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Blue hydrogen and industrial base products: The future of fossil fuel exporters in a net-zero world
(2022)
Is there a place for today’s fossil fuel exporters in a low-carbon future? This study explores trade channels between energy exporters and importers using a novel electricity-hydrogen-steel energy systems model calibrated to Norway, a major natural gas producer, and Germany, a major energy consumer. Under tight emission constraints, Norway can supply Germany with electricity, (blue) hydrogen, or natural gas with re-import of captured CO2. Alternatively, it can use hydrogen to produce steel through direct reduction and supply it to the world market, an export route not available to other energy carriers due to high transport costs. Although results show that natural gas imports with CO2 capture in Germany is the least-cost solution, avoiding local CO2 handling via imports of blue hydrogen (direct or embodied in steel) involves only moderately higher costs. A robust hydrogen demand would allow Norway to profitably export all its natural gas production as blue hydrogen. However, diversification into local steel production, as one example of easy-to-export industrial base products, offers an effective hedge against the possibility of lower European blue hydrogen demand. Thus, it is recommended that hydrocarbon exporters like Norway consider a strategic energy export transition to a diversified mix of blue hydrogen and climate-neutral industrial base products.
The hydrogen economy is currently experiencing a surge in attention, partly due to the possibility of absorbing wind and solar energy production peaks through electrolysis. A fundamental challenge with this approach is low utilization rates of various parts of the integrated electricity-hydrogen system. To assess the importance of capacity utilization, this paper introduces a novel stylized numerical energy system model incorporating the major elements of electricity and hydrogen generation, transmission and storage, including both "green" hydrogen from electrolysis and "blue" hydrogen from natural gas reforming with CO2 capture and storage (CCS). Balancing renewables with electrolysis results in low utilization of electrolyzers, hydrogen pipelines and storage infrastructure, or electricity transmission networks, depending on whether electrolyzers are co-located with wind farms or demand centers. Blue hydrogen scenarios face similar constraints. High renewable shares impose low utilization rates of CO2 capture, transport and storage infrastructure for conventional CCS, and of hydrogen transmission and storage infrastructure for a novel process (gas switching reforming) that enables flexible power and hydrogen production. In conclusion, both green and blue hydrogen can facilitate the integration of wind and solar energy, but the cost related to low capacity utilization erodes much of the expected economic benefit.
The expansion of wind and solar power is creating a growing need for power system flexibility. Dispatchable power plants with CO2 capture and storage (CCS) offer flexibility with low CO2 emissions, but these plants become uneconomical at the low running hours implied by renewables-based power systems. To address this challenge, the novel gas switching reforming (GSR) plant was recently proposed. GSR can alternate between electricity and hydrogen production from natural gas, offering flexibility to the power system without reducing the utilization rate of the capital stock embodied in CCS infrastructure. This study assesses the interplay between GSR and variable renewables using a power system model, which optimizes investment and hourly dispatch of 13 different technologies. Results show that GSR brings substantial benefits relative to conventional CCS. At a CO2 price of €100/ton, inclusion of GSR increases the optimal wind and solar share by 50%, lowers total system costs by 8%, and reduces system emissions from 45 to 4 kgCO2/MWh. In addition, GSR produces clean hydrogen equivalent to about 90% of total electricity demand, which can be used to decarbonize transport and industry. GSR could therefore become a key enabling technology for a decarbonization effort led by wind and solar power.