22 Aug Is Canadian Hydrogen A Solution To European Gas Woes?
Hydrogen is suddenly the sexiest commodity on earth, with even staid German statesmen visiting Canada of all places to ask for a piece of the action.
This week’s article focuses on hydrogen, and not digital, as I had to get a few things off my chest.
Hydrogen the Wonder Fuel
Talking to hydrogen-as-fuel proponents reminds me of that old joke about mainframe computer salesmen and why they make poor lovers. They sit at the end of your bed and tell you how good it’s going to be.
For regular readers of this article series, you’ll know that I’m an advocate for energy in general, and a pragmatist or realist when it comes to energy planning and delivery. I don’t pick sides as I believe we need all of all when it comes to meeting the planet’s energy needs affordably, sustainably and securely. But I also believe we need to be clear-eyed about our energy policies and choices.
It should be no surprise that hydrogen would surface in my work, and sure enough, these past couple of weeks hydrogen seemed to be all the rage. I conducted two video interviews on hydrogen, one in Canada and another in the UK, and I was interviewed twice for the Calgary Herald on hydrogen and liquefied natural gas (LNG), as the two energy concepts are linked.
German Chancellor Olaf Scholz is visiting Canada this week to (likely) advocate that Canada enter the energy export industry, in either or both the hydrogen and LNG global markets. Democratic energy importing nations like Germany need diversified supply from democratic energy exporting nations, which could include Canada, otherwise those democratic export dollars are propping up authoritarian regimes that are inimical to democratic interests.
European gas markets are the most attractive available markets globally today—advanced economies, stable governments, sound currencies, rule of law, competitive markets, short. What’s not to love?
On the other hand, Canada’s better energy export opportunity is actually towards Asia, and not Europe. The US can supply hydrogen, LNG, ammonia, methanol, whatever quickly to Europe because the industrial infrastructure is already in place on the Gulf Coast, albeit at a slight shipping cost disadvantage to Canada. Asia is actually the absolute growth market.
Through all of this chatter there seems to be short shrift given to the reality of hydrogen as a commercial energy product.
I love all the talking points about why hydrogen is positioned as the ultimate fuel of choice.
- Hydrogen can be reliably separated from abundant feedstocks such as water or methane (true).
- Hydrogen can be produced in small scale settings, like remote communities, or very large scale plants for global export (likely true).
- Hydrogen can be liquefied (called LH2) just like methane is liquefied to create LNG, and shipped long distances (possibly true—more on this later).
- Hydrogen can be stored in underground caverns in the same way that methane is, to provide for demand and supply balancing (probably true, but depends on the geologic characteristics of the reservoir).
- Some of the infrastructure we have in place for handling natural gas can be adapted to handle hydrogen (operative word is “some”).
- Hydrogen converted to energy only emits water. No one objects to water except a drowning man.
- By virtue of being the lightest of all molecules, hydrogen dissipates very rapidly into the atmosphere, and may in fact be safer than methane, which is heavier than air, and tends to pool to become more hazardous (true).
Hydrogen looks well suited to large scale end uses, such as power plants generating electricity where the gas flows continuously, or for large energy-intense manufacturing (cement) or chemical industries. The shipping industry may also be able to use hydrogen as a marine fuel.
Conveniently, hydrogen can be made much easier to ship by first converting it to a non volatile organic such as ammonia (NH3). Ammonia carriers are low cost, abundant and safe as there is already a global trade in ammonia.
Governments tend to favour hydrogen because from a tax perspective it behaves in much the same way as other liquid fuels and can be taxed accordingly.
Yes, hydrogen is looking pretty sexy. But if there were only upsides, surely we’d be using hydrogen already. What are the downsides?
Hydrogen’s Awkward Truths
Here are some awkward truths about hydrogen.
Hydrogen is easily separated from water using electrolysis, and water is available everywhere. All that’s required for electrolysis is electricity. Renewable energy is now a viable source of electricity, and renewable energy is available just about anywhere the sun shines or the wind blows. Why would an energy importer want to pay someone a great distance away to separate hydrogen from methane on their behalf if they can generate hydrogen domestically?
