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US hydrogen industry looks to Europe as role model, customer

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US hydrogen industry looks to Europe as role model, customer

SNL Image

A hydrogen truck moves through a loading facility at a Plug Power production facility.
Source: Plug Power

New incentives encouraging clean hydrogen production in the U.S. have put energy developers on the lookout for demand opportunities, industry watchers said at a Sept. 20 panel discussion.

The conversation, held during Climate Week NYC, comes as the Inflation Reduction Act is poised to make green hydrogen economic for the first time in the U.S.

"To help the economics of a transaction, there needs to be a transaction," said Alan Alexander, partner at Vinson & Elkins. "It's time for policymakers, dealmakers, all of the above now that we can source this in a cost-competitive way — to begin to think about ways to use it."

Hydrogen is an industrial gas that can be converted into ammonia for fertilizer. But the use of hydrogen as a zero-carbon fuel is relatively nascent, spurred by worldwide decarbonization commitments. Nearly 700 large-scale hydrogen projects have been announced globally in the past year, but only one-tenth of those have come to a final investment decision, according to a Sept. 20 Hydrogen Council report.

North America follows Europe's lead

"If you want to see what direction we're going with hydrogen [in the U.S.], sometimes I tell people to look at what Europe is doing now," Alexander said. "We might be five to 10 years behind that."

Near-term demand for low-carbon hydrogen produced in the U.S. is also likely to come from overseas, said Philipp Pletka, managing director at Starwood Energy Group Global LLC.

"If you think about hydrogen as a substitute for natural gas, you either need to be willing to pay quite a bit more for that carbon-neutral aspect, or you need to sell it into an environment where natural gas prices are $45 or higher," Pletka said. "That makes Europe and Asia a very logical target."

Eastern Canada's emerging green hydrogen industry seized that opportunity in August, signing off-take agreements with Germany's power sector. Green hydrogen is produced by electrolysis, or the splitting of hydrogen and oxygen in water, using electricity generated by clean resources. The gas can be shipped overseas in the form of green ammonia.

Domestic opportunities

In the long term, panelists see demand opportunities in the U.S.' hardest-to-decarbonize sectors. The Biden administration has prioritized lowering the price of zero-carbon hydrogen as a solution to industries such as transportation and heavy manufacturing.

"The low-hanging fruits are going to be the highest carbon emitters," Pletka said.

At the top of that list is steel, Pletka added. The carbon intensity of steel production has remained relatively constant in the past few years, according to the International Energy Agency, making innovation in carbon capture and hydrogen crucial to the decarbonization of the industry.

Some companies in the mobility space are also turning to hydrogen to meet decarbonization targets. In August, hydrogen fuel-cell maker Plug Power Inc. announced a contract with Amazon.com Inc. to supply 10,950 tons of green hydrogen annually to be used by the retail company's forklifts and heavy-duty trucks.

Another opportunity for green hydrogen is in the power sector, replacing natural gas as a baseload energy source, panelists said. The fuel has the potential to be stored in underground salt domes as a round-the-clock renewable energy reserve.

"We're essentially curtailing solar in California and China and Germany because it's coming at the wrong time," Roman Kramarchuk, head of energy scenarios, policy and technology analytics at S&P Global Commodity Insights, said during the panel discussion. "So what electrolyzers can do is essentially take that zero-cost — and under the [Inflation Reduction Act], negative-cost — power and translate that into a medium that can actually be useful."

The new organic

Not all demand potential comes from the energy sector. According to Alexander, zero-carbon hydrogen, converted into ammonia for fertilizer, could become a key decarbonization tool in the agriculture industry for climate-conscious customers.

"That's going to depend on something similar to what happened 20-30 years ago when we as consumers decided that organic food was worth a price premium," Alexander said. "If we as consumers decide that low-carbon food is worth a price premium, that could be very big for the hydrogen economy."

S&P Global Commodity Insights produces content for distribution on S&P Capital IQ Pro.