Most of the world’s leading oil and gas producing countries could become significant green-hydrogen exporters, but the income from the emerging sector would not be high enough to replace lost fossil-fuel revenues over the coming decades, according to the International Renewable Energy Agency (Irena).
“Clean hydrogen offers an attractive transition pathway for oil- and gas-exporting countries to diversify their economies as major export markets move towards low- and zero-carbon fuels and energy carriers,” Irena writes in a new report.
“Oil- and gas-producing countries are well placed to pivot to hydrogen, as they can leverage established energy export infrastructure (ports, pipelines and storage facilities); a skilled workforce familiar with producing, converting and handling energy fuels and gases; and existing energy trade relations.”
The Irena study, entitled Geopolitics of the Energy Transformation: The Hydrogen Factor, points to Australia, Canada, Norway, Oman, Russia, Saudi Arabia and the United Arab Emirates as fossil-fuel-producing nations positioning themselves to be leaders in the future global hydrogen economy.
“The blue hydrogen production route might appeal to countries with cheap gas reserves,” it says, pointing to hydrogen derived from methane with carbon capture and storage. “Several oil and gas exporters – including Australia and some of the sunny and windy countries of North Africa and the Persian Gulf – could also become competitive green hydrogen producers,” it says.
But it adds that hydrogen “cannot be considered to be a new, zero-carbon version of oil”.
Blue hydrogen is produced from natural gas feedstocks, with the carbon dioxide by-product from hydrogen production captured and stored. However, the process is not emissions free.
Green hydrogen is made using electrolysis powered by renewable energy to split water molecules into oxygen and hydrogen, creating an emissions-free fuel.
“Unlike oil and gas, hydrogen is a conversion business, not an extraction business, which will likely limit the possibilities to capture economic rent,” the report explains. “The hydrogen business will be more competitive and involve more players than oil and gas. As the costs of green hydrogen fall, new and diverse participants will enter hydrogen markets.”
Fossil fuel importers could gain energy independence
Indeed, the report says that while most of the leading fossil-fuel nations are in locations with strong solar and/or wind resources that would enable cheap green hydrogen production, so are many fossil-fuel-importing countries.
In particular, the report points to Chile, Morocco and Namibia, which have high winds and powerful sunshine year round — the perfect double whammy that would enable electrolysers to operate efficiently around the clock and thus bring down the levelised cost of green hydrogen.
“Hydrogen is not a new oil,” says Irena director-general Francesco La Camera. “And the transition is not a fuel replacement but a shift to a new system with political, technical, environmental, and economic disruptions.
“It is green hydrogen that will bring new and diverse participants to the market, diversify routes and supplies and shift power from the few to the many.”
Demand squeeze for fossil fuels
And while the report estimates that a third of the hydrogen produced in 2050 will be the blue variety, it also points to the various risks associated with a continued reliance on fossil fuels, stating that blue should only be used in the short to medium term.
“The energy transition will significantly affect fossil fuel producers: It is highly likely that large parts of oil, gas and coal reserves will never be extracted and monetized,” the report states, pointing to the global collapse in demand during the Covid pandemic in 2020 as a “foreshadowing” of things to come.
“Although low-cost [fossil-fuel] producers may see an increase in their market share as the energy transition progresses, even they would see large declines in revenues as the overall market is expected to shrink.
“As decarbonisation progresses, producer countries will have to move their economies away from a reliance on oil and gas.”
But it adds: “Fossil-fuel producers should continue to develop broad-based economic transition strategies, given that hydrogen will not compensate for loss in revenues.”
The 118-page study also points out that the petrostates will not be able to wield the same geopolitical influence they do now.
“Hydrogen trade flows are unlikely to become weaponised or cartelised. This is because hydrogen can be produced from many primary energy sources and in a wide variety of places worldwide. Indeed, it is a manufactured product rather than a raw material or energy source. Therefore, green energy trade flows are unlikely to lend themselves as easily to geopolitical influence as oil and gas.
“That said, supply shortages could arise, particularly in the early years of hydrogen trade, when the number of suppliers is limited and most trade is still governed by bilateral arrangements.”
Irena believes that a global hydrogen export market will “take off” in 2035 and that clean H2 will be mainly used to decarbonise hard-to-abate sectors such as heavy industry, shipping and aviation.
(This article was first published by Upstream's renewable energy sister publication, Recharge, on 17 January.)