Page 130 - CW E-Magazine (5-12-2023)

Point of View

The study finds that after factoring in incentives, about 50% of global hydrogen production is priced under $2.5 per tonne, with the US, Canada,
and the Middle East amongst the lowest cost producers. Most large economies of Europe (France, Italy, and Germany) and some developed
countries in Asia (Japan and South Korea) fall at the high end of the cost curve, while India is somewhere in-between with unit production costs
of slightly under $3 per kg. Significantly, the study finds a 15x ratio between the highest and lowest cost regions (after factoring in incentives).
By 2050, several countries could be producing clean hydrogen at a cost of $1.5 per kg, with the more competitive ones even reaching a figure
of $1.2. Disadvantaged producers, on the other hand, will be saddled with production costs above $3.5 per kg.

Long distance transportation
This cost differential and the fact that the geographic locations of the main demand centres for clean hydrogen do not always coincide with
the cost-advantaged production centres, makes for an arbitrage opportunity that long-distance trade will fill. This trade could take the form of
intermediaries like ammonia, methanol, or SK, in which case they will involve converting surplus clean hydrogen to the intermediary at the point
of hydrogen production; shipment to its destination using; and reconversion to hydrogen at or near point of use. Despite the fact that transportation
costs will likely stay low, this is a high cost option, best explored when all others have failed.

The competitiveness of the production of the hydrogen intermediaries will also be determined by the ability to access large quantities of
clean CO – either from biogenic sources or by Direct Air Capture (DAC).
2
Emerging trade routes
The study expects the US and Canada to be net hydrogen exporters initially, thanks to the direct fiscal support available. Both countries are
also blessed with large natural gas reserves and attractive wind resources, giving a leg-up to low-carbon hydrogen production. Australia is also
expected to have an exportable surplus of 2-mtpa by Hydrogen equivalent by 2030, targeting mainly customers in Asia.

The study sees India and China as largely self-sufficient in hydrogen demand to 2030, meeting their requirement through domestic production,
but potentially transported over long distances via domestic pipelines. Local production could also be supplemented by some seaborne imports
of derivatives, such as low-carbon ammonia from the Middle East. India and China could also consider clean hydrogen exports (as derivatives),
depending on how the industry’s cost structure pans out in the years to come.

The Middle East and South America are expected to be large exporters of clean hydrogen. The former benefits from access to low-cost gas
reserves, cost competitive RE, CCS options at scale, and has close proximity to potentially large and growing markets in South and Southeast
Asia. As additional gas production comes onstream, and CCS infrastructure scales up in the Middle East to permit greater production of low-
carbon hydrogen, complementing growth in RE, clean hydrogen exports could scale up significantly post 2030. Policy planners in India will need
to factor in this challenge when deciding their investment strategies.

In South America, privileged access to competitive RE, biogenic CO and Hot Briquetted Iron (HBI)-grade iron ore, will give a boost to clean
2
hydrogen. Exports in 2030 could exceed 2-mtpa of HBI and ammonia for hydrogen reconversion.
Between 2030 and 2040, long-distance transportation of clean hydrogen could globally reach 100-mtpa – a five-fold increase over the
decade. This growth is expected to be driven by increasing demand for SK and clean ammonia and, to a lesser extent for renewable methanol
in Asia, and expected to drive shipped exports from Australia, the Middle East, and North America.

The 2030s, could also see large-scale international piped hydrogen exports from the Nordic countries to Europe, as the continent tries
make up for lost Russian energy. Piped supplies could also emerge in large countries like India, China and the US, as pockets of production and
consumption are apart. Elsewhere in Asia, Japan, Singapore and South Korea may continue to be supply-constrained and look to scale shipped
hydrogen imports in the form of ammonia, liquid organic hydrogen carriers, e-methane or liquefied hydrogen.

The substantial trade expected will have several benefits. Importantly, it will reduce the cost of carbon abatement, compared to a scenario
where trade is limited. Indeed, the need to produce higher cost hydrogen (with trade being limited) would result in total investment requirements
of $12 trillion, by 2050. In contrast, in a scenario in which international trade can develop, total hydrogen-related investments would amount to
about $8 trillion by 2050, a $4 trillion cost savings.

Whether things will pan out as forecast, or whether countries and regions will erect tariff and non-tariff walls to protect their investments
or for the sake of energy security remains to be seen!
Ravi Raghavan

130 Chemical Weekly December 5, 2023

Contents Index to Advertisers Index to Products Advertised