Green Hydrogen Is the Way to Go
The authors are analysts of NH Investment & Securities. They can be reached at ys.jung@nhqv.com. -- Ed.
1. Five reasons why hydrogen is the fuel of the future
Advantages of hydrogen fuel
We present five reasons why hydrogen is a secure, clean, and affordable alternative.
1) Unlimited supply thanks to diversity of hydrogen sources—hydrogen can be extracted from any material which contains it (water, natural gas, bio energy);
2) Zero emissions (green hydrogen) in use—no greenhouse gases need be emitted in the process of production and utilization of hydrogen (green hydrogen, in particular); hydrogen can contribute greatly to carbon emissions reduction;
3) Materialization of renewable hydrogen cycle—water and electricity are the only byproducts of hydrogen processing;
4) High energy density—higher energy density than batteries when compressed; more suitable for large-quantity energy storage and long-distance transportation;
5) Enhanced energy security—hydrogen energy should enable countries to secure energy independence; under the fossil fuel-based carbon economy, those countries and organizations with fossil fuel reserves tend to yield excess bargaining power.
2. The colors of hydrogen: Green hydrogen the way to go!
Hydrogen types differ by source and production method
The sources of hydrogen are abundant, and depending on the type of material containing hydrogen, hydrogen extraction and production methods differ. In turn, we arrive at the five following types of hydrogen.
1) Grey hydrogen—produced from fossil fuels by steam reforming. Grey hydrogen accounts for 95% of today’s hydrogen production. The downside to the process is that its byproducts include the atmospheric release of greenhouse gases;
2) Brown hydrogen—created through goal gasification;
3) Blue hydrogen—utilizes carbon capture and storage technologies for the greenhouse gases produced in the creation of grey and brown hydrogen;
4) Green hydrogen—produced via water electrolysis, green hydrogen production is to be powered by renewable energy sources;
5) Purple hydrogen—hydrogen generated using nuclear energy; production can also proceed via water electrolysis.
Grey hydrogen accounts for 96% of global hydrogen output
Today, grey hydrogen (or byproduct hydrogen) that is produced using fossil fuels (eg, oil or coal) accounts for 96% of global hydrogen production. While carbon emissions volume upon production differs depending on chemical process, it is estimated that the extraction of hydrogen from natural gas generates 8.6kg of carbon dioxide for every 1kg of hydrogen extracted.
Green hydrogen required for carbon emissions reduction; but, time needed to reach economic feasible
For carbon emissions to be dramatically reduced, greater green hydrogen production is required. That said, the production of green hydrogen currently costs around W9,500 per kg, a level that is around five times higher versus by-product hydrogen and three times higher versus hydrogen from natural gas reforming. In our view, green hydrogen will become economically feasible only when its production cost declines to around W1,650~2,200 per kg (a level comparable to that of fossil fuels). In a nutshell, it will likely take some time for green hydrogen to become a major renewable energy source.
Use of grey hydrogen to continue for now
While hydrogen production infrastructure is likely to be significantly expanded by 2030, given that the move towards cleaner hydrogen has just begun, the portion of grey hydrogen out of overall hydrogen production will likely remain high for some time. In Korea, the portion of hydrogen from natural gas reforming represented 99% of overall hydrogen production as of 2018. According to the Hydrogen Economy Roadmap unveiled in 2019, the government targets annual hydrogen production at 1.94mn tons, out of which natural gas-based hydrogen accounts for 50%.
Key issue of hydrogen economy to be whether production costs for green/blue hydrogen can be cut to economically feasible level
Meanwhile, blue hydrogen, which refers to hydrogen produced using natural gas (with the CO2emissions generated during the process being captured and stored), is being considered as a prime alternative to grey hydrogen. However, we believe that the role of green hydrogen is most important in achieving a carbon-free hydrogen society. Over the longer term, the key issue of the hydrogen economy will likely be whether production costs for green and blue hydrogen can be cut to an economically feasible level (US$1.5~2.0 per kg).
3. Outlook on hydrogen economy
Hydrogen to be next energy currency
In a hydrogen economy, hydrogen is used as a primary energy source instead of traditional power sources such as oil and coal. Over the long term, hydrogen is to emerge as the next energy currency alongside the rise of a hydrogen trading market, much as that currently in place for oil.