Elevated gas prices and a future tight market means blue hydrogen is no longer a low-cost solution.
IEEFA estimates that blue hydrogen costs published by the UK government last year are now 36% higher, calling into question continued policy support for development of the technology.
Blue hydrogen is an extension of the gas value chain and does not make sense as an investment during a gas price crisis.
The UK will need to import 10% more natural gas to produce blue hydrogen than if the gas was used directly for heat. This would raise demand for gas at a time when Europe is seeking to reduce its dependence on the fossil fuel.
Blue hydrogen projects are high risk and likely to become stranded assets.
Twenty-six green hydrogen projects are expected to start construction around the world this year; no blue hydrogen projects are slated, demonstrating that its financial risks are already playing out in the global market.
Hydrogen is expected to be a key instrument in meeting European objectives of climate-neutrality by 2050, since it does not emit carbon dioxide (CO2) when burnt and can be produced from renewable electricity and water (known as green or renewable hydrogen).
Following the European Green Deal announcements in December 2019, the EU announced its hydrogen strategy in 2021, targeting 40 gigawatts (GW) of electrolysers and 10 million tonnes (mt) of domestic renewable hydrogen production by 2030.
In response to the Russian invasion of Ukraine, REPowerEU announced in March 2022 plans to further replace demand for Russian gas with an additional 15mt of renewable hydrogen (10mt imports and 5mt additional domestic production). Notably, hydrogen produced by other means is not considered part of the solution.
Meanwhile the UK’s British Energy Security Strategy, published in April 2022, describes hydrogen as a “low carbon super fuel of the future” and aims to produce as much as 10GW of low carbon hydrogen by 2030, with at least half produced from water electrolysis (using renewable or nuclear electricity) and the rest produced from natural gas with emissions reduced by carbon capture and storage (blue hydrogen).
Gas-derived blue hydrogen has long been proposed by the oil and gas industry as an energy carrier that can help reduce global warming, although this has been contested by climate and energy experts:
More broadly speaking, other studies have been published questioning the Global Warming Potential (GWP) of hydrogen. A recent study released by the UK government’s own Department of Business, Energy and Industrial Strategy (BEIS) found that hydrogen is twice as powerful a greenhouse gas as previously thought. Global warming potential (GWP) is a measure used to compare the warming effect of different gases with that of CO2. By definition CO2 has a GWP of 1. BEIS estimated that hydrogen has a GWP of six to 16 over a 100-year time horizon, and 20 to 44 over a 20-year horizon. This compares with a GWP of 84 to 87 for methane, the main component of natural gas. But hydrogen is the lightest element and leaks more easily than methane, so any future hydrogen systems will need to have strong leakage protection and monitoring to be considered climate neutral.