Utopia is on the move. To save the climate, a world where coal and oil will be replaced by hydrogen and its derivatives is inevitably emerging. For three years, McKinsey has published, for the Hydrogen Council, a report on the flows of hydrogen, ammonia, e-methanol and pre-reduced iron (DRI), with strong maps tracing future routes and hubs of import-export of green fuels. Maps that reflect the great ambitions of Australia, South Africa, Chile, Morocco or Namibia for these markets. These countries intend to take advantage of their sun and wind to produce green hydrogen by electrolysis at a competitive cost.
Their aims are supported by new regulations. The International Maritime Organization sets the share of zero-emission marine fuels at 5% by 2030. Europe requires the incorporation of 2% of sustainable aviation fuel (SAF) in planes departing from the EU from by 2025 and 70% in 2050. Not to mention the national objectives for reducing emissions from industry and land transport to achieve carbon neutrality in 2050 or 2060. Gold electrifying, using biomass and capturing CO2 will not be enough. To move away from fossil fuels, it will be necessary to rely heavily on clean hydrogen and its derivatives, even if they will remain two to four times more expensive.
In a report for the Global Maritime Forum, the Rocky Mountain Institute estimates the cost of green ammonia by 2030 between $900 and $2,700 per ton and that of methanol between $900 and $2,500 per ton, compared to $700 per ton. for very low sulfur fuel oil (VLSFO). In Japan and South Korea, ammonia is to gradually replace coal in power plants. “Since October 2022, shipyards have had more orders for boats running on methanol and ammonia than on LNG,” observes Mikaa Blugeon-Mered, teacher at Sciences Po and expert in geopolitics and hydrogen markets.
To satisfy all these new uses, it will be necessary to produce around 600 million tonnes of green (by electrolysis) or blue (from gas with CO2 capture) hydrogen per year in 2050, of which 60 to 75% will be exported. Half will be shipped in gaseous form by pipeline and the other in liquid form by ship for its derivatives, estimates McKinsey in a study published in May. The firm estimates the infrastructure investments needed for these exchanges at $1.5 billion by 2050.
Production capacities below forecasts
These pipelines and port terminals would reduce total energy system costs by 30%, or $3.7 billion, compared to a scenario where all hydrogen is produced and consumed locally. Knowing that transporting ammonia and methanol to ports increases the cost of fuel on delivery by up to 15%, according to the Rocky Mountain Institute. And that 130 ports around the world already have infrastructure for ammonia, a compound used in the production of fertilizer and urea.
Calculations to be taken with caution. After the popularity of major hydrogen plans, it is clear this year that there have been a number of abandonments of hydrogen production projects or delays in investment decisions. The reason is government measures aimed at supporting demand, which are not there. Only 3 to 7 million tonnes per year are ensured in Europe, Japan and South Korea out of the 27 million tonnes planned by the states’ hydrogen strategies. And the subsidies promised by the American Inflation Reduction Act have still not been put in place.
As a result, of the 48 million tonnes of electrolytic hydrogen production capacity announced for 2030, only 10% is concrete and based on real demand, such as TotalEnergies’ call for tenders to decarbonize its refineries or those of the Germany which notably led to contracts in Canada and Egypt.
On the supply side, the first countries to position themselves on green hydrogen and ammonia will not necessarily be the chosen ones. “The maps of hydrogen flows and its derivatives have disappeared, due to financial and geopolitical uncertainties, observes Pierre-Étienne Franc, managing director of the hydrogen infrastructure fund Hy24. Interest rates have risen. Many projects are no longer profitable. The fundamentals that justified deploying renewable energies in Australia, the Middle East, South America, the Maghreb, Quebec and Texas, to produce green ammonia at $500 or $600 per ton and export it to Europe, Japan, Korea, Taiwan, Singapore are compromised. Today, the conditions are not met. But the fundamentals that make these territories places for the development of vast renewable resources that the world needs have not changed. It’s up to economic and political actors to make them investable again.”
China is deploying a methanol production policy. But the surprise comes from India, which obtained two loans of 1.5 billion dollars from the World Bank to support its ambitions in green hydrogen, driving private sector investments and export contracts. The Adani group announces $9 billion to produce green hydrogen in Gujarat and AM Green will install a 2 GW production unit in Uttar Pradesh which will notably supply the German RWE with green ammonia. To name only the most important projects. The mapping of hydrogen routes continues to evolve. #
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