May 05, 2022 • Paul Rodden • Season: 2022 • Episode: 112
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In episode 112, Bloomberg discusses a big sector of the hydrogen economy that's often overlooked. I'll review and discuss their viewpoint on today's hydrogen podcast.
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Bloomberg discusses a big sector of the hydrogen economy that's often overlooked. I'll review and discuss their viewpoint on today's hydrogen podcast. So the big questions in the energy industry today are, how is hydrogen the primary driving force behind the evolution of energy? Where is capital being deployed for hydrogen projects globally? And where are the best investment opportunities for early adopters who recognize the importance of hydrogen? I will address the critical issues and give you the information you need to deploy capital. Those are the questions that will unlock the potential of hydrogen, and this podcast will give you the answers. My name is Paul Rodden, and welcome to the hydrogen podcast.
In an article from bloomberg.com, Mark Chediak writes, hydrogen is every US gas utilities favorite future savior. utilities that run on natural gas have been fervently touting hydrogen as a key way to remain relevant. In a world rapidly rethinking hydrocarbons, the reality is going to be more complicated. Hydrogen is a lightweight gas often marketed as a cleaner alternative to hydrocarbons, with even environmental critics agreeing that it has a role to play in decarbonizing heavy industry. Now, US utilities are jumping on the hydrogen bandwagon, announcing over the past two years more than two dozen projects involving its production and distribution. From Dominion energy incorporated as pilot plant to blend the fuel with natural gas supplies in North Carolina to Southern California Gas company's proposed pipeline system to supply pure hydrogen to Los Angeles, outlining a future and hydrogen is on seemingly every energy companies to do list.
There's no question why gas utilities whose entire business model appears to be under existential threat would be leaning into hydrogen as a potential savior. As a whole, They've been trading at a discount to electric utilities because investors are worried that anti gas bands like those in California and New York City will erode their core business with gas utilities now talking about decarbonizing their systems by blending hydrogen or biogas or even supplying pure hydrogen to industrial users. In some cases, investors can more easily envision a future for gas powered utilities. Still, gas utilities are far from out of the woods. As exciting as hydrogen sounds on a quarterly earnings call, companies will first need to overcome major roadblocks including high costs, and limits on how much of the fuel can be cleanly produced and used and existing gas infrastructure. While hydrogen doesn't emit carbon dioxide when burned. Some studies even raise concerns about its impact on the environment. And a quote from Dan Esposito, a senior policy analyst at energy innovation, which is a San Francisco based Energy Policy Research Group. gas utilities may view hydrogen as attractive from an investor's standpoint, because incorporating hydrogen allows them to continue as business as usual, to an extent, but it won't be so easy. And here's a look at some of the biggest obstacles standing in the way of utilities integrating hydrogen into their ecosystems.
Number one, the costs while hydrogen is the most abundant element, it's also very energy intensive to isolate. Most hydrogen is currently produced through a polluting process called steam methane reforming the use of steam to stir up hydrogen from natural gas. To produce green or emission free hydrogen renewable energy is needed to power an electrolyzer that can split hydrogen from water molecules. That process is expensive green hydrogen, the only carbon free version now costs about four to five times more than natural gas. According to a Bloomberg Nef report that said costs are forecast to fall rapidly between now and 2050.
As long as investors are willing to be patient. In addition to the high cost of production, there will be pricey infrastructure needs for utilities to pull off a hydrogen future to meet about a quarter of the world's energy needs by 2050. It will cost more than $11 trillion in investment in production, storage and transportation. This according to a report by Bloomberg Nef. SoCal Gas is proposed Los Angeles link project, which would require the construction of hundreds of miles of new pipeline to deliver green hydrogen to Los Angeles area could ultimately cost billions of dollars if approved by regulators. Challenge number two is pipeline issues. Replacing natural gas with hydrogen sounds particularly appealing for shareholders at gas utilities for a key reason. That like for like swap suggests the existing gas pipelines already in use will find a second life and a post hydrocarbon world instead of becoming stranded assets.
But hydrogen has much different properties compared to natural gas. And there are limits to how much can be blended into existing pipeline systems. Hydrogen is the lightest and smallest molecule in the universe, so it can more easily leak out of pipes and other parts of the gas network designed to transport larger methane molecules that are the main components of natural gas. In addition, hydrogen behaves differently with certain metals and as a result, it can degrade and in brittle steel pipelines that are typically found in the nation's high pressure gas transmission systems. This is according to Jack Brouwer, director of the Advanced Power and Energy Program at the University of California, Irvine. Compressor stations designed to move natural gas don't work well with hydrogen either Brouwer, dir said, so those would also need to be upgraded. Local distribution lines, which are mostly made of plastic can carry higher levels of hydrogen. But there are still limits on how much of the fuel can be safely delivered to homes and businesses.
