A “net-zero emissions by 2050” scenario, like that described in the International Energy Agency (IEA) roadmap, calls for an unprecedented development of renewable energies, with increasing electrification of uses, increased energy efficiency, and smart energy grids, the development of nuclear power, the massive development of hydrogen as a carbon-free energy and chemical carrier, and the various methods for capturing carbon or offsetting its emissions in other ways.
This transformation will disrupt the geopolitical dimensions as well as the balances and flows of the world economy.
Reducer hydrogen is a small, molecular, highly energetic gas (H molecule)2. It has been utilized for many years across numerous industries (mainly oil refining, ammonia, and methanol production). It currently accounts for 94 million tonnes of annual fossil fuel production and 3% of all CO2 emissions2. Industrialized nations nowadays are the primary producers (China, USA, India, Russia, Europe). The domains of transportation, some energy-intensive businesses (steel, cement factories, etc.), the production of synthetic fuels, and eventually the field of large energy storage will all see its uses in the future. It will need to be made from low-carbon resources; water electrolysis will serve as the benchmark technique. Low-carbon electricity will be generated primarily from renewable sources, while certain countries may also use nuclear power. We must also rely on fossil fuels to produce carbon-free hydrogen, but only with CO capture and storage2 (CCS) or by directly breaking the hydrocarbon, with a proportion of 30 to 40% in 2030 and thereafter declining. World hydrogen production is anticipated to increase by a ratio of 3 to 8, necessitating an additional 10 to 20,000 TWh of inexpensive power (for example, a combination of 5 TW of solar photovoltaic and 3.5 TW of wind), as well as vast open spaces. Unfortunately, just like the essential materials required, these renewable energy and accessible places are unevenly spread over the planet and frequently located far from the major centers of consumption. The new vectors of carbon-free energy flows from “producer-exporter” countries to “consumer-importer” countries might be hydrogen and its derivatives (ammonia, synthetic fuels, and methanol), defining a new geopolitics of energy alongside that brought about by the movements of key materials. Initial projections, however, indicate that the financial flows brought on by these new international energy trade vectors will decline by 30 to 50% by 2050 compared to the trade in fossil fuels, reaching a level of $ 900 billion annually, split between the flows of critical materials (50%), hydrogen (35%), and a residual of fossil fuels.
The start of significant diplomatic and industrial maneuvers
Over the past three years, significant developments have appeared that appear to delineate a “geopolitics of hydrogen”. More than 30 nations have either a national roadmap or a “hydrogen strategy,” and close to 20 nations have started national debates. Strategies typically attempt to promote the deployment of uses and the generation of demand, as well as the growth of the value chain (help with industrialization and the construction of “gigafactories” to lower prices) — notably in developed countries. The amount of the States’ contribution from public funds through 2030 is significant (on the order of $100 billion).
The so-called “exporting” countries, which want to simultaneously expand domestic hydrogen usage and export hydrogen and its byproducts to a significant amount, can be distinguished within these strategies. These are nations that offer affordable renewable energy along with ample space. In certain places, the sole physical limitation can be the amount of water that is accessible. Theoretically, at prices of $1 to $1.5 per kg in 2050, the potential amounts to several tens or possibly hundreds of millions of tons.
The majority of European nations, with the exception of the Iberian Peninsula and potential Nordic exporters, are also clearly “importer” nations, as are Japan, Korea, and intermediate nations or “prosumers” that produce and consume domestic hydrogen (such as the United States and China), which does not rule out a portion of exports or imports.
With a dual goal of ensuring the imports of hydrogen flows and derivatives, they will need as well as supporting their manufacturers in supplying components and systems to exporting countries in order to take the technological lead, some nations, particularly “importers” – foremost Japan, Germany, the Netherlands, and Germany – are already developing very active hydrogen diplomacy. The Port of Rotterdam has inked 20 Memoranda of Understanding (MoU) with several nations, positioning the Netherlands as an entrance center for imported Europe. To assure its future energy security by diversifying its supply, the German government has already struck deals with a number of nations, including Canada, Morocco, Namibia, Egypt, Chile, Argentina, Uruguay, and the Emirates. Additionally, the German government has established a double auction mechanism through the “H2Global” initiative, which is funded with 4 billion euros over ten years and will guarantee the purchase of hydrogen and its derivatives from an exporting country through a long-term contract (10 years) after competitive tendering. This hydrogen or its derivatives will then be sold to the highest bidder of its customers in Germany, with H2Global covering the cost differential. This method is novel and strikes us as being incredibly significant for placing Germany.
Many initiatives, few decisions
By the middle of 2022, there were more than 700 hydrogen projects planned across several continents, with a potential expenditure of close to $300 billion. The majority of these are production projects; 61 of them are “gigaprojects,” including 41 electrolysis projects with capacities of more than 1 GW. Total production of between 20 and 26 million tonnes of carbon-free hydrogen in 2030 and 41 million tonnes thereafter is represented by them. In 2030, 12 million tonnes of this product are expected to be “exported”. Nevertheless, the paradox is that only 5 to 10% of these projects are actually underway or have passed the FID (Final Investment Decision) level, while almost 50% are only pre-agreements or industrial announcements. In fact, just 2 million tonnes of the projected 5 million tonnes of potential customer demand for the export market alone in 2030 correspond to solid orders, which explains the low level of investment decision.
