Hopium: the siren song of green hydrogen.

“Australia’s plan to get its economy to net zero by 2050 is a laudable goal. But it has been hijacked by people huffing hydrogen hopium1.”
– Michael Barnard, Chief Strategist TFIE Strategy

Hopium is defined in the Urban Dictionary as an addiction to false hope2. The belief that something will improve, or provide a solution, when there is no evidence that it will do so, and substantial evidence that it won’t.

In this article we look at green hydrogen hopium, which has captured much of the energy debate in Australia.

The problem with hopium

Hopium is a problem. A focus on false hopes delays the roll out at scale of evidence-based solutions, leads to the sub-optimal allocation of resources and results in policy settings with long term negative consequences for economic growth and future living standards.

For Australia, green hydrogen hopium is somewhat understandable. The diagram below shows Australian energy flows.

Australia exports four times as much energy as it consumes. We dig up coal or pump natural gas out of the ground and put it on a boat and ship it overseas. And as a country, coal, oil and gas is our largest export category, accounting for AU$175.2 billion or 43% of our total annual export earnings3.

Coal is a fuel. The attraction of green hydrogen is that, as the world decarbonises, we simply substitute one fuel export for another. That’s why the Australian Government announced $2 billion in support for hydrogen initiatives in the May 2023 Federal Budget4.

The trouble with that scenario is that it assumes other countries will continue to import large amounts of fuel. But as we move through the transition to zero carbon, increasingly we will stop talking about fuel and talk about energy instead. And in that scenario, the case for green hydrogen is substantially weaker than the hype around it would suggest.

Hydrogen production

Hydrogen is the most common element in the universe. But it doesn’t exist naturally on Earth by itself, so it needs to be split from other elements.

There are several ways to produce hydrogen:

    • ‘Grey’ hydrogen is the most common way hydrogen is produced. It is produced through a process known as steam methane reformation (SMR). You mix water with methane from natural gas, and you apply heat. It is simple and cheap.
    • ‘Blue’ hydrogen is grey hydrogen fitted with carbon capture and storage (CCS) technology. Fossil fuel companies spruik blue hydrogen as low emissions. However, the lifetime emissions from blue hydrogen production are only 9% – 12% less than grey hydrogen5.
    • ‘Green’ hydrogen (GH2) is made by using electricity from wind or solar to run a current through water that splits the water molecules into two hydrogen atoms and one oxygen atom. GH2 currently makes up just 0.1% of total production6. The process is substantially more expensive than grey hydrogen, but is forecast to become cheaper over time7.

We currently produce just under 100 million tons of hydrogen. It is mainly used to remove the sulphur from diesel fuels, a use that will decrease with the decarbonisation of transport. It’s also used to produce ammonia, which is used mainly in agricultural fertilisers8.

Two problems with green hydrogen

The problem for green hydrogen is that for almost all its proposed uses, a better and cheaper solution exists. And that comes down to two factors, efficiency, and energy density.

To illustrate the efficiency problem for GH2 let’s compare providing household hot water with GH2, versus running a heat pump on renewable energy.

Source: Grattan Institute, Hydrogen Science Coalition, and Betashares

Providing sufficient hot water for a family of four requires around 30,000 MJ of energy9. A gas boiler is around 90% efficient, so that requires 32,868MJ of GH2. In producing GH2, a lot of energy is lost as waste heat. Firstly, in the electrolysis process, which is around 75% efficient, and secondly in the compression and distribution of the gas to the household, which is particularly energy intensive for hydrogen. To produce that amount of GH2 and get it to where it is needed, you need to use 17,786kWh of renewable electricity.

In contrast, a heat-pump water heater will use around 3,300kWh of electricity to produce 30,000MJ of energy. High-voltage transmission is around 90% efficient, so you need to generate 3,700kWh of renewable electricity. The bottom line is, to produce hot water for a family of four using GH2 you need to generate nearly four times the renewable electricity than you would using an energy efficient heat-pump.

Heat-pump hot water system

Source: Glow Green

Hydrogen’s second problem is its lack of energy density. Hydrogen can be stored as a gas or a liquid, or it can be converted to ammonia or methanol. On a weight basis, hydrogen has about three times the energy of petrol, 120MJ/kg. However, on a volume basis, liquid hydrogen has an energy density of 8MJ/litre, a quarter that of petrol10.

Fuel energy per unit mass and volume

Source: US Office of Energy Efficiency & Renewable Energy

GH2’s lack of volumetric energy density makes it a poor solution for transportation applications. The notion of large fleets of hydrogen fuel-cell powered passenger vehicles has been consigned to the dust bin of history.

“The conclusion is clear. In the case of the passenger car, everything speaks in favour of the battery and practically nothing speaks in favour of hydrogen”11.
– Volkswagen December 2020

Even in heavy vehicles, hydrogen is losing out to batteries. In June this year, BHP announced it would replace its diesel trucks with electric vehicles, citing the huge difference in energy efficiency between electric and hydrogen trucks as the reason for the decision12.

