As economies across North America and Europe weigh various future energy market scenarios required to meet the Paris Climate Agreement's long-term temperature goals, blue hydrogen is emerging as one of the most viable off ramps from fossil fuels in a deep de-carbonization regime.
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Preexisting hydrogen production assets in the US and Europe, comparatively low feedstock costs and favorable geological options for carbon storage make the production method particularly well suited to the two continents, market experts with S&P Global Platts Analytics said in a webinar hosted this week.
As of last year, over 98% of worldwide demand for hydrogen – estimated at 76.5 million metric tons in 2019 – was supplied by a fossil fuel production method.
"Gray hydrogen" produced by this means comes principally from SMR, or steam methane reforming of natural gas, which releases carbon into the atmosphere during processing. While the method offers little in the way of greenhouse gas emissions reduction, carbon capture and storage, or CCS, can be added to the process to make "blue hydrogen."
By comparison, "green hydrogen" – typically considered the best option for carbon abatement – is produced using a PEM electrolyzer with water and renewable electricity inputs.
"Blue versus green is and will continue to be a regional question" said Zane McDonald, lead hydrogen and alternative transport analyst with Platts Analytics.
"Japan, who has been an outspoken proponent of H2, will face added challenges in establishing a domestic blue hydrogen supply due to a lack of affordable geological storage for captured CO2," he said.
According to McDonald, regions with ample low-cost natural gas and the potential for CO2 storage capacity in retired oil and gas wells and/or salt caverns – more readily available in both North America and Europe – could make both locations viable markets for launching a blue hydrogen market.
In the US market, and to a lesser extent in Europe, comparatively low feedstock cost for natural gas will likely make the SMR method of producing hydrogen more viable, at least in the near term.
According to Platts Analytics, SMR gray hydrogen can be produced at a cost under $1/kg, even assuming a natural gas price at $3.50/MMBtu. Adding carbon capture to make blue hydrogen raises the cost to roughly $1.40/kg. Making the fuel green through a PEM (proton exchange membrane) electrolysis production method, though, more than triples that cost to an estimated $4.42/kg – assuming a renewable power cost of $65/MWh.
All three calculations exclude the cost of transportation, storage and distribution – part of what has made hydrogen fuel so costly in light-duty transportation markets like California – and another factor that could slow the market's development in the US and Europe.
At fuel stations across the state, owners of fuel cell cars models, such as the Toyota Mirai and the Honda Clarity, pay roughly $16 to $17/kg. According to Platts Anlaytics, the 21.6 cents per mile cost of the fuel makes it a tough sell compared to the 2017 new gasoline vehicle average at 14 cents per mile.
Globally, production capacity of blue hydrogen is expected to grow significantly over the next decade, dramatically outpacing planned capacity for its more costly alternative, green hydrogen.
By 2028, blue hydrogen production should reach about 3.3 million metric tons per year, up from its current capacity 0.6 million mt/yr, according to data from Platts Analytics' Hydrogen Market Monitor. A majority of that production is expected to come from Europe, followed by the US in a distant second place.
Over the same period, green hydrogen is only expected to grow to about 0.6 million mt/yr globally, up from roughly 0.2 million mt/yr currently. Capacity additions are expected to come mostly in Europe, more closely followed by the US market's buildout.