July 2020

GLOBAL HYDROGEN MARKETWho will dominate the game?

Published: July 2020, Warsaw

Authors: Maciej Giers, Ludmiła Jaworska, Łukasz Antas (www.esperis.pl)

Copyright: Esperis LTD

biuro@esperis.pl

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GLOBAL HYDROGEN MARKET – THE STATE OF THE PLAY

Hydrogen, as an energy source in transport and indus-

try, 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 spotlight-

ed hydrogen in recent years. The EU Hydrogen Strate-

gy, 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 perspec-

tive.

The current global hydrogen market is still in an em-

bryo. 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 regarding

current 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 pro-

duced with renewables. In the European con-

text it is also worth mentioning that as for now

long-distance transport of hydrogen is not yet

fully competitive

HYDROGEN PRODUCTION METHODS

Green

In the electrolysis

process water splits into

hydrogen and oxygen; the

electric energy in the process comes from a

nuclear reactor

In the electrolysis

process water splits into

hydrogen and oxygen; the

electric energy in the process comes from a

nuclear reactor

Hydrogen is produced in the

process of pyrolysis with usage of

natural gas without CO2 emission

Produced as grey hydrogen but

during the process CO2 is captured for further usage

Produced from fossil fuels; emission of greenhouse gases occurs

Extracted from a synthetic gas produced from

coal

Purple Turquoise Blue Grey Black

Hydrogen produced

from renewables Produced from fossil fuels

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There 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 sig-

nificant volumes of energy during the liquefaction

process, whereas the MCH method causes energy

losses during dehydrogenation. Ammonia produc-

tion 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 pipe-

lines. 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 fore-

casts 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 hydro-

gen market in the world?

HYDROGEN TRANSPORTATION FORMS

MethylcyclohexaneMCH

Liquefied hydrogen H²

Compressed hydrogen

Pure hydrogen

(via pipelines)

Ammonia

NH³

25%30-33% 34-37%energy efficacy

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FAR 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 devel-

opment 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 Darus-

salam shipped MCH to Japan, that was subsequently

dehydrogenated. The cargo came from AHEAD pro-

ject 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 hydrogen-

based 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 compari-

son, 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 strategy

commercial 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 an-

num) in the next decade China could consume 20%

of global hydrogen supply. In 2040 it alone might con-

stitute 50% of global market. The Chinese authorities

themselves confirm ambitious goals – from 2020 to

2030 one million FCVs should be sold and 1000 refuel-

ling 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 Guang-

dong 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 TRANSPORT

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India – 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 devel-

opment. One of them is Tata, that works on Indian

hydrogen bus. Yet there is no rapid growth of hydro-

gen 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. How-

ever, according to some estimates India could be-

come 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 hydro-

gen market. The U.S. develops its own fuel cells tech-

nologies and there are about 2575 hydrogen pipe-

lines in the country, mostly used by big industry in the

Gulf of Mexico zone. According to FCHEA, an associ-

ation promoting hydrogen economy, the American

demand in 2019 was about 11 mtpa. The biggest

share 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 Trans-

Pacific 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.

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WHO 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 govern-

ment, 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 Aus-

tralia – in Perth (West coast) and Brisbane (East coast),

several projects are under construction at the South

coast and there are some proposals for building infra-

structure 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 pro-

duction located at the coast. Locating production at

coast gives unlimited access to water resources (wa-

ter consumption for hydrogen production, according

to 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 emis-

sions in Australia would increase by 6,300 t/PJ,

yet considering the global scale, it would de-

crease 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 cost-

effective 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). Mean-

while 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 govern-

ment in its strategic documentation is planning a pro-

duction that would cover about 3,5% of global hy-

drogen 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, accord-

ing 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% Ja-

pan‟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.

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AUSTRALIAN HYDROGEN EXPORT POTENTIAL – PRICES AND SHARE FORECASTS

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 natu-

ral 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 Euro-

pean 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 big-

gest natural gas resources that could be used to pro-

duce grey hydrogen (mainly for the EU market). Sup-

plies to Asia may encounter problems related to the

unclear status of transport via Suez Canal. The need

for circumnavigating Africa would make the ship-

ments 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 com-

petition 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 produc-

tion. 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 Lenin-

gradzka 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 improve-

ments. 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).

present:

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CONCLUSIONS

Far 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 de-

velopment 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 develop-

ing services intended for Asian markets, as they would consti-

tute the center of the hydrogen market.

Green hydrogen –

not in the Far East?

Despite the announced decline in the price of renewable en-

ergy 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 increas-

ing the hydrogen use requires making America hydrogen ex-

porter. Central authority promotes domestic production for

American industry, which may be connected with the current

politics of national authority. In states that develop hydrogen-

based automotive industry (mainly California), foreign produc-

ers are in the lead – Toyota and Honda. Hydrogen probably

won‟t become the “next LNG” from America, because for now

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there is no political will or economic incentive to develop to-

wards 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 MENA For now, the local production of hydrogen is more profitable

than import. Over time the market and technology may devel-

op so in the long term the widespread international hydrogen

trade may be possible. In the short-term though, the most signif-

icant 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 im-

portant 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.