Hydrogen will be a cornerstone of the energy transition, but doesn’t replace oil

First published on Tellimer 28 August 2021


  • Hydrogen enthusiasm today echoes misplaced enthusiasm of the early noughties: Hydrogen will not replace oil

  • To understand the future of Hydrogen, we must see it as a mode of energy, like electricity, not primary power, like oil

  • H2 will smooth and stabilise renewables, fuel heavy vehicles, and in niche cases, export renewable energy as ammonia

Two decades ago, when I was in the strategic planning department of an international oil company (IOC), the European oil and gas industry was enthralled by hydrogen. The American IOCs seemed indifferent to climate change, whereas in Europe we knew that it was important and would require our business to change, but we didn’t want the business to change too much. Hydrogen seemed to offer the answer. For more than a century we’d been extracting molecules, shipping them around the world and then selling them to customers to burn to do work: originally oil and, more recently, natural gas. Here was another molecule with the alluring promise to decarbonise our business while preserving our value chain. Hydrogen production, shipment in liquefied form in specialist vessels, transportation overland by pipeline and ultimately sale to the end consumer at a fuel pump in a forecourt. It was so much like our existing business that it was hard to see the weaknesses. Current enthusiasm for hydrogen, especially so-called Blue Hydrogen produced from natural gas, reminds me of that enthusiasm at the beginning of the millennium.

Hydrogen complexity enabled electrification and EVs to win the first round of the energy transition… 

But in the midst of our enthusiasm, the industry was brushing aside serious complexities. Unless we can mine the sun, hydrogen can’t be extracted directly. Rather it needs to be manufactured, using either natural gas (so-called Black or, if the carbon emitted during manufacturing is captured and stored, Blue Hydrogen) or water (so-called Green Hydrogen) as a feedstock. Not only does this require large amounts of energy, but even with carbon capture and storage (CCS), the full Blue Hydrogen lifecycle may be more carbon intensive that simply burning methane.[1] And moving it is a rather complicated process. Oil, as a stable liquid, is extremely easy to move, but hydrogen tends to cause gas pipelines to become brittle, requiring more complex and costly pipelines than methane. Moreover, although hydrogen has excellent energy density relative to its mass, it is incredibly light, so its volumetric energy density is low, meaning that one needs to ship a lot of gas for a given quantity of energy. This can be addressed by converting it to ammonia, but that conversion requires further energy. Given these complexities, I’ve been far from surprised to see electric vehicles and renewable electricity generation play a much larger role than hydrogen in the energy transition so far. 

Figure 1: Although hydrogen's volumetric energy density is superior to that of batteries, both underperform hydrocarbons 

Hydrogen has a cornerstone role to play in the next round of the transition 

We need to stop thinking about hydrogen as a primary source of power, like oil, sunshine or wind, and start to think about it as a mode of energy for transportation, storage and consumption, like electricity or refined petroleum. Asking if hydrogen is going to replace oil is missing the point –they’re different products at different stages in the value chain. The appropriate question is where hydrogen will outcompete other modes, like electricity and refined petroleum. Although natural gas is a primary source of power, we can also think about it as a mode because it can be burned directly. 

Figure 2: Among zero carbon modes of energy, hydrogen beats electricity for time shifting (storage) and long-distance location shifting (transport by sea) 

Understanding hydrogen as an energy mode, not a fuel, helps us to see that hopes for Blue Hydrogen may be misplaced. Setting Black Hydrogen to one side, even Blue Hydrogen with CCS is still methane in another form, and the latest IPCC report suggest that we should be removing methane much faster than previously planned. Today, that vast majority – 95% according to the US Department of Energy – of hydrogen is produced from natural gas, and other fossil fuels, including gasifed coal, could also be used to produce hydrogen. To the extent that hydrogen acts as a mode for fossil fuels, Blue Hydrogen will still face problems of methane leakage and the constraints of CCS. 

Green, not Blue, Hydrogen will be the hydrogen of the future 

It’s important to recognise that abandoning Blue Hydrogen does not undermine the case for Green Hydrogen. There is plenty of low value electricity that can be used to produce it as close as possible to the consumer. Rather than worrying about the complexity of transporting hydrogen through pipelines, we can both transport electricity and use low and negatively valued electricity that is already in the electricity system, like excess renewable energy at peak times, to produce Green Hydrogen through electrolysis. Indeed, given that the grid, rather than building the renewable generators themselves, is the principal obstacle to expanding renewables, there is plenty of scope to expand renewable electricity generation for Green Hydrogen production near the point of consumption. 

Enabling the future long distance renewable energy exports 

At scale, Green Hydrogen exported as ammonia could enable the energy superpowers of the post-oil era. While it will be a niche solution, akin to LNG in its early days, it would allow energy exports from areas with abundant renewable resources, like the Middle East and the west coast of South America, to those with high energy demand and limited renewables, like Japan. As with LNG, most of these projects are going to be tightly coupled, with hydrogen electrolysers and ammonia plants built to fulfil long-term contracts with specific customers. Indeed, it’s unsurprising that Japan, and particular its biggest power generator JERA, has embraced ammonia as a cornerstone of its transition pathway. 

Fuelling heavy vehicles 

Although hydrogen could replace petrol, as the European oil and gas industry thought 20 years ago, it will not. EVs have won in the light vehicle segment. Hydrogen’s future as a transportation fuel will be in heavy vehicles, including trucks, ships, and if the energy density challenge can be overcome, planes. Not only do these heavy vehicles need the energy density of hydrogen, but they also have more concentrated and bespoke fuelling infrastructure, which will be easier to convert to hydrogen. 

Stabilising the electricity grid 

However, hydrogen’s most valuable application may be in the electricity system rather than as a transportation fuel. Today, the need to absorb excess renewable generation and load-follow renewable generation when it falls are increasing power costs and leading to ambitious and costly new power schemes, like traditional nuclear power plants, small modular nuclear reactors, liquefied salt energy storage, and massive battery farms. Hydrogen generation could be a compelling alternative to these schemes, providing much of the contribution to stability that is the real value in the electricity system today. 

[1] Howarth, RW, Jacobson, MZ. How green is blue hydrogen? Energy Sci Eng. 2021; 00: 1-12.  

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