However, as we approach the end of January it appears that the spike in natural gas prices has seen a significant rise in the cost of producing grey hydrogen, a type that is perceived as the cheapest and mainly used to create initial hydrogen demand.

One of the key characteristics for this, grey hydrogen’s low production cost amid the gas and energy crisis, is proving to be a major stumbling block in 2022 with no signs of prices easing off.

How the gas crisis has impacted hydrogen

Grey and blue hydrogen have both previously been regarded as instrumental in unlocking the hydrogen economy by boosting demand for the technology. A big part in generating this is through natural gas and, with the prices surging, the cost in creating these variants has risen to parity with green hydrogen.

According to the BBC, the spike in gas prices has been a result of several factors. These include the cold winter in Europe in 2020/21 which put pressure on supplies, a windless summer that then led to less energy being generated to be used to replenish the supplies, and then increased demand from Asia – especially China[1].

Because of the low amount of gas to go around, the price shot up and the gas and energy went to the highest bidder with higher demands. The increase has seen a dramatic shakeup in the energy industry but has also amplified the need to scale green hydrogen production to ensure that enough energy is stockpiled for events such as these.

This presents both an obstacle and an opportunity for hydrogen. With these significant spikes in the price of natural gas, green hydrogen has actually achieved cost-parity within Europe with fossil fuels, according to S&P Global Platts[2].

Due to the tight gas supplies, natural gas has become a more expensive commodity and, with its current heavy reliance in the European energy market, the gas and electricity sector is sliding to a halt.

What is crucial here is the use of renewable energy. Renewable energy has become a more popular means to provide energy within Europe and has seen significant investments since the Paris Accords that require drastic reductions in carbon emissions.

With this, the energy sector is able to scale its clean operations whilst also being able to create one crucial ingredient that could enable a smoother transition for the European gas and energy sector – green hydrogen.

The case for green hydrogen

Green hydrogen already has several large-scale projects currently being developed although this will not be widely available until the 2030s. However recent developments with the rise in natural gas prices and the geopolitical tension between Russia and Europe could see reliance on fossil fuels dissipate.

Much of the reliance on natural gas comes from Russia and, with political tensions high, it has highlighted the need to create a decentralised gas and energy vector in Europe. With the opportunity that the current gas spikes have presented, Aker Clean Energy stated that green hydrogen production was now competitive with grey hydrogen.

Chris Jackson, founder and CEO of Protium Green Solutions, exclusively told H2 View today (Jan 21) that the gas crisis showcases the issues with blue hydrogen and why the globe should press on with green hydrogen production.

“Many people in the green space have said for a long time that the fundamental mistake in the blue hydrogen market is assuming gas prices stay low,” Jackson told H2 View. What we have seen very transparently in the last 12 months is exactly why that is a false argument to make.

“For us, this is a hugely positive sign that actually the fallacy of a blue hydrogen future is gone. I think beyond the capex reductions we’re seeing, beyond efficiency improvements, we’re seeing, and beyond the sheer fact the more renewables are being deployed, that cost is falling and we need to integrate them into the grids.

“The persistent lie that natural gas is going to be cheap has been debunked and will continue to be debunked as this crisis continues.”

According to S&P Global Platts, Knut Nyborg, CEO of Aker Clean Hydrogen, said, “We have made further progress to make hydrogen affordable. Some of our Norwegian projects under development show hydrogen cost levels of $3.5-$4.5/kg.

“In the current market environment, with very high gas prices, this matches the cost levels for grey hydrogen.”

Should the current gas prices continue to be high then it presents the opportunity to scale the production of green hydrogen to strengthen Europe’s energy sector. Without the reliance of the instable political relationship with other nations such as Russia, the continent would not be overly reliant on this natural gas to power the EU. Along with this, it additionally promotes sustainability and could help grow the renewable energy sector.

‘We have now achieved a price crossover’

Dr. Graham Cooley, CEO of ITM Power, also told H2 View today (Jan 21) that green hydrogen’s cost parity provides a unique opportunity to kickstart green hydrogen revolution, “The energy crisis in Europe has shone an important light on green hydrogen. The feedstock for green hydrogen is renewable power, which continues to reduce in price.

