The current pipeline of hydrogen projects has quadrupled in one year to 64mn t/yr of production—but this is still only 10pc of what will be needed in a net-zero world, according to consultancy Wood Mackenzie.

The proliferation of national and regional hydrogen strategies since 2018—now totalling 75—has led to an acceleration of project announcements.

“But even if all currently announced projects materialise, the market will be short by 600mn t in 2050,” says Flor de la Cruz, senior research analyst at Wood Mackenzie, speaking at the firm’s hydrogen conference. “We need to reach 649mn t/yr of hydrogen production in a net-zero world.”

And the project pipeline halves when it is ‘risked’, or assessed on how likely projects are to actually happen.

“We want to encourage project suppliers to de-risk projects by getting funding, participating in offtake agreements and obtaining long term contracts,” says Bridget van Dorsten, research analyst with Wood Mackenzie. 

There is still plenty of scope for new project announcements, however, and the analysts note that the EU and UK had both already revised their initial hydrogen targets upwards.

Offtake development

“For first time ever, we saw more offtake agreements and long-term contracts,” says van Dorsten. These include Japanese utility Jera contracting for ammonia to co-fire with coal generation and renewables firm Fortescue Future Industries and German utility Eon signing an offtake agreement for 5mn t of hydrogen by 2030.

649mn t/yr – Hydrogen production needed by 2050

The use of long-term contracts will be vital in the establishment of projects over the next 10-15 years—just as it was in the LNG market.

“Eventually we hope that turns into some kind of spot market, with spot market pricing,” says van Dorsten.

Demand will be driven by fertilisers in the short term with ammonia representing 48pc of total demand up to 2025. The power sector is expected to be the primary demand sector by 2050 with 31pc of total demand, overtaking ammonia demand by 2036.

The power sector will primarily use hydrogen co-fired as ammonia in coal plants up to 2030, with co-firing hydrogen with natural gas expected to accelerate in Europe after that year.

Lead suppliers

Research by the consultancy indicates that Australia will be the lead supplier of hydrogen by the middle of the decade thanks to its abundant renewables, project experience, proximity to Asian markets and land availability. By 2050, China, Australia and the US will account for over 50pc of global hydrogen supply.

Both the US and Australia have made significant progress this year with the progress of the Wabash and Desert Bloom projects respectively. The 10GW Desert Bloom project is particularly notable as the developers claim its modular design allows it to scale more quickly than non-modular projects.

Recent gas prices rises have led to projected increases in blue hydrogen costs whereas Wood Mackenzie’s green hydrogen cost base case has stayed at $5/kg.

Overall green hydrogen is expected to become competitive with blue in the mid-2030s. Total system costs for green hydrogen are expected to fall to just over $2/kg by 2030, and to well under that level by 2050, according to Wood Mackenzie’s modelling.

Meanwhile grey hydrogen will shrink from 95pc of the current market to less than 20pc by 2050.

Low-carbon hydrogen production will require at least $600bn in investment by 2050, the firm has previously said.

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Author: Tom Young