Utilities including Sempra Energy, SoCal Gas are now testing how much hydrogen can be safely blended into their existing gas networks. SoCal Gas which sells natural gas to nearly 22 million homes and businesses, and last year committed to becoming carbon neutral by 2045, said that preliminary testing at its lab shows that up to 20% Hydrogen blend can be used in home gas appliances. Challenge number three is the environmental concerns. An 80/20 Gas hydrogen blend is a step up from 100% hydrocarbon, but it still demands 80% of the gas currently in use. And that's hardly a hydrocarbon free future, which critics are swift to point out. Energy Innovation pointed to a research that shows blending hydrogen into gas pipelines for use in buildings and power generation would increase customer costs exacerbate air pollution and cause safety risks while minimally reducing greenhouse gases. Because hydrogen molecules produced less energy than methane when burned, a 20% Hydrogen blend would provide only six to 7% reduction in total greenhouse gas emissions at a much higher cost. As such, some climate advocates say the promotion of hydrogen by gas utilities, amounts to greenwashing and provides a justification for extending the life of their existing hydrocarbon infrastructure. They warn hydrogen and environmental benefits are limited and its use should be confined to those hard to decarbonize sectors of the economy like industrial uses. In response, the gas industry said climate change can't be addressed without using every rational greenhouse gas reduction measure available now, plus any the become possible in the future.
And it's not only blending pilots that utilities are exploring. Some are also hoping to add new revenue stream by pumping pure green hydrogen for industrial users like power plants, factories and long haul trucks. SoCal Gas is Los Angeles project aims to displace up to 3 million gallons of diesel per day, but even pure green hydrogen brings its share of environmental challenges. A recent research paper by the Environmental Defense Fund that's currently undergoing peer review found that when too much of it leaks into the atmosphere hydrogen risks contributing to climate change. Likewise, burning hydrogen and power plants can produce lung damaging nitrogen oxides as a byproduct that will need to be accounted for this again according to the study's those emissions could be reduced through advances in pollution control technology or using lower amounts of hydrogen, but that could raise costs and increase in efficiency. This according to an earth Justice Report, hydrogen can also be run through a fuel cell to produce electricity without emissions. Challenges aside, some types of clean fuel will be needed to hit net zero carbon goals.
According to gas utilities pointing to decarbonisation studies, hydrogen could help backstop renewables on the grid, they say, the fuel will also be needed to reduce emissions from more industrial sectors of the economy, such as manufacturing and shipping. Okay, so an interesting article from Bloomberg focusing in on a section of energy that a lot of people don't ever think about. And that's gas distribution utilities. Now, I've talked a few times about a few regions globally, like New Jersey, and England and Italy, that are starting to incorporate hydrogen and a lot of their distribution lines. And these studies are coming back showing that there are no defects or issues within home utilities with the hydrogen blend. This goes to support the 20% number that SoCal Gas is claiming. But there is something in this article that is very critical to talk about. And that was under the first challenge of costs, and the technology associated with those costs. The first production method that this article talks about, is steam methane reforming, without carbon capture, and that's gray hydrogen.
Now, I don't know why the author chose to exclude from the article carbon capture, but for whatever reason he did, which to me is a pretty big error when you're talking about the hydrogen economy and the technologies available to supply hydrogen to off takers. The second claim that the author makes is that green hydrogen is the only carbon free version and we know that to be false. Two very quick examples of this are methane pyrolysis. And In-situ well combustion with hydrogen extraction, like our friends over at Proton Technologies. But even aside from the costs, pipeline issues and environmental concerns, there are a couple of other issues that need to be addressed. The first being regulation. Right now,
There's not much standardization around hydrogen distribution, production and transportation that will need to be bolstered between producers, distributors, and the federal government. The next issue is regulatory and legal concerns. I had a quick conversation with some attorneys at Steptoe and Johnson a few weeks ago about this issue, and it is something that they're looking into. But as of right now, it's more of the wild west than anything else. And the last issue that I'll talk about that should also be looked into are gas pipeline service providers. This is an industry whose core role is to maintain natural gas pipelines. And now that hydrogen is starting to be emitted into these pipelines, they're going to have to start testing for embrittlement and leakage at much more microscopic levels, which could mean new training and new testing equipment. Now, these are all good concerns and issues that do need to be addressed as the hydrogen economy moves forward. And the good news is, we now have buy in from every important faction that will move this forward. And those players are the industry, investors and the government.
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