The Geopolitics of the New Oil: Hydrogen
As the world increasingly pivots towards sustainable energy solutions, hydrogen is emerging as the ‘new oil’, reshaping the contours of global geopolitics and oil trade. Termed as the fuel of the future, hydrogen’s role in decarbonizing industries and transport sectors is becoming more evident. Its versatility and clean-burning nature position it as a key player in the transition to a net-zero emissions future. However, this isn’t merely an energy transition; it’s a transition of global power dynamics as well.
Hydrogen versus Traditional Fossil Fuels
Hydrogen’s journey diverges significantly from the path of traditional fossil fuels. Unlike oil, which is confined to specific geographic regions and subject to geopolitical constraints, hydrogen presents a radically different scenario. It can be produced almost anywhere in the world, using nothing more than water and electricity. This potential for decentralization of energy production heralds a shift towards a more diversified and resilient energy landscape, thereby diminishing the historical dominance of traditional oil-rich nations.
Hydrogen is a conversion, not an extraction business, and has the potential to be produced competitively in many places. And it won’t generate the same economic rents as fossil fuels, which currently account for approximately 2% of global GDP.
As green hydrogen production becomes more cost-effective, the market will likely witness a surge in diverse participants, making the hydrogen economy more competitive and less monopolistic. As we delve deeper into the cost dynamics between hydrogen and traditional fossil fuels, several key aspects emerge:
The cost of producing hydrogen varies significantly depending on the method used. Green hydrogen (produced via electrolysis using renewable energy) is currently more expensive than traditional fossil fuels but is expected to decrease in cost with technological advancements and economies of scale. Blue hydrogen (from natural gas with carbon capture) is cheaper than green but more expensive than grey hydrogen (from natural gas without carbon capture). Then there’s Hydrogen transportation which requires specialized infrastructure, making it more expensive compared to the well-established and efficient fossil fuel transportation network. Currently, hydrogen-powered applications, such as vehicles and fuel cells, are costlier than traditional internal combustion engines. However, they play a crucial role in sectors where electrification is challenging, like heavy industry and long-haul transport.
Hydrogen production will become more cost-competitive as investments in technology and infrastructure increase. This shift will likely lead to a surge in diverse market participants, fostering a competitive and less monopolistic hydrogen economy. In contrast, the costs associated with oil and gas are expected to rise due to factors such as stricter environmental regulations and declining reserves of easily extractable sources.
Emerging Hydrogen Powerhouses
Countries with abundant renewable energy resources like Australia, parts of Africa, and the Middle East are potential new ‘energy superpowers’ in the hydrogen era. The European Commission, recognizing hydrogen’s potential, aims to develop 10 million tons of renewable hydrogen production capacity and import an additional 10 million tons annually by 2030. This ambition is particularly focused on decarbonizing industrial processes like steel, ammonia, and methanol production.
Countries leading in electrolysis technology and hydrogen transportation infrastructure development will gain a significant competitive advantage. However, countries with developed ammonia, methanol, or steel industries, such as Saudi Arabia, Japan, and Germany, face resource constraints and may depend on green hydrogen imports to meet their demand.
Technological innovation and infrastructure development will be key. Countries that lead in developing efficient, cost-effective electrolysis (the process of using electricity to split water into hydrogen and oxygen) and hydrogen transportation methods will gain a competitive edge.
In this low-carbon energy world, dependencies and supply disruption risks will persist but will differ from today’s fossil fuel-based risks. Hydrogen markets are expected to initially form regionally, with more structured and global markets emerging over time, allowing for risk reduction.
Hydrogen Adoption W.I.P. Pathways
Advances in electrolyzer efficiency can significantly reduce the cost of green hydrogen production.
For example, in Germany, research institutions and companies like Siemens Energy are developing more efficient and larger-scale electrolyzers. Using excess renewable energy for hydrogen production can lower costs. In Australia, projects like the Asian Renewable Energy Hub aim to use vast solar and wind resources for large-scale green hydrogen production. Large-scale hydrogen projects can achieve lower per-unit costs. Saudi Arabia’s NEOM project is an example, aiming to build one of the world’s largest green hydrogen plants, leveraging the region’s abundant solar and wind resources. Developing hydrogen pipelines and refueling stations can reduce transportation and distribution costs. The Netherlands is repurposing its existing natural gas pipeline network for hydrogen, reducing the need for new infrastructure. Implementing CCS in blue hydrogen production can make it more environmentally viable. Norway’s Northern Lights project is an example, where CCS is being used in various industries, including hydrogen production. Improving hydrogen storage, both in terms of efficiency and cost, is essential. Canada is investing in research for advanced hydrogen storage solutions to make it more viable for various uses, including transportation. Streamlining the hydrogen supply chain can reduce costs. In China, efforts are underway to integrate hydrogen production with industrial processes, reducing waste and optimizing resource use.
However, tensions between higher-income countries in the Global North and lower-income countries, often in the Global South, still may intensify. The potential for industrial hydrogen applications is unevenly distributed globally. While there are opportunities for economic gains in all regions, most frontrunners are middle- to high-income countries. Many lower-income countries, especially in Africa, might be limited to green hydrogen exports, lacking the capacity to compete in higher-value segments of the hydrogen value chains. This uneven distribution underscores the need for technology transfer and financial support to enable sustainable development and green industrialization globally. The promise of ‘sustainable development’ associated with the energy transition may not be attainable for all without concerted global efforts to ensure equitable access to technology and markets.
