Geopolitical Impact Of ‘The Hydrogen Factor’

Geopolitical Impact Of ‘The Hydrogen Factor’

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Energy security has been at the center of the geopolitical conversation in recent weeks, as the invasion of Ukraine has shed a light once more on Europe’s dependency on Russian oil and gas. The incident has left leaders scrambling for alternative energy supply, manifesting in part through the unveiling of the EU’s plan to end their reliance on Russian gas. Hydrogen as an energy carrier is a core pillar of this plan, with the European Commission calling for a quadrupling of hydrogen use by 2030.

While reinforced by recent events, the push to scale-up clean hydrogen energy has been underway by governments, energy suppliers, and environmentalists alike in recent years. In January 2022, the International Renewable Energy Agency (IRENA) released their anticipated report, “Geopolitics of the Energy Transformation: The Hydrogen Factor,” anointing it as the “missing piece of the clean energy puzzle,” and making clear the broader implications of this transition for geopolitics and the global economy. IRENA purports that by 2050 the emergence of clean hydrogen as a mainstream energy source is likely to redefine global trade relations, spur energy independence in countries around the world, and shift geopolitical dominance away from oil and natural gas giants including Russia and the UAE.

Hydrogen energy, however, remains under-discussed and misunderstood in mainstream geopolitical conversations. What is hydrogen energy? Is it likely to mitigate or exacerbate existing geopolitical risks and tensions? And, perhaps most importantly, what colour should it be?

What is Hydrogen Energy?

Hydrogen is not a form of energy on its own. It is an energy carrier capable of storing, moving, and delivering energy produced from other sources including coal, natural gas, wind, solar, nuclear power, and biomass. The hype surrounding hydrogen is largely due to its potential to provide a clean energy solution in industries which are notoriously difficult to decarbonize, including steel, cement, shipping, aviation, and chemicals. These industries possess highly specific technical requirements including the need for very high heat, and the use of CO2-producing chemical processes such as that of limestone to calcium oxide for cement production.

As a highly versatile gas, hydrogen can be used as a heat source while also acting as a chemical reducing agent to eliminate CO2 and an alternative energy feedstock replacing coal, oil, or natural gas. When consumed in a fuel cell, it emits only water, and if produced from renewable energies, provides a zero-carbon energy solution.

That “if”, however, is more important than you might think.

To be considered “clean” or “carbon neutral,” hydrogen energy must be generated from renewables like wind and solar through a process called electrolysis. This so-called “green” hydrogen accounts for less than 1% of total hydrogen generation today, lacking sufficient renewable energy supply and transportation capabilities.

The overwhelming majority of hydrogen energy generated today is produced from fossil fuels, usually as “grey” or “blue” hydrogen produced from natural gas. Blue hydrogen is low carbon, leveraging carbon capture, utilization and storage (CCUS) technology to prevent the majority of CO2 emissions from reaching the atmosphere. Able to piggy-back off existing natural gas infrastructure, value chains, and labour forces, blue hydrogen has been prioritized for its rapid scale-up capabilities and lower associated costs.

The Future of Hydrogen Energy

While barriers to the scale-up and implementation of green hydrogen are significant, price forecasts suggest that overcoming these challenges is increasingly possible.

In regions with substantial renewable energy production, the price of green hydrogen is expected to fall below that of blue hydrogen by 2030, and by 2050 in most other locations. This comes at a time when blue hydrogen is increasingly criticized for its harmful albeit unintentional release of fugitive methane emissions and lack of international standards or regulation.

In response to IRENA’s survey of 164 countries and the EU, roughly 55% of respondents reported a preference for green hydrogen while less than 5% expressed a preference for grey or blue hydrogen within national hydrogen strategies.

A More Stable Energy Future?

IRENA predicts that a global energy economy supported by green hydrogen will result in increased energy independence and resilience, bolstering energy security by reducing import dependence, mitigating price volatility, and boosting the flexibility and resilience of the energy system through diversification. This stands in stark contrast to a global energy market marred more recently by an overwhelming sense of competition rather than cooperation, along with the growing weaponization of traditional energy sources.

There is little doubt that reducing the import dependency inherent to the oil and gas market would reduce risks of energy insecurity and mitigate geopolitical tensions. While some 80% of countries are net oil importers, every country has the potential to produce green hydrogen given sufficient resources and investment, making it unlikely that green energy trade flows would be subject to such geopolitical influence. IRENA states that access to adequate hydrogen energy is increasingly seen as key to overall national resilience, resulting in the rise of hydrogen diplomacies such as that on display in Germany and Japan. In January 2021, for example, it was announced that Germany would create Hydrogen Diplomacy Offices in countries including Ukraine and Nigeria to create new trade ties and secure green hydrogen supply. The outlook of hydrogen diplomacy efforts with Ukraine is now unclear.

Many countries currently importing oil and gas are poised to become energy exporters for the first time. Countries across Africa, the Americas, and Oceania have the highest potential with ample access to wind and solar. Net importers like Chile, Morocco, and Namibia have already committed to becoming green hydrogen exporters.

A fundamental shift away from the energy relationships of the 20th century, IRENA expects the global energy trade to be redefined and regionalized as the high price of transporting hydrogen energy defines new bilateral trade routes. As economic relations shift so too will political dynamics.

The Path Forward

Significant challenges remain in the global scale-up of clean hydrogen. Developing countries looking to become green hydrogen powers will require substantial investment into infrastructure, available capital, and access to necessary technologies. In IRENA’s survey, respondents identified insufficient decarbonised electricity, price risks, and an unstable investment climate for prospective exporters as the “extremely likely” risks facing hydrogen trade flows by 2050. Moreover, as countries like China increasingly monopolize the low-cost electrolyser market, many regions will be subject to a different kind of geopolitical influence.

The hydrogen economy will also be less profitable than oil and gas. As IRENA states, “[The] possibilities of capturing economic rents akin to those generated by fossil fuels, which today account for some 2% of global GDP, [will be limited].” The green hydrogen economy will also become increasingly competitive as more countries become energy producers. Oil exporters, while able to diversify their energy production, will have a hard time compensating for lost profits having ripple effects across the global economy. Oil and gas companies remain influential in pushing for a blue rather than green hydrogen future, posing an additional barrier to scale-up.

Original Post

Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.

Originally Posted on: https://seekingalpha.com/article/4497398-geopolitical-impact-of-the-hydrogen-factor?source=feed_tag_commodities
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