US varying end-use demand shapes breakeven point for low-carbon hydrogen

The willingness to pay for low carbon hydrogen in traditional end-user markets, such as the chemical processing and refining sectors in the US, remains marginal or even at parity with conventional hydrogen, according to market sources and S&P Global Commodity Insights data.

Emerging markets for low-carbon hydrogen and ammonia, such as heavy-duty transport, power generation and industrial sectors -- which are considered as the primary end-use sectors in major offtake announcements -- are demonstrating increased interest in these low-carbon fuels.

In emerging sectors, companies often have more flexibility to pass costs onto consumers due to carbon policies, voluntary initiatives focused on emission reductions and a competitive break-even point for hydrogen adoption, sources said.

The willingness to pay for low-carbon hydrogen, refers to the threshold at which end-users are expected to be willing to substitute low-carbon hydrogen for conventional 'fossil-based' fuels, according to S&P Global Commodity Insights data.

This willingness to pay value can vary between end-user industries, depending upon where substitution costs are lower, and between regional or national regulatory regimes, reflecting the treatment of emissions savings, which can alter the cost-benefit analysis of using hydrogen compared to low-carbon options.

Sectors like food,beverage, and mining are more willing to pay a premium for these reasons, sources said.

"Current hydrogen pricing is not yet where it needs to be for competitiveness in the mobility sector," said Jaimie Levin, director of West Coast Operations at CTE.

"The WTP, or breakeven value for low-carbon hydrogen to compete with its replacement fuel, such as diesel in heavy-duty transportation market for trucks and transit in California, is at $5-$7/kg, and $9/kg delivered at the pump, respectively," Levin added.

The WTP values among trucks and transit take into account the lower efficiency of trucks compared to transit buses.

A WTP value for low-carbon hydrogen in the heavy-duty trucking sector in California over 2024 averaged at $6.64/kg, assuming that the replaced diesel fuel was purchased in bulk, according to Commodity Insights data.

Platts, part of Commodity Insights, assessed the latest hydrogen price at the pump for light duty vehicles at $34.65/kg on Jan. 2, reflecting a price three times more expensive to a gasoline equivalent fuel comparison.

The substantial price premium arises from market challenges and the perception that it is a less effective decarbonization option than electric vehicles in the light-duty vehicle market.

Traditional end-user markets cool on low carbon hydrogen

By contrast, in traditional end-user markets, such as the industrial gases, chemical processing and refining sectors, interest in low-carbon hydrogen as a potential decarbonization option has waned amid concerns about the high cost of the low-carbon feedstock.

"We sell 'small volumes' of by-product hydrogen to the industrial gas sector, receiving $0.80-$0.99/kg, roughly at par with 'grey' steam methane reformed hydrogen, despite ours being cleaner," a chlor-alkali producer in the US Gulf Coast, that produces hydrogen as a by-product, said.

Industrial gas consumers seem uninterested in obtaining certification or paying a premium for cleaner hydrogen. Instead, they currently blend the purchased molecules into their systems, the producer added.

"A breakeven value for low-carbon hydrogen in the USGC petrochemical sector is below $1/kg, when that is what we are currently paying," said a source within a petrochemicals company that is considering adopting low-carbon hydrogen or carbon capture and storage as a solution for decarbonizing their steam cracker.

The WTP for low-carbon hydrogen in the chemical and refinery sector in the USGC over 2024 averaged at 79 cents/kg, with the maximum value reaching $2.18/kg during a period of elevated Henry Hub natural gas pricing.

Platts assessed conventional hydrogen costs in the USGC via SMR without CCS, including capital expenditure at 95 cents/kg on Jan. 3. In comparison, renewable-derived 'green' hydrogen costs using electrolysis alkaline technology and including capital expenditures were assessed at $2.88/kg on Jan. 3, reflecting a 96% cost premium, while providing an 80% emission reduction, equating to 9.48 kg CO2e/kg of hydrogen, assuming the energy source is renewable (excluding nuclear), according to Commodity Insights data.

The difference in pricing between low-carbon and conventional hydrogen is due to the emerging nature of low-carbon technology, in contrast to the established, mature, and cost-competitive industry in the USGC. This industry has likely amortized its costs over the many years since the plants began operating and the infrastructure was developed.

"What we are currently paying marks our upper limit for low-carbon hydrogen," the source within the petrochemicals company added, referring to having a difficult time of passing on the added costs to the consumer in addition to receiving the appropriate volumes.

"Hydrogen buyers aren't currently putting any value on low-carbon hydrogen," a merchant hydrogen seller and midstream player said, "nor is there abundant demand."