Why Hydrogen is a Challenging Business Model for Energy Producers


INSIGHT

  • HYDROGEN FUEL MAY PLAY A ROLE IN TRANSPORTATION, ALTHOUGH THIS IS UNLIKELY DUE TO THE CHEMICAL PROPERTIES OF HYDROGEN. THE TRUCKING AND CHEMICAL INDUSTRIES ARE LIKELY TO BE THE END USERS OF HYDROGEN FUEL. 

  • THE USE OF HYDROGEN AS A FUEL IN THE AVIATION INDUSTRY IS LIKELY TO REMAIN LIMITED. IN THE AVIATION SECTOR, HYDROGEN COMPETES WITH SUSTAINABLE AVIATION FUELS (SAF), WHICH ARE PRODUCED BY BLENDING PYROLYSIS OIL. 



1. THE ENERGY INDUSTRY IS IN A PHASE OF UPHEAVAL. ENERGY COMPANIES ARE LOOKING FOR NEW BUSINESS MODELS THAT GENERATE REVENUE. HYDROGEN IS ONE SUCH SOLUTION. 


The energy industry is in a transition phase from fossil fuels to new, emergent energy solutions. Various energy resources are competing in an epic battle. These include oil, natural gas, and biogenic waste that can be used to generate energy.  Which energy resources will prevail is not within the realm of our understanding and expertise.

This article is about hydrogen, which is a strong contender. The success of hydrogen depends on a number of factors. Currently, attempts are being made to increase the efficiency of energy production through pyrolysis and gasification. These processes have already established themselves in the field of energy-from-waste. 

In the energy-from-waste business, gasification has not been able to replace conventional incinerators. This could change in the future, as chemical recycling is increasingly used to solve the problem of waste disposal. This has to do with the growing volumes of waste generated by increasing consumption in industrialized and emerging countries. In this context, plastic waste may be the most suitable feedstock for hydrogen fuel production. We have looked at the production of hydrogen fuel from plastic waste in another article on this website. Ultimately, it comes down to the energy yield of a particular energy resource and the appropriate technology to achieve the highest possible energy yield.

When converting one energy source to another, a lot of energy is lost. This reduces the EROI (Energy-Return-On-Energy-Invested) and lowers the profitability. To determine the usefulness of a particular energy resource, we look at the energy yield of an energy resource and the financial return on investment (ROI). Ultimately, the goal is to produce as much energy as possible. The goal is to generate as much energy as possible with the lowest possible capital (CAPEX) and operating costs (OPEX).

Hydrogen as a fuel has many advantages and disadvantages of other energy carriers in and onto itself. Hydrogen combines the advantages of fossil fuels, such as energy density and relative ease of use, but at the same time can be produced from renewable energy sources, similar to biofuels. The real disadvantage of hydrogen is that it is currently not cost effective to produce hydrogen from renewable energy sources, and hydrogen easily leaks from its storage container.


2. THE UPSTREAM BUSINESS MAY NO LONGER BE THE ONLY REVENUE-GENERATING ACTIVITY FOR ENERGY COMPANIES. WE WILL SOON HAVE REACHED THE PEAK OF CONVENTIONAL OIL RESERVES. CAN HYDROGEN REPLACE SUCH A BIG BUSINESS?


In developing countries, petroleum is still used to generate electricity. In more developed countries, oil-fired power plants have been replaced by more efficient means of generating electricity. In general, natural gas is preferred, and some countries have moved directly to renewable energy sources to generate their electricity. This has also had the added benefit of providing electricity relatively independent of high-voltage grids, which are generally not cost-effective in many developing countries. This is especially true for developing countries with a low population density but a large land mass.

However, oil is hardly used for power generation in industrialized countries. The problem is actually much more complex. We have to look at the problem from the very top. A whole series of energy industry forecasts show us that oil production has peaked. By this we mean the point in time of peak oil, i.e. the point at which half of the world’s oil reserves are still available for economic use. However, once we have reached Peak Oil, oil production becomes much more difficult and much more expensive.


3. NATURAL GAS SEEMS TO BE A SOLUTION FOR EUROPE. HYDROGEN IS A SOLUTION FOR THE WHOLE WORLD.


Natural gas still has a long way to go. Natural gas is only at the beginning of its ascent on the energy markets. Natural gas is relatively abundant compared to oil. Another factor is that natural gas can be produced in different regions of the world. From a geological perspective, we are still a long way from peak gas. Peak gas is the point in time when we will have used up half of all conventional natural gas reserves available on earth.

Like hydrogen, natural gas exists in a gaseous state, which means it must be trapped or contained in some way to be used as an energy carrier. The fact is that natural gas is much easier to contain than hydrogen. Compared to hydrogen, natural gas is relatively easy and inexpensive to transport from A to B, even over long distances. Natural gas can also be transported relatively safely in a pipeline.

The difficulty of effectively storing and transporting hydrogen is just one of the obstacles we face on the road to a full-fledged hydrogen economy. Compared to natural gas, hydrogen is extremely difficult to transport because it vaporizes too easily. This is due to hydrogen’s molecular composition, which allows it to find a way out of its envelope through tiny openings.