“The feedstock for grey and blue hydrogen, however, is natural gas, which has significantly increased in price. We have now achieved a price crossover, and green hydrogen is currently the lowest-cost form of hydrogen in many parts of the world.

“But green hydrogen gives you more than just low-cost net zero energy gas. It also provides energy storage, fuel security and, when coupled with a long-term PPA, a solid price that eliminates fuel price volatility associated with fossil fuels.

“All of this leads policymakers to revisit green hydrogen on the basis of low-cost, low-price volatility, energy storage capability, and fuel security.”

These claims however are a stark contrast to THINK, an Economic and Financial Analysis corporation, that estimate that green hydrogen with the current gas spike is double the cost of grey and blue hydrogen.

“Hydrogen costs are c.€3.80 – €4.80 with power prices of c.€40/MWh, which is the long year average in the Northwest European power market (Germany and the Netherlands). So green hydrogen is about twice as expensive to produce compared to grey and blue hydrogen (roughly €2/kg)[3].”

Although this may currently be true, should the gas prices continue to soar and renewable energy becomes more abundant along with less expensive hydrogen production technology, scaling green hydrogen production could be a short-term financial hit but be a lucrative market in the future.

Decentralising energy resources

Decentralising European energy resources could have significant benefits for the region and could push the region into a new revolution within the energy sector. Decentralised energy production could be a profitable business for hydrogen in the future and could be a crucial development in the future.

In a study within the SI: Renewable Energy in Sustainable Development of Energy, Water and Environment Systems Journal, it had been identified that hydrogen has the potential to become a key off grid energy supply providing both gas and electricity to power several industries.

Within the conclusions, the journal stated, “Hydrogen production in an off-grid mode with battery back-up is not economically feasible today. [The] Focus should be now to couple the electrolyser’s directly with the renewable source of energy and store it as hydrogen without battery backup for decentralised production[4].”.

Despite stating that this is not feasible today, the sudden spike in natural gas prices has made green hydrogen an energy vector to seriously consider within the near future. Off-grid hydrogen production could provide much of the EU with a steady flow of energy to power homes, cars, and other industrial processes maintaining consistent pricing of energy.

IRENA also perceives the potential in utilising green hydrogen for decentralised energy and gas production citing three primary factors within its Geopolitics of the Energy Transformation: The Hydrogen Factor report, “Today, there are three main ways in which hydrogen can bolster energy security: 1) by reducing import dependence, 2) by mitigating price volatility and 3) by boosting the flexibility and resilience of the energy system, and through diversification. Most of these benefits are associated with green hydrogen.

“Conversely, blue hydrogen would follow the patterns of gas markets, resulting in import dependencies and market volatilities. Moreover, the expected cost reduction in green hydrogen means that investments in supply chains based on fossil fuels – especially assets planned to stay in operation for many years – may end up stranded[5].”

The geopolitical state of the gas and energy industry is also referenced by Jackson who told H2 View, “There is considerable reductions on onshore production of natural gas in Europe and in markets like the UK and the geopolitics with Russia as a major supplier are again unlikely to go away in the near term.

“All of that is a very positive set of headwinds for hydrogen. Now people have sort of made the comment. While the grid prices are very high in Europe, producing hydrogen from the grid isn’t there.

“I think what’s being missed in that discussion, though, is, of course, that anyone who’s building new solar energy wind actually are looking at a very different set of parameters.”

As shown within this report the geopolitical nature of the energy market could have a significant impact on hydrogen and this is what we are now seeing.

With the rise in natural gas and tension between the EU and Russia, where much of the gas is sourced from, the EU now must look to develop an independent method to ensure the region is not crippled by a political landscape that is ever-evolving or worse still, ever-increasing in its tension.

As detailed by IRENA, green hydrogen provides the most potential to achieve this for nations and thus must be an avenue explored with the current prices still high and not seeming to go away.