For years, Europe has been looking for ways to reduce its enormous dependence on foreign energy, both oil and gas. This situation has been aggravated in recent weeks by the conflict in Ukraine. Renewable hydrogen has positioned itself as one of the most promising energy sources for the future.
However, its high costs are holding back real applications. Nevertheless, some Middle Eastern states are already managing to produce it economically.
According to data from the consulting firm Aurora Energy Research, green hydrogen is already cheaper to produce than blue hydrogen. This comes from gas derivatives in Middle Eastern states. The information contrasts with estimates for Europe, which indicate that it will not achieve this until 2030.
The main reason is due to the region’s very low energy costs, which already make renewable hydrogen cheaper to produce than blue hydrogen in Saudi Arabia, the United Arab Emirates (UAE), Qatar and Oman.
The cheapest place to produce green hydrogen would be Qatar, with a cost of only $2.62 per kilogram. It is followed by Saudi Arabia ($3.23/kg), Oman ($3.58/kg) and the UAE ($4.51/kg).
Green hydrogen production
It is remarkable that the major oil producers are the first to offer cheap green hydrogen. Their strong commitment to the expansion of renewable energies contributes to this. This allows Saudi Arabia, for example, to sell the energy from some of its large solar parks at only $10/MWh. That is, at only 8.8 euros per MWh. A figure we can compare with the skyrocketing prices we pay today in Europe.
A few weeks ago, we saw how the governments of the Middle East had managed to lower the renewable hydrogen price, the one coming from renewables, and make it cheaper than the one coming from gas. The fact is that, in a short time, the situation has turned around and the war in Ukraine has raised the price of gas and made green hydrogen a cheaper option even in Europe.
So says Bloomberg in its latest report. It highlights how the stratospheric rise in the price of natural gas has reached such a point that renwable hydrogen is already cheaper than gray hydrogen in Europe, the Middle East and Africa, and China.
According to the report, gray hydrogen produced from gas currently has a levelized cost of $6.71 per kg in the EMEA region (Europe, Middle East and Africa). This compares with $4.84 and $6.68 per kg for green hydrogen produced from renewables and using Western electrolyzers. In China, on the other hand, it is even cheaper, using their electrolyzers, with a price of $3.22 per kg, which competes with $5.28 for grey.
How the Ukraine conflict has affected renewable hydrogen
The reason, according to Bloomberg, is the conflict in Ukraine, which has raised the price of gray hydrogen considerably. This has automatically made green hydrogen more competitive.
This trend is dragging down other components and derivatives, such as green ammonia, which is produced by combining hydrogen with nitrogen from the air. Furthermore, in EMEA and Asia-Pacific it will be cheaper than gray with prices of between $4.50 per kilogram compared to $6.04 per kilogram for gray.
These prices have also been calculated as of March 2, at which time the price of gas has continued to rise. The consequence is that renewable hydrogen and ammonia are now even more competitive.
According to the report, “the price of natural gas products, such as ammonia, is now up to three times higher than it was a year ago. This has opened the door for ‘green’ hydrogen and ammonia produced from renewable electricity to compete with natural gas-based processes that have not declined. These prices could rise further if the conflict in Ukraine continues.”
Conclusions that seemed like science fiction a few weeks ago, and when it was indicated that even with heavy government subsidies in Europe, and a strong expansion of renewables, green hydrogen would not be competitive until 2030.
A time leap of great magnitude that will result in an acceleration of investments in electrolyzers, production capacity, and thus deepen cost reductions.
Source: Forococheselectricos (2022)