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Expensive gas = expensive hydrogen

Seb Kennedy 5,323

Founding Editor, Energy Flux newsletter

I am professional energy journalist, writer and editor who has been chronicling the renewables and fossil fuel energy sectors since 2008. I am passionate about the energy transition, so much so...

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Oct 18, 2021Oct 18, 2021 4:07 pm GMT
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Expensive gas has put fossil-based hydrogen out of the money. At today's inflated prices, green hydrogen is *in theory* already cheaper to produce in Europe than both blue and grey H2.

Expensive gas = expensive hydrogen

Green hydrogen is now cheaper than grey or blue — or is it?

Source: www.energyflux.news

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Bob Meinetz on Oct 18, 2021

Seb, more important than price swings is this unfortunate fact: because gray hydrogen is cheaper to produce than green, oil companies control the retail price - and the infrastructure. If the retail price of green becomes competitive and encourages investment in green hydrogen production, oil companies only need to lower the retail price of gray hydrogen. Green providers then have two choices: 1) go broke, or 2) re-market gray hydrogen as green.

Because ultimately all will be gray, whether it's labeled green, orange, or pink, hydrogen is just. another. fossil. fuel.

Seb Kennedy on Oct 19, 2021

Bob, are you suggesting oil companies would sell (grey) hydrogen below the cost of production? I suppose if they were using the hydrogen themselves then it is just a cross-subsidy, or even an accounting trick. But if hydrogen becomes a globally traded commodity (don't hold your breath) then loss-making hydrogen might become more of an issue.

Bob Meinetz on Oct 19, 2021

Bob, are you suggesting oil companies would sell (grey) hydrogen below the cost of production?

Unlikely they'd resort to loss leading, but their profit margin will be thinner. And producing gray hydrogen will always be cheaper than green, for several reasons:

1) Oil companies have a vast infrastructure to extract, refine, and distribute methane already in place. Adapting it to produce and distribute hydrogen would be a minimal expense.

2) Making hydrogen, by electrolysis, using renewable energy, makes no physical or thermodynamic sense. It's making the world's most energy-diffuse fuel, from the most energy-diffuse, intermittent sources, using the least efficient process. As I've pointed out in other posts: after huge wind and solar farms are built in the North Sea, then cables are laid to "energy islands", then electrolysis/liquifaction facilities are built on the islands to make hydrogen, then ports are built from which it can be offloaded to LNG tankers, to be shipped around the world, for all their trouble and expense investors are left with a whole lot of nothing to sell.

3) Photos of existing energy islands where oil majors will be supposedly collecting electricity from wind farms and using it to electrolyze water look very much like offshore drilling platforms, complete with drilling rigs. Whether they would use methane extracted from the ocean floor to make gray hydrogen, then label it as green, isn't even a question. Who would know?

Green hydrogen is a fake product invented by oil majors decades ago to market methane, with current demand for it as fake as the product.

Roger Arnold on Oct 20, 2021

Excellent article, Seb. You bring out two important points that are widely overlooked. One is the role of prolonged dunkelflaute episodes this summer in the current spike in gas prices. Low production from wind and solar resources forced Europe to burn through a dangerous fraction of the stored gas needed to meet the upcoming winter heating season. Those stores need to be replenished pronto, or there will be deaths from freeing. Unfortunately, the gas supply is highly inelastic in the short term. The delays caused by fierce US opposition to Nordstream 2 haven't helped matters any.

The other point is the one you make in the title: Expensive gas = expensive hydrogen. That's obvious if the hydrogen is made by reforming of natural gas; what's overlooked is that it holds even when it's made by electrolysis of water using renewable energy. High gas prices can't affect the marginal cost of producing renewable energy. That cost is always zero. But they sure as hell do affect the spot market price of renewable energy. It's for the reason you state: if they're not locked in by a long term contract or the outright absence of a grid connection, no RE energy producer is going to sell power for green energy production at €40/MWh when it's going for €200/MWh on the spot market.

As long as RE is dependent on natural gas for backup when production is down, the cost of nominally "green" hydrogen production will be dependent on the price of natural gas.

Seb Kennedy on Oct 29, 2021

Thank you Roger, glad you liked the piece. There’s also the whole other question of hydrogen demand. Will it materialise to justify mass expansion of blue/green/turquoise/pink etc production? Merely decarbonising existing grey hydrogen would be a tall order.

Thank Seb for the Post!

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