Commodities 2021: US hydrogen industry promises key milestones in 2021, eyeing legacy fuel markets

California will continue to lead the US in market development of hydrogen in 2021, ramping up the state's supply, distribution and consumption of the carbon-neutral fuel as it looks to meet aggressive climate and environmental targets by mid-century.

Potentially most disruptive for the US natural gas market is the looming startup of hydrogen blending.

In late November, Sempra Energy utilities San Diego Gas & Electric Co. and Southern California Gas Co. said they would proceed with plans to begin blending hydrogen into California's retail gas grid.

The pilot program will begin sometime in 2021 with a 1% hydrogen blend introduced into the gas stream in isolated areas served mostly by corrosion-resistant plastic piping. Future pilot projects will test the effect of hydrogen blends on steel pipe, which comprise most of the US natural gas grid.

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In California and elsewhere, the specific design and age of the grid will ultimately determine how much of the fuel can be blended. According to pipeline safety studies, anywhere from a 5% to 20% hydrogen blend can be safely injected directly into the gas stream. Higher blends of the fuel would require extensive modification of midstream and end-user infrastructure.

Still, growing demand and availability of hydrogen, particularly in California, is making the carbon-free alternative a potentially game-changing threat to natural gas – one that's also quickly becoming more real.

Production, distribution

For its own pilot project, Sempra intends to use surplus renewable energy to produce green, carbon-free hydrogen via electrolysis. Just across the border in Nevada, Air Liquide in 2021 plans to complete construction of its own $200 million liquid hydrogen production facility, dramatically expanding southern California's supply of the fuel.

According to the company, the plant should produce 30 tons of the fuel per day – enough to fuel 42,000 Fuel Cell Electric Vehicles. While California currently has a light-duty FCEV fleet estimated at just 7,000 to 8,000, the state is also home to a growing number of hydrogen-powered buses and medium- to heavy-duty vehicles.

Following on state legislation passed in 2020, that number is poised to grow. By 2035, California now requires that all sales of new light-duty passenger vehicles meet a zero-emission requirement. Similar legislation requires medium- and heavy-duty vehicle manufacturers to begin transitioning to zero-emission technology by 2024. By 2045, all such vehicles sold in California must meet the standard.

Fuel distributors are ramping up to meet the anticipated onslaught of demand. In 2021, a partnership between Toyota and Iwatani Corp. is expected to spearhead the development and construction of seven new hydrogen fueling stations in Southern California. Following a separate move by the California Energy Commission to help fund hydrogen fuel-station development, another 100 retail outlets could be built across the state in annual installments over the next five years.

Market development

The next two to three years, and 2021 in particular, could be critically important for the broader market development of hydrogen in the US. Following a commitment by president-elect Joe Biden to invest $1.7 trillion over 10 years to fund clean energy, hydrogen technology and development could find federal dollars to fuel its growth as early as 2021.

According to a recent report published by McKinsey & Co., federal policy and regulation that supports technology-neutral decarbonization is fundamental for opening markets and consumers to hydrogen.

In California – where hydrogen's growth has been fueled almost entirely by policy – market, government and environmental experts largely agree that the leveraging of California's existing natural gas infrastructure will be key for quickly ramping up transportation and distribution of hydrogen.

With large oil companies such as Shell and BP now embracing hydrogen as an opportunity, federal and state governments looking to support the growth of hydrogen technology could find a deep-pocketed partner in the US oil and gas industry – one that now seems more ready than ever to embrace the growing push to transition toward clean energy.