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Global hydrogen trade could be indexed to natural gas, carbon: Saudi Aramco

Highlights

Market development could follow LNG model

Early stages require incentives for consumers: BP

Infrastructure building can scale market

Hydrogen could be traded on an index basis, linking to markets such as carbon and natural gas for applications in the power sector, Saudi Aramco Chief Technology Officer Ahmad Al Khowaiter said Oct. 7.

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Asked about market structures for the emerging low-carbon energy carrier, Al Khowaiter said at the Energy Intelligence online forum that indexes such as those used in LNG markets in the past provided a good model for hydrogen.

"If you look at, for example, power [generation], the alternative would be, perhaps, carbon capture and natural gas," he said. "So, you might index it to those two; the cost of carbon and the natural gas price, as a dual index."

Al Khowaiter said the life-cycle of production should be considered when analyzing emissions from hydrogen production.

Speaking at the same panel, BP Senior Vice President, hydrogen and CCUS, Louise Jacobsen Plutt said different market mechanisms and business models would apply across different parts of the value chain.

"You need to get down to what are selling or producing, is it blue or green [hydrogen], and the different business models that go with it," Jacobsen Plutt said.

"In these early stages, the important thing is to think not only about the production side, but also the customer incentive to be able to take the leap into wanting to use low-carbon hydrogen for their various processes -- the incentive for the customer for fuel switching," she added.

Aramco is developing low-carbon hydrogen production projects, and Al Khowaiter said the natural markets for its exports would be to Asia, following its current hydrocarbon exports.

Countries such as Japan and South Korea were leading the way with technology-neutral hydrogen and ammonia import strategies, Al Khowaiter said.

He said the renewables capacity of Asia was unlikely to be able to meet the energy demands of the region, and so imports would be required. Early applications would be in heavy industry, such as steel and petrochemicals, and also power generation from low-carbon ammonia.

Several utility companies in the region are targeting ammonia for thermal power generation with coal.

Marine transport has also shown a lot of interest in ammonia as a fuel for decarbonization, Al Khowaiter added.

Satoshi Asawa, executive vice president at the Japan Oil, Gas and Metals National Corp., said Japan was well-placed to lead the global market development, noting the country's leading role in the development of LNG trade.

He said an infrastructure-led approach would allow the hydrogen market to develop best, rather than focusing on a particular sector.

Fuel of the future

Hydrogen has been billed as the fuel of the future several times in the past, but the panelists said the hype this time round was justified.

BP's Jacobsen Plutt said customers were asking the company about hydrogen, and the early stages of a hydrogen economy were starting to take shape.

The demand and supply sides of the market were now both feasible, and political will had changed globally, laying the foundations for incentivizing the market rollout for hydrogen, Al Khowaiter said.

"The Paris agreement and the further ambition to decarbonize and to achieve net-zero by global parties has put hydrogen to the fore," he said.

"You can't get to net-zero without some decarbonized energy vector to replace that 80% of the energy mix that is hydrocarbon based. The best drop-in is hydrogen, because it really can drop into chemicals, heat and heavy-duty applications," Al Khowaiter said.

"That's why we're going to see not hype this time, but reality," he added.

However, optimism should be tempered, and hydrogen faced an infrastructure challenge, he said.

Fast deployment of infrastructure was essential for building a hydrogen economy, he said, noting the market was waiting for certainty from policymakers over market mechanisms and business models, such as contract for differences and incentives.

Aramco is developing both low-carbon hydrogen production from natural gas with carbon capture and storage, and renewable hydrogen projects with electrolysis of water powered by renewables.

Only hydrocarbon-based hydrogen could provide the scale needed to reach the minimum volumes for markets such as shipping and power generation, Al Khowaiter added.

S&P Global Platts assessed the cost of producing renewable hydrogen via alkaline electrolysis in Europe at Eur14.62/kg ($16.90/kg) on Oct. 7 (Netherlands, including capex). PEM electrolysis production was assessed at Eur17.34/kg, while blue hydrogen production by steam methane reforming (including carbon, CCS and capex) was at Eur6.91/kg.