Ok, so I’m not an engineer or a chemist but I know plenty of both who are very excited about Hydrogen, however channeling my inner economist I’m not sure the so called ‘H2 Revolution’ will come close to living up to all the hype.

Inefficient, expensive to compress and move, H2’s relatively low energy density means it needs x3 the fleet of ships/trucks to move it around when compared to liquid hydrocarbons. When you include other inefficiencies it is closer to x4. Another way to look at it is with the Michael Liebreich MA MBA OLY HonFEI’s cake analogy, if the cake is more expensive than its ingredients you don’t bake the cake, you buy it. Electricity is used to “bake” hydrogen (or generated through electrolysis, compress, storage, transport etc) with a process that means hydrogen will always be more expensive than the electricity used for making it. So why all the fuss?

As with most things, it helps to understand who is behind the hydrogen narrative and what motivates them. With a little digging it becomes pretty clear where the value sits and what is best avoided.

First up are the developers, speaking as one myself, I can say with confidence that there is no down side to shouting from the rooftops that H2 is the next big thing. Even when the economics don’t make sense, if hype drives demand, development fees are there to be earned. We always co-invest and would never enter into a project without believing in the long term benefits but there are plenty who run ‘development as a service’ models with big upside and limited downsides to putting H2 projects together.

Next are the fossil fuel companies. These guys can make a big PR story with relatively little cash up front and can expect major support from governments (PM Sunak in the UK and President Biden in the USA have both recently announced support for H2). The problem is, the supporters believe they are getting Green H2 (from renewables) but instead are receiving Blue H2 (from natural gas with Carbon Capture and Storage ‘CCS’) often without a real understanding of the difference.

The O&G industry claims that blue H2 can be produced at scale to offer ‘lower carbon’ alternatives to traditional fossil fuels. However even the Gas majors acknowledge that blue hydrogen would result in substantial GHG emissions from upstream methane leakage and flaring and the fact that CCS tech cannot capture all of the CO2 from the H2 production process. Regardless, if they can promote the belief in Blue H2 this allows them to keep doing what they are doing saying ‘don’t worry we will capture the CO2’, fantasy land but business as usual is comfortable for a lot of people.

Same story for the owners of gas fields, sing the benefits of Blue H2 from the roof tops and maybe you get to survive for a little longer. Better than Gray of course so may be able to play a short term role to bridge to green for certain processes (more on this below). However given investment horizons of blue H2 CCS assets we need to take care we aren’t locking in inefficient and damaging emissions into the system for decades to come.

Taking a step back for a moment, governments of all shades have been backing the hydrogen economy for multiple reasons. If they own fossil assets they fall into the above category of it suiting the narrative of allowing business as usual. If they don’t, they can ride the hype wave by seeming to be aligned with the new cool thing. Either way, it looks like they are doing something. Mostly talk right now (save for the IRA in the US) but high profile voices are speaking up after being cynically driven on by the fossil fuel lobby. The real danger here is that serious amounts of tax payer money goes down this path and that impactful renewables and efficiency efforts are diverted.

Then there are the manufacturers of electrolysers and gas processing kit. It goes without say these guys want to big up H2 and build order books. The problem will come when intelligent capital is needed for projects to come to fruition! A little different for EPCs who put projects together for a fee, so while it makes sense for them to talk up H2 they have little to lose and much to gain.

This all adds up to a minefield for investors. So is it all to be avoided? Not at all. There are diamonds amidst the mud.

Genuinely green H2 in the right circumstances with the right supports make sense. Replacement of Grey H2 for industrial processed (used in refineries, fertilizers and methanol for eg.) with Green H2 is essential. The EU is at the front line of this push. Monies from the Innovation Fund are being pushed towards supporting the switch of existing gray H2 from natural gas to green H2 from renewables using a Carbon specific CfD. This is the one genuinely interesting area of the H2 space.

Using H2 for anything other than replacement is at best a generation of innovation and renewables building away. There is value but it is far narrower than hype might suggest.