Eventually, pipeline transmission inside a continent will predominate even though 50% of projects have not yet decided on a long-distance hydrogen transport vector. For the rest, it is likely that low-carbon ammonia will be the standout product over the next ten years. It will be sold as a final product for its current uses, which are anticipated to increase (fertilizers), or for new uses, particularly as a fuel. However, very little will be used as a hydrogen transport vector because the energy required to crack ammonia into hydrogen is still very high.
Moving toward an international hydrogen trade?
There are still a number of challenges to be overcome before low-carbon hydrogen can be traded and become a marketable commodity like fossil fuels.
• The creation of global standards for measuring environmental effect calculation methods (carbon content on the global chain from “sink” to customer, various environmental impacts, the content of critical materials, etc.). Additionally, the standards address safety, component compatibility and interchangeability, the defining of gas purity limits, and other issues. To avoid creating competitive distortions, it will be necessary to coherently articulate the various national and European regulatory regimes. Finally, in order to build trust in an accurate measurement of these many parameters, it will be essential to construct the certification mechanism (on a voluntary or regulated basis). A set of standards will eventually be created by international organizations like ISO, UN agencies, or the IMO for maritime transit. To avoid acceptable environmental norms from becoming non-tariff technical obstacles in the WTO sense, which could amount to forms of protectionism and limit market access, would be one challenge.
• The construction of the required infrastructure, such as port terminals, large-scale storage, etc., both for the hydrogen networks and the fleets transporting liquefied hydrogen and ammonia. The creation of an intra-European segment of gas infrastructure to transport hydrogen produced in Spain to the rest of Europe is demonstrated by the announcement in November 2022 of the Barma project, a future hydrogen pipeline between Barcelona and Marseille.
• The advancement of R&D and innovation in the transportation chain to enhance efficiency and lessen drawbacks (critical materials, environmental impacts, etc.).
• The availability of a variety of contractual tools for long-term and “take or pay” agreements between buyers and sellers; the development of a liquid spot market; increased flexibility about the eventual destination of cargoes, etc.
• Stimulating demand (“off-takers”) to launch the market in the following ten years by minimizing risks for investors while keeping in mind that the cost of capital for a significant production project is approximately 50%.
• A variety of nations pose a risk that could raise the cost of financing, including political instability, corruption, and economies that are underdeveloped relative to the project. Partially providing guarantees may be possible with the participation of international banks like the World Bank and/or the EIB.
These obstacles can be removed by a multilateral collaborative effort already in place: on these many themes, working groups and platforms have been established by more than eight international projects (including the EIA, IPHE, CEM, and Mission Innovation).
The initial lessons are what?
To gain economic and industrial leadership, economic competition is begun. The markets have enormous potential, and the majority of the investment will go toward adding more renewable energy sources to the grid. In order to deliver hydrogen technology to all nations on the planet, the market for electrolyzers, fuel cells, storage, and all infrastructure components will be fiercely competitive between the United States, European states, Japan, China, and Korea.
The United States has responded with particularly attractive and straightforward incentives for the establishment of production capacities on its soil and the deployment of the hydrogen chain in the Inflation Reduction Act, the Defense Production Act, and the Infra, Invest & Jobs Act, to the point that several European heads of state have declared their support for these measures. The European Union has implemented numerous tools for industrial ramp-up, including Important Projects of Common European Interest (IPCEI). Some nations, including Germany, the Netherlands, and the United States, put their diplomacy to work for their industries in order to secure a position in potential production nations very early on and capture market share. An agreement that goes something like this: “We sell you the technology so that you can manufacture the hydrogen that we will purchase you” is used by some importing nations, including Germany, Korea, or Japan, in conjunction with securing hydrogen imports from the targeted nation. In Latin America, Africa, and the Middle East, this is particularly obvious.
The issue of the trade-off between the growth of domestic requirements and exports is on the side of the exporting countries. Also, the least developed of these nations must enhance the living standards of their people and decarbonize their energy systems. Instead of selling the hydrogen molecule, the exporting producer nation would want to sell the finished hydrogen-based product. As an illustration, imagine making ammonia (low carbon) from hydrogen and selling it on the international market. If we extend our thinking, we might conclude that heavy and energy-intensive industries like those that produce chemicals, steel, aluminum, and e-fuels may eventually prefer to locate where energy (such as electricity, hydrogen, or even a source of CO2 generated naturally) is carbon-free, abundant, and reasonably priced. On the other side, due to high energy prices, we have seen a 50% decline in ammonia or aluminum production in Europe over the previous two years. It would be better for the nation in question to establish industries, increase the number of skilled employment, industrialize, build its infrastructure, and export completed products that are more ecologically friendly than merely convenient. The proximity to the consumer, access to raw materials, the industrial and innovation ecosystem, access to skilled labor, the regulatory and fiscal framework, and the governance environment must all be considered when deciding where to locate (or relocate) these sectors. In Mauritania, for instance, the combination of inexpensive carbon-free hydrogen and iron ore might allow major manufacture of green steel, there are many very large projects being prepared to develop ammonia production and do away with imported fossil fuels. The IEA estimates that producing green steel using hydrogen will cost between 30 and 40 percent more in Europe than in Africa, China, India, or the United States. Will the European steel industry still exist in 2050?
