High gas prices mean green hydrogen is already competitive with blue in some parts of the EU, according to a report by thinktank RMI.

Nordic countries or nations in the south of the bloc with low renewable electricity costs can produce green hydrogen for $2-5/kg, although volumes are low.

By contrast, rising gas prices mean blue hydrogen production costs are now $6-18/kg. The IEA has noted that blue hydrogen costs were $1-2/kg in 2020 before natural gas prices started to escalate later in 2021.

“We are living in a completely different reality because of the war in Ukraine and the subsequent energy crisis,” says Oleksiy Tatarenko, an economist at RMI.

$2-5/kg – Cost of green hydrogen production in Europe

The effect of high natural gas prices is particularly marked in the ammonia market.

European ammonia buyers—primarily fertiliser and chemicals manufacturers—told RMI they are now paying up to four times as much as they paid last year for the same quantities of grey ammonia, up from €350/t ($467/t) last year to €1,400/t this year.

Because green ammonia can be produced at about €700/t, these industrial players are already prepared to switch to green feedstock if they can find the volumes, says Tatarenko.

Eyeing imports

The RMI report also says that, by 2024, imported green hydrogen will be cheaper than all types of domestically produced hydrogen in Europe—even when transport, storage and reconversion costs are taken into account.

RMI sees EU imports of green hydrogen starting in earnest from 2024.

The bloc’s RepowerEU plan aims to produce 10mn t/yr of hydrogen within the bloc and import another 10mn t/yr by 2030. Imports are key because of competition within the EU for renewable energy feedstock, according to Tatarenko.

Electrolyser plants might not be able to access green electricity at all if the EU implements stringent additionality restrictions, prohibiting the diversion of renewable power away from direct use, says the report.

“We are living in a completely different reality because of the war in Ukraine” Tatarenko, RMI

RepowerEU also aims to increase LNG imports. But natural gas supplied by non-Russian sources will not resolve the bloc’s import dependence and could slow decarbonisation, says the report. It notes that gas will be imported from a narrower range of countries—such as Middle Eastern states, the US and Norway—thereby increasing exposure to cost volatility.

Global gas markets will not stabilise before 2025, says the report, but declining costs for renewables and electrolysers will mean green hydrogen will continue to become cheaper to produce—as the cost of electrolysers and the price of renewable electricity fall and carbon costs rise.

RMI assumes that natural gas prices will range from $30/mn Btu in 2022 to $14/mn Btu in 2026, consistent with TTF futures. RMI then assumes that gas prices will fall back to c. $8/mn Btu by 2030.

Green hydrogen production is advancing in a wider range of regions such as Algeria, Australia, Brazil, Chile, Egypt, Mauritania and Morocco.

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Author: Ros Davidson