One of the most touted potential uses of GH2 is marine transport. Currently, the transport of coal, oil and liquified natural gas (LNG) accounts for around 40% of global shipping13. So, the transition away from fossil fuels will eliminate a large proportion of demand for marine fuels. For what’s left over, much of it is anticipated to be electrified, with batteries the size of standard shipping containers increasingly providing the decarbonisation solution for both inland and coastal shipping (as well as long-distance rail transport).

Containerised Lithium-ion Energy Storage

Source: Microgreen Energy

That leaves deepwater bulk freight, for which GH2 and green ammonia are frequently referred to as a solution. However, the downsides of hydrogen as a fuel are considerable.

Hydrogen needs to be stored in 700 bar (approximately 700x atmospheric pressure) pressurised tanks or stored in liquid form at minus 253̊ C, which is highly energy intensive and places high demands on storage and supply systems, as well as coming with additional risks from oxygen condensation potentially leading to explosions.

However, the lack of volumetric density makes hydrogen impractical as a solution. The space required for hydrogen would need to be almost eight times the size of a marine oil fuel tank14. That is considerable cargo space lost for a vessel, which impacts its economics.

While the Global Centre for Maritime Decarbonisation is continuing to pursue multiple options, biofuels are increasingly firming as the long-term solution for deep-sea maritime transport decarbonisation15. As a consequence, major projects are being abandoned. In March this year, Equinor and Air Liquide announced they would permanently scrap their liquified hydrogen shipping project after failing to attract customers16.

Physics and economics

Ultimately, physics determines economics. These two characteristics; inefficiency, and lack of volumetric density, mean that GH2 is not a practical or cost-effective solution for many of its proposed applications.

Sweden’s HYBRIT green steel plant.

Source: MiningMagazine.com

Hydrogen certainly has a use as a direct reduction agent for iron ore, replacing metallurgical coal. And it will take many years to replace ammonia as a feedstock for agricultural chemicals. Here, the use of GH2 to replace grey hydrogen can make a substantial contribution to decarbonisation. Even there, the advent of CRISPR gene edited bacteria is likely to reduce the demand for ammonia-based fertilizers17 on a twenty-year timeframe – well inside the expected life span of a GH2 electrolysis plant.

Numerous actors, including fossil fuel companies, are strong advocates for GH2 as a climate change solution. Amidst all this hype, the IEA has forecast a 90% increase in global hydrogen demand to 180 million tons by 203018, of which only around one-third would genuinely be ‘green hydrogen’. But it is increasingly clear that in most cases, GH2 provides a second-best solution for emissions abatement and is likely to play a more limited role in the transition to carbon neutrality.

All of this is important to investors and for the future of the Australian economy. Companies committing large amounts of capital expenditure to GH2 projects without identified customers and a clear pathway to commercialisation face substantial risk of assets becoming stranded and consequent economic losses.

1. https://reneweconomy.com.au/the-net-zero-fallacy-how-australias-renewables-projections-got-so-absurd/
2. https://www.urbandictionary.com/define.php?term=Hopium
3. https://tradingeconomics.com/australia/exports-by-category
4. https://budget.gov.au/content/documents.htm
5. https://onlinelibrary.wiley.com/doi/full/10.1002/ese3.956
6. https://iea.blob.core.windows.net/assets/c5bc75b1-9e4d-460d-9056-6e8e626a11c4/GlobalHydrogenReview2022.pdf
7. https://about.bnef.com/blog/green-hydrogen-to-outcompete-blue-everywhere-by-2030/
8. https://iea.blob.core.windows.net/assets/c5bc75b1-9e4d-460d-9056-6e8e626a11c4/GlobalHydrogenReview2022.pdf
9. https://grattan.edu.au/wp-content/uploads/2023/06/Getting-off-gas-why-how-and-who-should-pay.pdf
10. https://www.energy.gov/eere/fuelcells/hydrogen-storage#:~:text=On%20a%20mass%20basis%2C%20hydrogen,44%20MJ%2Fkg%20for%20gasoline.
11. https://www.volkswagen-newsroom.com/en/stories/battery-or-fuel-cell-that-is-the-question-5868
12. https://thedriven.io/2023/06/23/bhp-says-battery-electric-cheaper-than-hydrogen-as-it-dumps-diesel-for-haul-trucks/
13. https://unctadstat.unctad.org/wds/TableViewer/tableView.aspx?ReportId=32363
14. https://www.wartsila.com/insights/article/hydrogen-fuel-for-thought-in-our-q-a
15. https://www.globalmaritimeforum.org/news/future-biofuels-for-shipping
16. https://www.hydrogeninsight.com/transport/equinor-and-air-liquide-permanently-scrap-landmark-liquified-hydrogen-shipping-project-after-failing-to-attract-customers-in-two-years/2-1-1415977
17. https://onlinelibrary.wiley.com/doi/10.1111/pbi.13894
18. https://www.iea.org/reports/hydrogen

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Written by

Greg Liddell

Director - Responsible Investments

Ex Suncorp, Russell Investments, QIC and Mercer. Past Director of the Investment Management Consultants Institute (IMCA) and Management Committee of the Investor Group on Climate Change (IGCC)

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