CRU recently attended the Hydrogen Americas summit in Washington DC. This Insight highlights our observations from the event. Analogies such as ‘carrot and stick’ and ‘chicken and egg’ were common in presentations and conversations at the conference. Clarity on policy and offtake were missing. The consensus from delegates was that development of the industry is in its ‘messy middle’ but we tend to disagree and argue we are still some distance from that hypothetical marker.
IRA policy clarity is still lacking
One of the headline speakers of the event was US Secretary of Energy Jennifer Granholm. Delegates were hoping her keynote speech would provide some direction and clarity on the stipulations required to qualify for tax credits tied to the Inflation Reduction Act (IRA) policy.
The lucrative 45V $3 /kg green hydrogen production tax credit has triggered a wave of project announcements and non-binding agreements. However, it is not yet clear what technology and renewable energy sourcing arrangements will be needed to qualify for these credits. Some event delegates suggested we could be waiting until early next year for this guidance.
Debate over the potential rules was a key talking point. Incumbents such as bp and Linde argued that draconian rules and regulations on renewable energy requirements for green hydrogen production could ultimately quash development. However, renewable energy developers such as Intersect Power argued that a laissez-faire approach would result in a lack of real progress in industry decarbonisation – which is the ultimate end goal.
Lack of committed offtake is suppressing development
The search for hydrogen offtake was also prevalent. The pipeline for projects and supply is brimming, but the same cannot be said for end-market demand. Potential end-users remain unconvinced by the lack of policy clarity, high costs and infrastructure requirements.
Decarbonising current hydrogen end-markets is an obvious choice for absorbing new low-emission hydrogen supply. bp outlined its plans to consume its green hydrogen within its own refining operations.
The potential for green hydrogen in iron and steel production is starting to gain more momentum. This is reflected in the recently updated CRU Steel Long Term Outlook, which projects blue and green hydrogen demand in the steel sector to reach 19 Mt by 2050.
Fertilizer players notably absent
Ammonia represents 36% of total hydrogen demand. Given ammonia production is responsible for just over 1% of global CO2e emissions, logic would suggest green hydrogen developers would be interested in the fertilizer market. However, delegates from the fertilizer industry were few and far between. Indeed, a panel focused on the ammonia market was pencilled into a ‘graveyard’ slot on the last day of the agenda.
CF Industries and LSB Industries were the only companies representing the fertilizer industry on the summit agenda. Coincidentally, fertilizer industry players were gathering at the TFI World Conference in the same city, just a short taxi ride away from the hydrogen summit on the exact days of the event.
The lack of engagement between the hydrogen development industry and fertilizer industry incumbents is somewhat indicative of the missed opportunities in this sector. While there is no doubt decarbonising the fertilizer sector will be prolonged, costly and difficult, it cannot be ignored. There are some signals this is starting to change, with newcomer Atlas Agro recently awarding support in the US Hydrogen Hubs scheme.
Another day, another US Gulf Blue ammonia project…but this one is different
Yet another blue ammonia project was announced through the conference. INPEX, Air Liquide, LSB Industries and Vopak Moda agreed to collaborate on the pre-FEED for the development of a large-scale, low-carbon ammonia production and export project on the Houston Ship Channel.
The project’s first phase is planned to produce more than 1.1 Mt/y of low-carbon ammonia by end-2027, with options for future expansions.
This joins a slew of other projects that have been announced over recent years. Indeed, we are tracking over 30 million tonnes of new ammonia capacity within the USA alone.
Most project announcements are vague on detail and do not involve as many direct partners. But this project is different. It involves four partners with strengths across the hydrogen and ammonia value chains and will utilise existing and modern export infrastructure. Although still in the pre-FEED stage, we have more confidence in this project progressing than many others on the list and have, therefore, placed it within our base case.
The fallacy of low-cost green hydrogen is still getting air time
As is expected at large industry gatherings, project developers were busy touting the competitive advantages of the various assets within their portfolio. Some developers continue to promote impossibly low green hydrogen costs. As we have highlighted previously, we believe costs of $1.50 /kg H2 will be a stretch by 2050.
The charts below show our projections for green hydrogen costs to 2050, highlighting the USA within a range of 33 forecast countries/regions. This is contrasted with blue and grey hydrogen costs, with carbon prices through the same period. While green hydrogen costs are projected to come down sharply, they will not fall to the level many in the industry are hoping for/promoting. For green hydrogen to be competitive against grey and blue hydrogen, high carbon costs – and a proliferation of carbon taxes globally – will be required.
The messy middle? We aren’t even close.
The hydrogen industry will play a critical role in the quest for global decarbonisation and the energy transition, but it will not be a panacea. The industry will face many more challenges, given its high-cost base, lack of offtake commitments and infrastructure requirements. And while policies such as the IRA will help to overcome some of these challenges, equivalent policies will need to proliferate elsewhere for the industry to meaningfully accelerate. We believe there needs to be more focus on potential demand in existing markets for faster development and for the industry to move beyond its ‘messy middle’.
CRU is covering the hydrogen industry through different service offerings. The CRU Power Transition service will be launching in November and will provide data and analysis on electricity capacity and generation and the underlying feedstocks. This will include projections on the levelised cost of hydrogen. We will also be launching a new Low-Emissions Hydrogen and Ammonia service in 2024 Q1. This will include regular data and analysis on supply, demand, costs and policy related to the hydrogen and ammonia markets. The CRU Sustainability and Emissions Service covers policy developments relating to hydrogen, renewable energy and hydrogen costs and their combined impact on carbon pricing out to 2050 across regions.
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