrogen market in India, therefore it is predicted that in short and medium term the market will not play an important role in shaping the global demand. However, according to some estimates India could become a big market comparable with China.The U.S – what to expect? Amid growing tensions between China and the U.S. it is worth considering what could be the American response to growing Chinese ambitions in the hydrogen market. The U.S. develops its own fuel cells technologies and there are about 2575 hydrogen pipelines in the country, mostly used by big industry in the Gulf of Mexico zone. According to FCHEA, an association promoting hydrogen economy, the American demand in 2019 was about 11 mtpa. The biggestshare in consumption had petrochemical and steel industries. FCHEA estimates that by 2030 demand could grow to 17 mtpa and in 2050 hydrogen could cover 14% of the U.S. energy consumption, mostly in the transport sector. There is no federal hydrogen strategy in the U.S., each state plans its own strategic goals. The most active state in terms of hydrogen economy development is California which plans to build 200 hydrogen refuelling stations by 2025. In its „Zero Emission Vehicle Promotion Plan‟ California obliged car producers to offer a fixed percentage of electric and hydrogen vehicles on the local market. The U.S. could potentially become a hydrogen exporter, especially if it comes to hydrogen produced from fossil fuels, but there is no clear strategy.It can be assumed that the Far East and TransPacific region will be a balance point for global hydrogen market. Therefore many technologies and hydrogen as well might be produced in the first place for the growing Asian market.www.esperis.pl | 5WHO WILL SUPLLY THE GROWING MARKET?The vision of the huge market in the Far East (maybe even several times bigger than the EU market) makes more and more countries to target their markets on hydrogen and becoming exporters. It is estimated that Qatar could offer the most beneficial supply conditions for far-east markets. Not only does Qatar have good conditions for the development of photovoltaic (green hydrogen), but also it has natural gas resources, which can be transformed into grey or blue hydrogen. Australia has similar opportunities. In 2018 it started to export green hydrogen (to Japan) and created the hydrogen export strategy, especially for markets of the Far East. According to available analysis, in 2025 the CIF hydrogen price (supplies to the importing country port) from Qatar would be only 0,03 – 0,1 A$/kg (0,02 – 0,06 EUR/kg) cheaper than the Australian hydrogen that would cost 4,61 A$/kg (2,84 EUR/kg).According to data given by the Australian government, the price of raw material and energy accounts for 75% of hydrogen production costs. The price of hydrogen transport is at present most advantageous for liquefied hydrogen or ammonia (0,03-0,09 A$/kg, i.e. 0,02-0,06 EUR/kg), whereas compressed hydrogen costs about 0,5 A$/kg (0,31 EUR/kg). Also, the price of liquefaction may drop by 50%, while other prices drop only by a few cents. Liquefaction and the need for regasification of hydrogen raise the price of the raw material but significantly lower the transport price.Ambitious Australia at the cutting edge Two hydrogen projects are currently realised by Australia – in Perth (West coast) and Brisbane (East coast), several projects are under construction at the South coast and there are some proposals for building infrastructure in the North and in Tasmania. Australian coasts are currently and will be in the future, the most important for hydrogen production. Even though the best conditions for the development of photovoltaic are in the interior, the lack of infrastructure and water makes hydrogen production less profitable than production located at the coast. Locating production at coast gives unlimited access to water resources (water consumption for hydrogen production, accordingto some scenarios, may increase even by 800%), wind and solar energy supplies. It also shortens the supply chain in case of martial export. It is worth noting that the technology that enables hydrogen production from seawater already exists. Not only does it lower production costs, but also saves drinking water that is becoming scarce. The ambitious Australian strategy may require new powers to be installed.It is estimated that to meet the challenge, Australia has to increase the electric energy production from 1 TWh in 2025 even to 200 TWh in 2040. Hydrogen shall be produced using natural gas (SMR with CCS technology – blue hydrogen), so the greenhouse gas emissions in Australia would increase by 6,300 t/PJ, yet considering the global scale, it would decrease by over 63,000 t/PJ.For good sun exposure and forecasted decline in RES prices, green hydrogen produced by Australia would, in its majority, come from photovoltaic farms. The cost of hydrogen production in 2018 was the most costeffective for coal processing (black hydrogen) - 2.57– 3.14 A$/kg (1,58-1,93 EUR/kg). In 2040 the prices are to decline to 2.02–2.47 A$/kg (1,24-1,52EUR/kg). Meanwhile the cost of SMR production (blue hydrogen) would amount to 1.88–2.30 A$/kg (1,16-1,42 EUR/kg), and the PEM electrolysis (green hydrogen) 2.29–2.79 A$/kg, i.e. 1,41-1,72 EUR/kg (currently 6.08–7.43 A$/kg, i.e. 3,74-4,57 EUR/kg). The Australian government in its strategic documentation is planning a production that would cover about 3,5% of global hydrogen demand and estimates its exporting potential as 74 – 382 thousand tonnes in 2040. The Australian export is to develop especially towards China, South Korea, Singapore and Japan. As for Japan, according to the bilateral agreement, from 2024 there will be no customs for the energy trade between the two countries. Australia also assumes to cover 20% Japan‟s demand, 13% Singapore's, 10% South Korean and 1% of Chinese. Supplying the “rest of the world” would be possible only on the minimum level.www.esperis.pl | 6AUSTRALIAN HYDROGEN EXPORT POTENTIAL – PRICES AND SHARE FORECASTS