INTERVIEW: Eurogas questions need for separate hydrogen market mechanisms

London — Europe should use its existing gas infrastructure to facilitate hydrogen market development rather than create separate networks from the outset, the secretary general of industry body Eurogas said in an interview.

James Watson told S&P Global Platts that looking at what had worked for the gas market in Europe would be the best model for hydrogen.

"Trying to complicate the hydrogen market will probably be the downfall of it -- keeping it simple and looking at what has worked for methane is a good way to take hydrogen forward," Watson said.

The hydrogen market remains in its infancy, but is touted as a key pillar of the energy transition in Europe as a cleaner alternative to natural gas in a wide variety of applications.

Watson said a first stage in developing hydrogen would be to have it blended into the existing natural gas supply.

"Given the state of the distribution grid, you can actually blend relatively effectively up until around about 20% without having to make major changes to household appliances," Watson said.

"When you get to about 20%, our view is that it is then probably cheaper to switch to dedicated hydrogen [infrastructure]," he said.

"Use the existing grid, use the blending and when you get to a certain volume, then you switch and you've saved yourself building a whole separate grid.

"It's going to save a lot of time and a lot of money. We've got over 2 million km of distribution system in Europe, so we use that instead of trying to build a whole new hydrogen system. it just makes so much more economic sense."

German proposal

Watson's comments came after the German government approved interim regulation for hydrogen networks -- as part of a wider reform of the energy industry act -- that would see the regulation of hydrogen networks separated from natural gas networks.

Berlin wants to keep the costs of hydrogen networks ringfenced from natural gas consumer bills.

"I think we need a much more democratic use of hydrogen for the future, and that means using the existing infrastructure and helping the current operators make that transition to deal with the new gases that are coming in," Watson said.

"Let's not throw the baby out with the bathwater because we actually really will need those people to help us run an effective market. They've been fundamental in making sure that the gas market works today, and I think they'll be fundamental in making sure the market of hydrogen works in the future," he said.

Watson also said other European gas infrastructure, such as LNG import terminals, could be used for liquid hydrogen (LH2) imports in the future.

North Africa is expected to be a source of green hydrogen production -- production from renewable sources such as solar -- which could be exported to Europe in the form of LH2.

"You've got Croatia LNG just across the Mediterranean. You can upgrade it in time to start dealing with LH2 and that becomes a meaningful part of our economy. And this is the direction that the policy is heading," Watson said.

A further uncertainty for the future is whether the onus should be on traditional gas suppliers to Europe by pipeline, such as Russia and Norway, to decarbonize the gas at source using CCS to produce hydrogen and then send that through their big networks to customers.

Alternatively, they could continue natural gas exports, with the customer tasked with decarbonizing it upon arrival.

"I think it will depend on the economics," Watson said. "Is it going to be cheaper to send natural gas and us decarbonize at this end? Or is it going to be cheaper to change the infrastructure that's bringing gas from east to west or north to south and then get them to build the CCS plants or the pyrolysis plants and send hydrogen down those pipes?"

"In the end, the market will decide what is the most effective way to do that."

Tradeable commodity

Asked how he sees a hydrogen trading economy developing and whether it might be similar to the gas "hub" trading model in Europe, Watson said hydrogen had to be a tradeable market commodity.

"I think that is actually very crucial to the overall cost effectiveness of hydrogen," he said.

"We also believe that at the moment, we shouldn't have separate markets, and indeed, hydrogen should be traded within the gas market," he said.

"Why would you change that when it's worked so well for consumers? I don't understand why you want to create a whole new market for hydrogen separate from a methane market."

"At the end of the day, a consumer isn't buying hydrogen or methane, they're buying warmth or something to cook with. So I think that's what we should remember. It's the consumers that matter."

S&P Global Platts assessed the price of green hydrogen (Netherlands, PEM electrolysis) at Eur2.86/kg on Feb. 18, compared with Eur0.86/kg for grey hydrogen (SMR without CCS) based on front-month Dutch power and gas prices as well as front-year EUA carbon.