By Marcello Contestabile
The prospect of using hydrogen produced from renewable energy sources – commonly referred to as green hydrogen – or from natural gas capturing the resulting CO2 – blue hydrogen – as a fuel and energy vector has been gathering pace.
In a world where the temperature rise is kept below 1.5-degrees, the aggressive decarbonization of all sectors, even the ones that are difficult to electrify, is imperative. Thanks to its unique attributes, complementary to those of electricity, hydrogen is a good fit for those sectors – particularly heat in industry and buildings, and long-haul freight transport – and is increasingly seen as a key enabler of fully decarbonized energy systems. This is clearly highlighted in the latest global energy outlooks published by the International Energy Agency and BP, wherein the most ambitious scenarios green and blue hydrogen would account for a total of around 15-20% of global energy demand by 2050.
Despite this, the hydrogen energy industry is still in its infancy and much uncertainty exists around its future size and shape, how rapidly it will develop, and even whether it will develop at all.
Hydrogen energy is not a new idea and it attracted huge attention in the early 2000s, when the vision of building a “hydrogen economy” enjoyed much support from governments, before rapidly fading away in the second half of the decade, partly due to the lack of substantial progress in hydrogen and fuel cell deployment, and partly due to the decrease in the cost of renewable power and batteries which made electrification of the energy system a more attractive proposition.
In the years since the Paris Agreement, though, the increasingly ambitious targets set for climate change mitigation have driven hydrogen back into the picture. Today, as Dr. Fatih Birol, Executive Director of the International Energy Agency, put it, hydrogen is enjoying unprecedented political and business momentum. The rapidly growing number of policies and projects around the world, the sheer size this new industry could reach, and how it intersects with natural gas, begs the question of what hydrogen energy may mean for Qatar.
Will hydrogen allow Qatar the opportunity to gain new markets for its natural gas, such as long-haul freight transport, and generally continue to profit from it in a decarbonized world? Or will it favor renewables instead, allowing their intermittent energy output to be stored over long periods and replace natural gas for heat in industry and buildings, bringing the peak in natural gas demand closer?
A clear-cut answer to these questions is not possible. Just considering the economics of green and blue hydrogen, several variables enter the equation, some of which are location-specific. In particular, the cost of green hydrogen is a function of the price of the renewable electricity, the rate of utilization of the electrolyzers – which may be low if only off-peak electricity is used – and clearly also the cost of the electrolyzers themselves, which is currently still high.
To add to the complexity, the cost of transporting the hydrogen from where it is produced to where it is consumed varies based on distance, quantity, the means chosen – hydrogen can be transported as a gas in pipelines, as a cryogenic liquid in truck and ship tankers, converted into ammonia or reversibly bonded to a liquid organic carrier – and the rate of utilization of the related infrastructure.
This means, for example, that green hydrogen that may not be expensive to produce in the MENA region, where solar resources are abundant, could become uncompetitive if exported to the European market due to the high costs of transporting it, at least until technology costs reduce much further.
Blue hydrogen, on the other hand, may be cheaper to make today but may be constrained by the lack of availability of CO2 capture and storage capacity, and its transportation costs need to be considered too.
At a high level, the outlooks, as well as other high-profile studies, suggest that rapid decarbonization of energy will probably require both blue and green hydrogen, with blue hydrogen being more competitive in many regions in the short to medium term and green hydrogen being the most desirable option in the longer term. However, in reality, much will depend on the policies of governments and initiatives of industry, which will play a critical role in shaping future markets and driving technology development.
Even a much-simplified discussion gives a clear sense of the complexity and uncertainties surrounding the future of hydrogen energy. In the face of all this, therefore, what should Qatar do about it? Since hydrogen energy does not seem to pose an immediate threat to its LNG industry, should Qatar just take a wait-and-see approach? Or should Qatar instead start engaging with it now, also in light of the fact that other GCC countries are already moving aggressively in this space? I am going to argue that the latter approach would be preferable for the following reasons.
Firstly, despite the multiple barriers it still faces, the policy drivers behind hydrogen today are substantially different from those of the early 2000s and are arguably stronger, the technology is more mature, and the energy industry readier for such transformative change.
In the early 2000s, a major driver for hydrogen was the security of energy supply – mainly in relation to oil – and to a lesser extent environmental protection. Today, the main driver is one that is here to stay: global climate change.
Moreover, the substantial research and development efforts that started in the early 2000s have generated significant advances in many areas of hydrogen production, transport, and end-use, and an ecosystem of new firms has emerged around new hydrogen technologies that can now scale up relatively rapidly. And, hydrogen or not, the energy industry today is already undergoing a radical transformation in the face of climate change, which was not the case in 2000. So, although no one can predict the future, the prospect for hydrogen energy to become a major industry is now as real as ever.
Secondly, as already touched upon, the future shape of the hydrogen industry, should it materialize, will be strongly influenced by the actions of the early movers and fast followers – both governments and industry – in the path-dependent fashion that characterizes technological innovation.
This reasoning applies to the competition between green and blue hydrogen, the new production and transport technologies, and critically also to the international flows of hydrogen that will develop among producing and consuming countries, as well as the infrastructures that will be built to support them. Recent announcements such as the launch of the Green Hydrogen Catapult - an initiative where green hydrogen industry leaders have come together to increase the production of green hydrogen 50-fold over the next six years, accelerating its scaling up and bringing green hydrogen closer to the point where it approaches cost-competitiveness - is an example of the kind of actions that are likely to shape the future of the hydrogen energy industry.
If Qatar does not engage with it now, it will lose the opportunity to shape the industry in a way that is most beneficial to its economy, and it may eventually have to play in one that has already been molded by others.
Lastly, engaging in hydrogen today provides Qatar with the opportunity to start looking beyond LNG on a path to continuously reducing the environmental impact of the fuels it exports. It allows it to build a key element of a long-term strategy that ensures continued prosperity for decades to come, while also strengthening its leading position as a responsible regional and global player. Hydrogen for Qatar is about future-proofing.
Dr. Marcello Contestabile is a principal economist at the Qatar Environment and Energy Research Institute at Hamad Bin Khalifa University.
This article is submitted on behalf of the authors by the HBKU Communications Directorate. The views expressed are the author’s own and do not necessarily reflect the University’s official stance.