present:Competition never sleeps As for the far-east markets, the main rivals for Australia may be MENA countries, Brunei, that in 2020 started export of 210 t of hydrogen to Japan and has its natural gas resources, which significantly decrease the grey hydrogen production costs and Chile, thanks to the photovoltaic panels in the Atacama desert. It is worth mentioning that in 2020 the MENA Hydrogen Alliance was launched. Its aim is to accelerate the development of the value chain in the region and bringing together the private and public sector and academia. The initiative seems to focus on the European market and the activity of MENA countries are less advanced that Australian plans.Norway and Russia could also become significant hydrogen producers. The former has one of the biggest natural gas resources that could be used to produce grey hydrogen (mainly for the EU market). Supplies to Asia may encounter problems related to the unclear status of transport via Suez Canal. The need for circumnavigating Africa would make the shipments from Scandinavia less profitable. Opening the Northern Sea Route alongside Russian coasts would be a possibility. The Norwegian LNG carrier covered the distance to Tokyo in 19 days, which is a big competition for Australia (considering the Brisbane – Tokyo route can be covered in 18 days).Russia, therefore, holds control over the prospective martial route and also, for its big natural gas resources and power plants, the potential of hydrogen production. Grey and black hydrogen are being produced and used in big chemical plants. Russians do not have any strategy for developing the hydrogen sector, including “clean” hydrogen. The experts believe that in Russia, hydrogen energy sector will be growing in the years 2025-2035. Therefore big investments (amounting to 1-2,5 bln EUR/year) shall be a must. The most prospective one is the nuclear power plant Kolskaja AES in the Region of Murmansk or Leningradzka AES. The potential of the Russian nuclear and water energy systems are estimated to be able to produce even 2 million t/year without any improvements. If the system would be enhanced, it could be even 3,5 million t/y.Opening the Northern Sea Route alongside Russian coasts would be one possibility. The Norwegian LNG carrier covered the distance to Tokyo in 19 days, which is a big competition for Australia (considering the Brisbane – Tokyo route can be covered in 18 days).www.esperis.pl | 7CONCLUSIONSFar East – the key market?In 2040, China may account for half of the world‟s hydrogen demand. Along with Japan, Singapore and South Korea even for 70%. It means that the Far East would be the key market and that the price of hydrogen will be formed there. What is more, many export countries and the huge demand will create conditions characterized by sharp price competition. In this context, the EU‟s ambition to make the Euro the benchmark of hydrogen trade on the global scale may not become reality. It is also possible that China, using its advantageous position, may seek to use Juan as a settlement currency, undermining the value of the American dollar. We can also expect not quite fair competition, e.g. industrial espionage or price competition (dumping?). It is advisable to increase funds for technical development of European companies and secure the European market by regulations concerning the competition with entities using lower environmental and working standards. At the same time, the European entrepreneurs should think about developing services intended for Asian markets, as they would constitute the center of the hydrogen market.Green hydrogen – not in the Far East?Despite the announced decline in the price of renewable energy sources, the production of green hydrogen is still in its initial stage and costs more than the hydrogen produced by using fossil fuels. Considering the sharp price rivalry, especially by the natural gas-rich countries (MENA, Brunei), it is very probable that the hydrogen production would be based on natural gas processing. It means that it may be connected to the prices and the general situation on the LNG market. Furthermore, as there is a low probability of establishing EU-Far East relations concerning hydrogen trade, there would be no pressure for green hydrogen production outside the EU.Hydrogen as LNG proxy?Domestic hydrogen production in the U.S. does not exceed the demand so far. There is also no data considering how long this situation will last. However, in no analysis nor programs increasing the hydrogen use requires making America hydrogen exporter. Central authority promotes domestic production for American industry, which may be connected with the current politics of national authority. In states that develop hydrogenbased automotive industry (mainly California), foreign producers are in the lead – Toyota and Honda. Hydrogen probably won‟t become the “next LNG” from America, because for nowwww.esperis.pl | 8there is no political will or economic incentive to develop towards production to export. On the other hand, hydrogen may be an “LNG proxy”, i.e. use LNG value chains and the current client-supplier relations on the LNG market.EU gets closer to MENAFor now, the local production of hydrogen is more profitable than import. Over time the market and technology may develop so in the long term the widespread international hydrogen trade may be possible. In the short-term though, the most significant market for the EU shall be the EU itself. Among foreign suppliers, the neighbouring countries, which have gas deposits and/or good conditions for developing renewable energy sources (like Norway or MENA countries), shall be the most important ones. What is interesting, hydrogen probably won't be a threat to the countries-producers of the natural gas but only for crude oil or coal producers. H2 production will not displace natural gas but will benefit from it on the global scale and only with time will it move on to green hydrogen.www.esperis.pl | 9
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