Why Hydrogen is a Challenging Business Model for Energy Producers

Hydrogen as a fuel will play an important role in road transport. The target will be the truck industry.

Another important area for hydrogen will be the aviation industry. In this area, hydrogen is expected to make a significant contribution.

1. The energy industry is undergoing incredible change. Energy companies are looking for new revenue-generating business models, like hydrogen.

The energy industry is undergoing a transition phase from fossil fuels to new energy solutions. Different energy resources compete with each other in an epic battle. These include crude oil, natural gas and biowaste, which are used to generate energy.  Which energy resources will prevail is yet unknown. This depends on a whole range of factors. At present, attempts are being made to increase the efficiency of energy recovery through various techniques.

A lot of energy is lost during the conversion from one energy source to another.  This reduces the EROI (Energy-Return-On-Energy-Invested) and lowers the profitability. To determine the usefulness of a particular energy resource, we consider the energy yield of an energy resource and the financial profitability. After all, the goal is to produce as much energy as possible. The goal is to produce as much energy as possible with the lowest possible capital and operating expenses.

One possible contender in the race for our common energy future is hydrogen. It has many advantages and unique disadvantages compared to other energy sources. Hydrogen combines the advantages of fossil fuels, such as storability, energy density and ease of use, but at the same time it can be produced from renewable energy sources, similar to biofuels. Its unique disadvantage is that it is currently not cost effective to produce hydrogen from renewable energy sources and that hydrogen easily leaks from its storage container.

2. The upstream business may no longer be the only revenue-generating activity for energy companies in the future. This is because we have reached peak oil for conventional oil reserves. Can hydrogen replace such a big business?

In the developing countries, crude oil is still used on a large scale to generate electricity. However, oil is hardly used for power generation in the industrialized countries. But the issue is far more complex. We have to look at the issue from the very top. A whole series of energy industry forecasts show us that oil production has reached its peak. 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 will be a good solution in the medium term. Hydrogen is something for the long term.

Natural gas still has a long way to go. It is just beginning its ascent on the energy markets. Natural gas is relatively abundant compared to oil. It can be produced in different regions of the world and we are still far from peak gas. Compared to hydrogen, natural gas is relatively easy and cheap to transport from A to B, even over long distances. It can also be transported relatively safely in a pipeline.

The difficulty of effectively storing and transporting hydrogen is one of the main barriers to the growth of the 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 enclosure through tiny openings. Natural gas is also seen as a geopolitical alternative to oil exports from 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 ROI, but it is not as high as sweet crude oil.

4. Hydrogen is a viable solution for energy producers if they focus on recycling and fuel recovery.

The hydrogen economy will dramatically change the future of the energy economy. Why is this so? It is because hydrogen is a clean and environmentally friendly energy source. 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 plastics are well suited for the production of hydrogen as fuel. But we must remember that the waste sector works differently. Let us examine how the waste management sector works at the moment. At the moment, the plastics producer would have to pay the hydrogen producer to dispose of his plastic. The situation would have to be exactly the other way round. In the future, the hydrogen producer would have to pay the recycler for the delivery of the plastic material. This would create the right incentives and make the hydrogen economy more attractive.


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. But we also have to look at how hydrogen is to be used. 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 drive buses, as it is done 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. Energy companies are capable of building pyrolysis and gasification plants that can process various types of materials into hydrogen. The process is known. In the energy business there are a great many companies able to successfully produce hydrogen. However, an important problem remains. This is the commercialization of hydrogen. It is difficult to find enough customers and to carry out the logistics. The investors are also waiting for the right time to invest in hydrogen technology. However, it is not clear at this stage whether hydrogen will prevail and outcompete the other energy technologies. Investors have to be patient.

Many thanks for the shared interest in the energy world!

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