Sourcing methane from a trade partner (Russia) is what got Europe into trouble in the first place—over reliance on third parties for energy security. Domestic energy manufacturing using renewable energy and water looks more secure.
Shipping hydrogen by ocean tanker in a manner similar to LNG requires the gas to be chilled down to -252.9 degrees C, at which point it becomes a liquid. This works economically at very large scale, requiring large liquefaction facilities on vacant undisputed coastal areas, a fleet of carriers, and a large otherwise stranded natural gas supply (ignoring the obvious sustainability problem of relying on methane).
How is this different from shipping methane to the coast for an LNG plant? Why would those objecting to gas pipelines for methane export suddenly become accepting of the pipeline if the methane is converted to hydrogen or ammonia before shipping?
There is also a looming carrier shortage. To date there is only one hydrogen carrier in the world, it’s really small, and it only entered service this year. Arguably it’s experimental. Someone somewhere is going to have to risk launching a new shipbuilding business, including a supply chain of specialist companies in the high end steel sector, to deliver cryogenic vessels at scale. A carrier fleet that accommodates both contracted as well as spot shipping will require 200-300 vessels. The LNG sector took decades to reach this level. And these ships are more expensive than LNG carriers because the product is even colder. Which shipyard is ready to take the plunge?
The key to financing a scale play in hydrogen is the off-take agreement. Someone somewhere, such as a power utility or city gas utility, who is currently providing natural gas to a large collection of burner tips (households, buildings, industry, power generation) needs to sign up a long term off-take contract (think 20 years or more) for hydrogen supply. The supply contract is what allows pension funds and financiers to put the capital up front to build the export and import facilities. Which European utilities are ready today to sign binding long supply contracts?
Frankly, getting the hydrogen to a distant market is the easy part. The importing gas utility must also stand up the hydrogen import regasification terminal, the pipeline to move the hydrogen to market, the hydrogen storage asset, and the new hydrogen handling system (pipelines, gauges, compression stations, storage facilities, safety programs). It will take hundreds of careful engineering studies to figure out which specific gas asset can be quickly and safely converted to hydrogen. For example, Japan is experimenting with threading a narrow gauge hydrogen-ready steel pipe inside its existing methane gas pipeline system so as to avoid digging up all the city streets. Has any European utility even launched a conversion program at scale?
The gas utility then faces an even bigger challenge. Its gas customers (numbering only a few if the gas is for power or industry, but hundreds of thousands for a city gas utility) need to ready their premises equipment for hydrogen. That might be fine for a few big power consumers, but residential gas stoves, furnaces and hot water heaters will need to be replaced. Retrofits are unlikely. The only way such a community conversion works is through a carefully staged and planned campaign lasting months or years, as few households can be without gas energy for even a day or two, particularly in winter.
If my local utility invited me to replace my furnace, hot water heater, stove and cooktop, I’d tell them to “show me the money” to pay for the investment in new appliances (which by the way don’t yet exist because there’s no market for hydrogen appliances).
Like the mainframe computer salesman promising the world, the hydrogen economy looks very appealing, but interested parties should be very aware that hydrogen, like LNG, is a long game. It is not a short term fix to Europe’s current gas availability and affordability woes. It will take real work to stand up the hydrogen economy, and most of the heavy lifting will be on the consumption end, not the production end.
My advice to the Canadian Federal Government is the same if it wants to pursue hydrogen or LNG energy exports to Europe:
- Make sure a European utility who able to commit the burner tips is in the room when the pleasant discourse over energy security and democratic ideals with the Chancellor has been aired. The off take agreement is the key.
- Make sure the Europeans bring along their financiers who will invest the billions of dollars it will take to stand up hydrogen gas infrastructure.
- Make sure that the relevant provincial leaders for the transit provinces (Ontario and Quebec) are in the room and committed to support an energy export industry (either gas or LNG).
- Settle in for a long game that will be played far beyond normal election cycles. These projects take a minimum of 7 years to bring to life, and that’s for export-committed nations like Australia and Qatar.
Hydrogen has a lot of appeal, but it’s not a short term answer to any problem I’m aware of. It’s a long term play, and to make it work, it needs the sustained collaboration of a variety of market participants. Investor beware.
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