Hydrogen use in industry

Preventing lock-ins and understanding trade-offs

Hydrogen is poised to play a key role in replacing fossil feedstocks and providing high-temperature heat in energy intensive industries in a net-zero compliant manner.

How quickly clean hydrogen can displace unabated fossil fuels from industrial processes is largely dependent on how soon it can be made available at scale and cost competitively. On one hand, the need for low-carbon hydrogen (e.g. blue hydrogen) to complement green hydrogen production remains debated. On the , the role of fossil gas for industry in both scenarios needs to be considered critically.

With industries expectation of the eventual switch to hydrogen, many are already toying with investments into “hydrogen-ready” installations, seeking financial support from available climate funding. However, in the absence of sufficient clean hydrogen such installations would run on natural gas, or gas and hydrogen blends where technically possible, and only fully switch to hydrogen once it becomes available and at the desired cost.

We are currently at point in time where decisions need to be made whether to support fossil gas-based low-carbon hydrogen production or solely focus on hydrogen produced with renewable electricity. Both pathways entail risks and affect how fossil fuels remain part of the energy system in industry for the foreseeable future. Below are two illustrative scenarios to depict these risks.

In Scenario 1, hydrogen is only produced via electrolysis with renewable electricity (green hydrogen). In Scenario 2, low-carbon hydrogen production (natural gas reforming to hydrogen with CCS) complements green hydrogen production.

Hydrogen from RES electrolysis only

1

1. Green hydrogen production and therefore its use in industry scales up over time. There are likely regional pockets of development with greater renewable endowment and advanced grid decarbonisation. Its growth rate increases as grids generally become decarbonised, prices for electrolysis decrease and demand scales up.

2. Unabated gas use in Industry increases due to ‘hydrogen-ready’ projects that rely on unabated gas use before clean hydrogen becomes sufficiently available.

2 Hydrogen from RES electrolysis and CCS

1. Low-carbon hydrogen production scales initially available hydrogen supply, allowing more rapid switch to fully hydrogen-based industrial processes.

2. First mover hydrogen users in industry come online reducing share of unabated gas use in industry[1]

3. Unabated gas use reduces earlier due to cumulatively higher volumes of available low-carbon hydrogen

4. Share of low-carbon hydrogen decreases and is replaced with scaling green hydrogen due to emerging cost & scale advantages.

[1] Needs to be complemented with reduction targets in the fossil oil and gas sector.

In scenario 1, the lack of available hydrogen would initially increase the unabated natural gas use in industry. As such, there are several risks associated with this path:

Unabated gas use is considered ‘green’ due to role in ‘hydrogen ready’ projects.
Actual natural gas use is increased with potentially prolonged unabated gas use in the system due to pressures on hydrogen production.
Delays or failures to deliver green hydrogen locks in unabated natural gas use in industry.

In scenario 2, the production of low-carbon hydrogen increases its availability and prevents an increase in the use of unabated natural gas in industry. However, investments in blue hydrogen production imply an expected minimum operation time. If the reformer is built in an already planned/existing CCS cluster, this relates primarily to the investment cost of the reformer. Nevertheless, scenario 2 entails risk; Depending on policy, blue hydrogen could be locked-in the hydrogen economy despite the expansion of cheaper and more sustainable green hydrogen.

Key takeaways

What policy choices do we have to make for hydrogen use in industry and what are the trade-offs?

Green hydrogen needs to be developed at maximum scale under any circumstances. The key force holding back the hydrogen economy is the slow rate of renewable energy expansion.
To overcome risks of fossil fuel lock-in in both cases, there is a clear need to mandate the phase out of fossil gas.
For the foreseeable future, hydrogen will remain a costly and rare feedstock. A prioritisation of applications for hydrogen needs to ensure it is used most effectively to decarbonise our economy, i.e. in sectors and processes where there are no similarly effective climate solutions available.
These risks and limitations reiterate the fundamental guiding factor of net-zero transformations: With energy losses at every conversion point, the direct use of electricity must be the absolute priority. The rapid expansion and integration of electricity grids therefore the critical basis to ensure clean hydrogen production is made possible and hydrogen itself used effectively and efficiently.