Concern among green hydrogen producers in China is mounting over the paucity of domestic demand for the zero-emission fuel, with some companies now looking to export overseas, while others are targeting nascent demand from the shipping and aviation sectors.

The fears have intensified in recent months, according to discussions about market sentiment between Hydrogen Economist and attendees at various Chinese conferences in July.

State-owned Sinopec launched the world’s largest solar-powered green hydrogen production plant in July, with a capacity of 20,000t/yr. The demonstration project’s start-up in Inner Mongolia has made the sprawling region in northern China the country’s largest green hydrogen production hub.

In 2023, c.780MW of electrolysers are expected to be shipped to projects in Inner Mongolia, representing half of China’s overall shipments, according to data compiled by Hydrogen Economist. Additionally, c.11GW of green hydrogen capacity is planned in the area, which is equivalent to half of all capacity planned in China so far.

11GW – Planned green hydrogen capacity in Inner Mongolia

Chinese renewable developers are required to pair renewable capacity with battery storage, and now increasingly with hydrogen plants. Inner Mongolia is aiming to be the largest utility-scale renewable hub in China, with 44GW of renewable projects in the pipeline.

However, the high-voltage lines planned are only enough to bring half of this power to demand centres. Inner Mongolia announced in late 2022 that all renewable projects integrated with hydrogen production can only sell up to 20% of their output back to the grid at a fixed price—the remaining 80% must be either used to produce green hydrogen or sold on the wholesale market.

Demand

These hydrogen projects in Inner Mongolia are now fighting to find downstream demand, industry insiders told Hydrogen Economist. There is little appetite from the local ammonia market, which is already oversupplied. Most of the country’s ammonia capacity is concentrated in the central provinces of Shanxi, Henan, Hubei, and in eastern provinces of Shandong and Jiangsu, which are close to agricultural demand but far from green hydrogen hubs like Inner Mongolia.

Some hydrogen projects are targeting transport applications, but offtake will be nowhere near enough to absorb all of their output. A hydrogen refuelling station in China typically consumes 300–700t/yr on average, while the average production project in Inner Mongolia with 50MW of capacity will produce c.7,200t/yr. An additional complication is that hydrogen refuelling stations in China have traditionally been planned around industrial plants where they can get cheap fuel as one of the byproducts, limiting the market for green hydrogen.

Uninspiring domestic demand means some developers have turned to exports. At least one electrolyser project in the northeastern province of Jilin has secured offtake from a Japanese company, Hydrogen Economist understands. The project will be powered by 800MW of renewable capacity and will start producing ammonia in 2024—which would make it China’s first green hydrogen project to export abroad.

Project insiders have claimed it will be able to produce hydrogen at c.RMB 30/kg ($4.2/kg) and deliver it at more than RMB 40/kg in the form of ammonia. That would be lower than domestically produced green ammonia in Japan and cheaper than green ammonia imported from Australia.

Jilin’s strategic location in northeastern China means it benefits from a short shipping distance to Japan. The major port of Dalian in neighbouring Liaoning province is only 1,100km away from Tokyo, or one-quarter of the distance between Tokyo and Gladstone in Australia. But transporting the ammonia or hydrogen to the port might be a challenge. The Jilin project is around 700km from the nearest port, and there are no pipelines planned yet.

Shipping and aviation are two other sectors that hydrogen developers are looking to explore. China’s largest shipping company Cosco is building an integrated electrolyser-biomass gasification plant to produce 130,000t of green methanol as fuel. Container ship operator Maersk is working with the commercial hub of Shanghai on methanol bunkering infrastructure, while State Power Investment Corp—one of China’s largest green hydrogen producers—is producing 200,000–400,000t/yr of sustainable aviation fuels using green hydrogen and captured CO₂ for Hong Kong-based airline Cathay Pacific.

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Author: Shi Weijun