A volatile gas

Hydrogen's latest hype cycle still suffers from overinflated expectations

Green hydrogen is expected to play a central role in Europe’s decarbonisation.

Industries as diverse as transportation (ships, planes, trains and automobiles), heavy industry (steel, fertiliser, and cement), and utilities (energy storage, heating) are all looking to the element to help accelerate cuts to their carbon emissions.

The hype around its role in combating climate change tends to focus on potential sources of demand for hydrogen, but the same elevated expectations could also be afflicting the supply side too.

The outlook for green hydrogen (produced using renewable energy) ultimately depends on it being competitive versus conventional grey hydrogen (produced using natural gas via steam-methane). What I call the ‘green-grey’ hydrogen spread.

Manufacturing grey hydrogen is highly sensitive to natural gas prices and is carbon intensive to produce. If natural gas prices were to stay low then producers of green hydrogen need higher carbon prices to compensate. However, that’s outside of their control.

The industry requires a massive expansion in electrolyser capacity to ensure they are competitive (see Carbon's shifting anchor: The growth in electrolyser capacity is pivotal to Europe's decarbonisation ambitions). Economies of scale coupled with innovation need to drive down the cost of producing green hydrogen, at least on a par with grey hydrogen and ideally well below. Importantly though, costs need to stay competitive, and not just when natural gas prices are high, but all of the time.

Is that realistic? Lets take a deeper look.