Gas crisis could create $100bn in stranded ‘dirty’ hydrogen assets, as nations pivot to green projects

The new research, published by Carbon Tracker today (20 October) has warned that up to $100bn of “dirty” hydrogen assets – those which utilise natural gas and fossil fuels as a natural feedstock – could become stranded as nations move to reduce reliance on gas.

Carbon Tracker found that the war in Ukraine has spurred more than $70bn of fresh investment into green hydrogen projects due to the uneconomic prices of fossil fuel-produced hydrogen.

Since the start of the dramatic price rises in natural gas – which is a major feedstock for both blue and grey hydrogen – nations have urgently moved to source alternative sources of fuel. As such, the levelised cost of fossil-produced hydrogen has risen and nations are instead pumping money into green hydrogen plans.

According to the International Energy Agency (IEA), green hydrogen is forecast to grow by three times its 2022 levels, with nations such as Germany, the US and Morocco pledging billions in public and private finance.

Carbon Tracker’s senior cleantech analyst Kofi Mbuk said: “Though green hydrogen is not the silver bullet to the climate crisis, it offers part of the solution if used in a targeted way for specific industries and offers an attractive solution to bridging the thorny issue of energy intermittency anxiety in the power sector, alongside advanced battery technology and the use of smart grids.”

“Green hydrogen will play a crucial role in the energy transition but applications will need to focus on the agricultural sector (fertilizers) & heavy industry (steel, heavy transport, shipping, mining) until tech innovation for electrolysers improves and fresh water usage is cut. Clean hydrogen could effectively be used to plug energy intermittency issues for solar and wind power as supply of those renewables grows exponentially.”

Green hydrogen

The Carbon Tracker report estimates that as fossil-derived hydrogen demand drops, up to $3trn in investment will be needed into green hydrogen under current net-zero targets. This is exclusive of building assets like manufacturing and import and export facilities and transport.

The UK is targeting £4bn of investment in green hydrogen and blue hydrogen – the latter of which is produced using natural gas in facilities co-located with carbon capture arrays – through its Hydrogen Strategy.

The Energy Networks Association (ENA) has published research assessing how green hydrogen generation and storage could help to ensure energy security in a lower-carbon world. The report, entitled ‘A System for All Seasons’, takes into account the current gas price crisis as a key driver for a low-carbon system, as well as the UK’s net-zero target and interim commitment to a fully clean electricity grid by 2035.

The report concludes that Britain’s wind and solar farms could power electrolysers generating between 60-80GW of renewable hydrogen each year – using only the surplus energy generated in the spring and summer months. This hydrogen could then be stored in salt caverns and disused oil and gas fields in the North Sea, with storage capacity more than sufficient to match generation.

As well as ensuring a secure energy supply over the winter months in a low-carbon future, this approach, the ENA argues, could reduce the number of separate wind farms needed by 2050 by more than 75%. This will be down to efficient use of electricity generated by the offshore wind sector, which the Government hopes will grow to surpass 40GW of installed capacity by 2030.

However, the Carbon Tracker report fins that in the short-to-medium term, other environmental factors like excessive fresh-water consumption and technological and energy inefficiencies in manufacturing will likely impact market growth.

Indeed, one-third of energy required for green hydrogen is wasted in production, with up to 25% lost when liquefying or converting to other carriers such as ammonia. Additionally, another 10% of hydrogen’s own energy is consumed to transport the product.