Hydrogen trade can contribute to a more diversified and resilient energy system for all.
Hydrogen is a key piece in the decarbonisation puzzle
In the IRENA 1.5°C scenario, 70% of the CO2 emission reductions towards a net-zero system can be achieved through electrification, energy efficiency and renewables.
Hydrogen offers a solution for decarbonisation of the heavy industry, long-haul transport and seasonal storage and will be needed to achieve full decarbonisation.
The global hydrogen production would need to expand by almost five times to reach 12% of final energy demand by 2050 and fulfil 10% of CO2 emission cuts by 2050. Green hydrogen, produced from renewables, is expected to represent the bulk of the production.
Global technical potential for green hydrogen is plentiful
The global technical potential for green hydrogen is almost 20 times the global primary energy demand in 2050.
The critical factor that will determine the cost-effectiveness of trade in hydrogen will be whether scale, technologies and other efficiencies can offset the cost of transport from low-cost production to high-demand areas.
Hence, to compensate for transport costs, hydrogen production must be sufficiently less expensive in the exporting region than in the importing region.
Green hydrogen production costs will fall
A combination of innovation for technology improvement, economies of scale, and optimisation of the supply chain can lead to drastic cost reductions.
The costs of producing green hydrogen from solar PV and solar-onshore wind hybrid solutions is estimated to fall below USD 1/kgH2 by 2050 for most regions, under the most optimistic scenario.
It will be transport costs that impact the hydrogen trade.
Transport costs greatly impact the hydrogen trade
Half of the hydrogen produced in 2050 could be traded through largely repurposed gas pipelines drastically reducing the costs of transport. With costs of around USD 0.10/kg per 1 000 km in 2050, it would be the cheapest option for the distance of less than 3000 km distances.
By contrast, transportation through new pipelines would cost twice as much.
The other half of global hydrogen trade could be shipped in the form of ammonia. Over 120 ports already have ammonia infrastructure and 10% of global production is already internationally traded.
Global hydrogen trade will develop in regional markets
In IRENA’s 1.5°C scenario, about three-quarters of the global hydrogen demand would be domestically produced and consumed by 2050, while one-quarter could be satisfied through international trade in regional markets.
Europe’s main trading partners are North Africa and the Middle East, and Australia mainly supplies the Asian market. The intra-regional market for Latin American is significant, with some exports to Europe.
70% of the ammonia traded is used as feedstock and fuel rather than reconverted to hydrogen, suggesting that transporting hydrogen derivatives is more effective.
Trading partners will be defined by more than costs
In the long term when technologies reach full maturity and scale, importing countries will have multiple trading partners within a small cost range.
This means they can switch suppliers at a relatively small cost.
In such a future, trading pairs will be largely defined by geopolitical factors, security of supply, diplomatic relationships and alike rather than cost.
In case of Japan, for example, the cost of supply ranges from USD 1.25/kgH2 to USD 1.45/kgH2. The imported energy to Japan from each country in an alternative supply mix varies greatly as represented by flows in the figure.
Bulk of the investment must go to renewable generation
As hydrogen becomes an increasingly internationally traded commodity, the hydrogen sector will attract growing sums of international investment.
Satisfying the global hydrogen demand requires an investment of almost USD 4 trillion by 2050.
Almost 70% of this investment needs to be directed towards increasing renewable capacity, and less than 8% towards the actual shipping, conversion and re-conversion plants, considering only 30% of produced hydrogen is to be traded internationally.
Market development goes closely together with certification
Certification along the value chain is crucial to enable tracking of climate-friendly green hydrogen and differentiate renewable hydrogen from other carbon-intensive types.
Certification should extend beyond hydrogen production to cover the transport step and eventually extend from greenhouse gas emissions only to other sustainability dimensions.
Compatibility of accounting methodologies across borders is necessary to enable global trade and encourage investor’s confidence. The focus should be on quantitative information rather than labels.