The hydrogen market faces high production and transportation costs in 2024, but opportunities exist to reduce costs in the long term. This article explores the current cost trends, project economics, and the economics of transportation and trade in the hydrogen sector.
Current Hydrogen Cost Trends
- Rising costs in renewable markets have impacted the hydrogen industry
- Higher borrowing rates and a surge in the levelized cost of electricity (LCOE) affect the levelized cost of hydrogen (LCOH)
- Lack of experience among EPCs, OEMs, project developers, and owners contributes to higher production costs
- As expertise grows and standardization increases, capital costs are expected to decrease
Improving Specific Hydrogen Project Economics
Developers can employ strategies to gain an economic advantage at the project level:
1. Target end-use sectors with higher prices and government support
2. Source cheaper technology, such as Chinese electrolyzers
3. Choose cost-effective power sources
4. Locate blue hydrogen plants close to natural gas reserves
5. Integrate with off-takers to save on capex costs and minimize losses
6. Use credible technology suppliers to improve project bankability
Hydrogen Transportation and Trade Flows
- Ammonia is the most promising carrier for seaborne hydrogen trade, despite its emissions
- Producers can leverage existing infrastructure by converting hydrogen to ammonia
- The conversion process results in significant losses – nearly 30% of the low-carbon hydrogen produced is lost
- Ammonia cracking can be viable for markets with a high LCOH
- 65% of low-carbon projects targeting exports aim to produce ammonia as a carrier
- Exporters must focus on reducing emissions from production, transport, and processing
Future Outlook and Innovations
Several innovations and trends are expected to shape the future of the hydrogen industry:
1. Improved electrolyzer technologies
2. Carbon capture and storage (CCS) integration with blue hydrogen production
3. Development of hydrogen-derived fuels
4. Continued policy support for low-carbon hydrogen adoption
Conclusion
The hydrogen market faces challenges in 2024, but opportunities exist to reduce costs through policy support, standardization, economies of scale, and strategic project development. Assessing midstream costs, reducing emissions from transportation, and leveraging innovations will be critical to the industry’s success.