Hydrogen-related global geopolitical issues
Hydrocarbons are traded internationally, while hydrogen and its derivatives are not. Because it is dispersed among more nations and five continents, it will be less sensitive to political use. Since hydrogen is more diffuse, cartel weapons—such as those traditionally employed by OPEC—will be useless, and any potential embargo would be simple to get through given the abundance of supply sources and vast underground storage.
Additionally, hydrogen will continue to be expensive to transport over long trans-oceanic distances, making it possible to think about producing it in some cases at the regional level, with slightly higher production costs but less expensive transport costs, and in the event of a supply crisis, more expensive but independent local production.
On the other hand, industrialized and importing nations may be in danger of the aforementioned relocation of their energy-intensive industries. Finally, these nations will have to consider how to replace the significant tax income related to hydrocarbons.
The petro-states, especially those in the Gulf, will be able to use hydrogen as a moderate-growth engine. They have excellent solar resources, a prime location between Europe, Asia, and Africa, and they have the ability to store carbon. However, according to the IEA’s WEO 2022, this relay can only account for a little portion (15% at most) of present earnings.
Energy security in Europe
The grandiose hydrogen strategy that Europe initially unveiled had two goals: industrial leadership and climate change. Energy security has been included as a new goal after the Ukraine conflict. In fact, the 2030 goal might lower Russian gas consumption by between 15 and 33% if it were boosted by 10 million tonnes of hydrogen produced on European land and 10 million tonnes imported, primarily from the Maghreb, Northern Europe, and Ukraine. Notably, out of these 10 million tonnes of imported hydrogen, 4 million tonnes—or 30 million tonnes of ammonia—will be in the form of ammonia, increasing imports by a factor of 5 from their current level. Yet, there is a difference between this goal of 10 million tonnes and the 900,000 tonnes that have only been committed for 2030 by Chile, Norway, the United Arab Emirates, and Angola.
What long-term trends could there be?
In essence, it will still be expensive to carry the hydrogen molecule. Also, over the long run, there will always be large discrepancies in production costs, of the order of a factor of 2.5, between the various geographic areas. Combining these two elements, we may anticipate that regional production will first emerge, with transportation provided by pipelines in these regions. This option will continue to be the least expensive. In order to connect North Africa, Scandinavia, and Eastern Europe, vast volumes will be moved within China, North America, or Europe. Yet, if advancements are made in hydrogen transport carriers, a complementing ocean transport of hydrogen molecules may be possible. Hence, hydrogen and its derivatives could be traded internationally as a commodity with a minority stake (15 to 30%).
More economically sound plans will gradually take hold, and new routes – if not hydrogen, at least finished products that have needed carbon-free hydrogen – will be deployed, allowing a massive redistribution of economic maps and the location of industries with geographical specializations. This will go beyond the Brownian agitation typifying the numerous industrial and political announcements in recent months (methanol, ammonia, green steel, e-fuels). Can these new capabilities succeed in their energy transition while maintaining their competitiveness, or will they fail to the point where they weaken the foundation of heavy industry in developed countries? Although there will be severe competition amongst industrialized nations, this will be one of the key issues of the upcoming decades. In this environment, the United States and possibly China are in the lead in terms of appeal, agility, and speed of redeployment as well as in terms of available resources and innovative potential. Even though it has been a major force in the development of hydrogen, Europe may face some challenges, including societal acceptance of the deployment of nuclear or renewable energy sources, space limitations, the complexity and fragmentation of national and European regulations, and population aging. Yet, if, for instance, Europe implemented a bold, well-coordinated plan for the construction of hydrogen infrastructure, hydrogen may serve as the cornerstone of a fully interconnected, solidarity-based, and independent energy Europe.
Under the condition of stable political governance and a welcoming and pro-business economic environment, two continents, Latin America and Africa, with enormous “hydrogen” potential, could seize this chance to support a global development that includes the electrification of access to drinking water, the development of education, and basic infrastructure. It should be highlighted that discussions on North-South financial and technological transfers in the international climate negotiations should certainly incorporate initial assistance for these two continents.
Last but not least, the widespread and coordinated development of hydrogen on all continents may contribute to geopolitical stability through economic growth and provide a means of reducing migration-related danger by stabilizing populations. It is interesting that as part of its “Science for Peace” program, NATO has already financed two green hydrogen-based economic development projects in Mauritania and Morocco as early as 2005. With this economic development and by dramatically reducing cash flows to petro-states and their influence, hydrogen will exacerbate concerns with global security. And let’s not forget that hydrogen’s crucial and indispensable function in the decarbonization process also serves as a means of avoiding the devastating effects of excessive climate change, including their effects on geopolitics.