Energy geopolitics certainly plays a role, in addition to the technical difficulties of natural gas storage. Natural gas is also seen as a geopolitical alternative to oil exports from the Middle East. The problem remains that natural gas is transported via pipelines. The alternative remains transporting the natural gas in the form of LNG. That’s pretty expensive. In countries like the United States, natural gas is a byproduct of oil production and therefore cheaper to produce. What remains is the difficulty of transporting natural gas and getting it to end users and industry. No such infrastructure exists for hydrogen. This drives up costs significantly. Hydrogen also does nothing to secure the geopolitical situation in one of the world’s most important regions, the Middle East.

Although a large part of natural gas sources are located in the Middle East, particularly in Qatar and along the Persian Gulf, there are many natural gas deposits outside the Middle East, particularly in Russia and neighboring Central Asian countries. Natural gas also has a high EROI, but not as high as sweet crude oil. Hydrogen certainly has a high EROI, but the production, distribution, and use of hydrogen are much more complicated than petroleum and natural gas. 


4. HYDROGEN IS A VIABLE SOLUTION FOR ENERGY PRODUCERS IF THEY FOCUS ON RECYCLING AND FUEL RECOVERY. 


Let’s assume for a moment that a hydrogen economy is possible. A hydrogen economy would dramatically change the future of the energy industry. Why would that be the case? Because hydrogen is a clean and environmentally friendly energy carrier. However, hydrogen is not yet economically viable. For example, processes have been developed to convert waste plastics into diesel. If this conversion process is successful, the resulting fuel is of very high quality and is as good as, and sometimes better than, diesel produced directly from crude oil.

Recycled residual plastics (e.g. R-PET) may be suitable for the production of hydrogen fuel. However, we have to keep in mind that the waste sector works differently. Let’s take a quick look at how waste management works right now. Right now, the plastic manufacturer would have to pay the hydrogen manufacturer to dispose of his plastic. The situation would have to be the other way around. In the future, the hydrogen producer would have to pay the recycler to deliver the plastic. That would create the right incentives and make the hydrogen economy more attractive.

IMG_9408


5. WHAT NEEDS TO BE DONE SO THAT HYDROGEN CAN BE USED COMMERCIALLY? 


A higher price should be obtained for the sale of plastic waste for hydrogen production. We also need to be clear about how hydrogen will be used in our economy. Will the hydrogen be sold to industrial producers in the chemical industry? Will the hydrogen be used to supply municipal transport companies, e.g. to power buses, as is already the case in Scandinavia?


6. OUR ASSESSMENT OF THE FUTURE OF THE HYDROGEN ECONOMY 2020 – 2030 


We believe we still have another 15 to 20 years before we commercialize hydrogen. Even that seems like an ambitious goal. Energy companies are capable of building pyrolysis and gasification plants that can process various types of materials into hydrogen. The process is well established. There are a number of companies in the energy industry that can successfully produce hydrogen. However, one major problem has persisted for many years. That is the commercialization of hydrogen. It is difficult to find enough customers. At the current state of development, it is almost impossible to make hydrogen logistics efficient and cost-effective. With liquid hydrogen, the process remains difficult. Investors are also waiting for the right time to invest in hydrogen technology. In summary, it’s not clear at this point whether hydrogen will catch on and outpace other energy technologies. Investors will have to be patient.


Many thanks for the shared interest in the energy world!



This article is meant to inform the reader of recent developments in the energy industry at large. We take great pride in our work. Despite all this, we would like to point out that we do not guarantee the reliability of the content on this website.
Please note that the information presented on this site reflects the opinion / views of the author himself. No relationship to artists, authors, companies, institutions or organizations can be inferred from these texts, illustrations, images and presentations. 
The contents are not to be understood as business advice in any form. The author does not put forth investment recommendations. This article should not be taken as investment advice and the author cannot be held to account for investments made. For more information, please refer to the Legal Disclosure and Privacy Policy, which you can click on or find at the top of this page in the menu bar. 

Email (case-based consultation and support): 
support@boegelsackenergy.com

Whether advice can be provided depends on the specifics and particular subject matter of each individual case.

COPYRIGHT CONTACT: Please contact us by email or phone if you would like to use the following content: i. Energy industry texts and energy industry articles, ii. Presentations (PowerPoints / PDF documents) and iii. Images (i.e. images of power plants and industry). 
COPYRIGHT: Please note that these texts, reports, presentations, including presentation layouts and presentation designs, and images are subject to copyright. Please contact the website owner if you wish to use copyrighted content. For copyrighted content, permission from the content owner is required. 
GEOGRAPHIC MAPS, MUSIC, VIDEO CONTENT OF WELDER IN THE INTRODUCTION VIDEO, PRIVACY POLICY AND LEGAL DISCLAIMER (BOTH GERMAN AND ENGLISH): Geographic maps, music and video content of the welder in the introduction video, privacy policy as well as legal disclaimer (both German and English) have been provided by third party providers. Geographic maps, music and video content of the welder in the introduction video, privacy policy as well as legal disclaimer (both German and English) are NOT part of the offer. They are not part of the Boegelsack Energy portfolio.


Your subscription could not be saved. Please try again.
Your subscription has been successful.

Newsletter

Subscribe to our newsletter and stay updated.

Wir verwenden Sendinblue als unsere Marketing-Plattform. Wenn Sie das Formular ausfüllen und absenden, bestätigen Sie, dass die von Ihnen angegebenen Informationen an Sendinblue zur Bearbeitung gemäß den Nutzungsbedingungen übertragen werden.