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Green hydrogen to redraw energy trade routes, reduce geopolitical tensions: IRENA

17 January 2022 Max Tingyao Lin

A future global economy based on green hydrogen produced from renewable electricity could ease geopolitical tensions by diversifying energy supply sources across the globe, creating a vastly different trade map from the current one in a fossil fuels-dominated world, according to the International Renewable Energy Agency (IRENA).

With oil and natural gas resources controlled by a limited number of countries, fossil fuels are seen by many as connected to geopolitical power, and their trade associated with tensions.

In the Geopolitics of the Energy Transformation: The Hydrogen Factor report published last week, the IRENA argued that more green hydrogen in the energy mix could reduce conflicts between countries as renewable energy resources are much more evenly distributed.

"It is green hydrogen that will bring new and diverse participants to the market, diversify routes and supplies and shift power from the few to the many," IRENA Director-General Francesco La Camera said in a statement accompanying the report. "With international cooperation, the hydrogen market could be more democratic and inclusive, offering opportunities for developed and developing countries alike."

According to the report, countries should investigate how to reduce their dependence on energy imports by producing and using more green hydrogen at the expense of fossil fuels.

"Hydrogen can reduce energy import dependence by substituting domestic resources for imported ones. If local wind, solar, hydro, biomass or geothermal energy sources are tapped to produce hydrogen, energy security would rise to the extent imported fuels are displaced," said the IRENA, a 167-member intergovernmental organization established to promote renewable energy.

Future landscape

Like many climate experts, IRENA researchers believe clean hydrogen needs to replace large proportions of oil, gas, and coal in the energy mix by 2050 for the world to cap global warming at 1.5 degrees Celsius.

Citing figures from the International Energy Agency, the Organisation for Economic Co-operation and Development's energy watchdog, the IRENA report said 120 million metric tons (mt) of hydrogen are produced globally.

Nearly all of the volume is grey hydrogen, produced from fossil fuels without emissions abatement. About 85% are consumed on-site rather than traded in a wider market.

However, with more than 30 countries already establishing national strategies to develop hydrogen markets in their decarbonization efforts, the IRENA said international hydrogen trade is set to grow considerably in the coming decades.

"Falling renewable power costs and improving electrolyzer technologies could make green hydrogen cost-competitive by 2030," the report said. "[Hydrogen] demand is expected to only take off in the mid-2030s.… Cross-border trading of hydrogen will increase in the 2030s."

By 2030, the IRENA expects green hydrogen—produced by electrolysis of water using renewable electricity—to be cost competitive against blue hydrogen, another type of clean hydrogen made by gas reformers that are supported with carbon capture and storage technology.

In its 1.5-degrees scenario, nearly 5,000 GW of hydrogen electrolyzer capacity will be installed by 2050, compared with 300 MW today. The electricity required to produce hydrogen will reach almost 21,000 TWh, close to current levels of global electricity consumption.

The IRENA expects hydrogen production to amount to 613 mt by 2050, of which two-thirds are green hydrogen and the rest blue hydrogen. Hydrogen and its derivatives will account for 12% of final energy use, contributing 10% towards the CO2 emissions reductions required to avert climate disasters.

In this scenario, about half of the hydrogen trade in 2050 is likely to go through pipelines, including repurposed gas pipelines that exist today. The other half would be transported by vessels.

"With the costs of renewable energy falling, but those of transporting hydrogen high, the emerging geopolitical map is likely to show growing regionalization in energy relations," the report said. "Renewables can be deployed in every country, and renewable electricity can be exported to neighboring countries via transmission cables."

Emerging hydrogen trade

IRENA hydrogen map

Sources: IRENA, Natural Earth

The IRENA expects the global energy trade map to be redrawn in the hydrogen economy. According to its estimates, the regions with the best potential in producing green hydrogen below $1.50/kg by 2050 are: Sub-Saharan Africa, which can produce up to 2,715 exajoules (EJ); the Middle East and North Africa, 2,023 EJ; North America, 1,314 EJ; Oceania, 1,272 EJ; and Latin America, 1,114 EJ.

"Countries with an abundance of low-cost renewable power could become producers of green hydrogen, with commensurate geoeconomic and geopolitical consequences," the report said.

"Green hydrogen could be most economical in locations that have the optimal combination of abundant renewable resources, space for solar or wind farms, and access to water, along with the capability to export to large demand centers. New power nodes could arise in places that exploit these factors to become centers of hydrogen production and use."

Among the major exporters of fossil fuels, the IRENA said Australia, Saudi Arabia, and the US can also become hydrogen exporters due to their production potential. These countries would likely produce large volumes of hydrogen from natural gas, with carbon capture offsetting the emissions.

Other the other hand, some net energy importers like Chile, Morocco, and Namibia could become exporters due to their abundant renewable resources. "For these countries, a green hydrogen transformation represents a complete reversal of fortune," the report added. "Countries that succeed in becoming major exporters of green hydrogen and derived fuels also stand to gain in geostrategic importance."

Hydrogen diplomacy

The IRENA observed that countries poised to require overseas hydrogen to meet domestic demand—like Japan, South Korea, and some European nations—are ramping up their efforts in securing future supplies.

"Hydrogen diplomacy is becoming a standard fixture of economic diplomacy in several countries. Access to hydrogen is often seen as an element of energy security and overall national resilience," the report said.

In one example, Germany has concluded bilateral hydrogen deals with a wide range of potential hydrogen suppliers, including Australia, Chile, Morocco, Namibia, Tunisia, and Ukraine. The federal government has also provided €900 billion ($1.03 billion) to the H2Global Foundation, an industry body tasked with buying hydrogen products aboard and re-selling them in Europe.

"Germany promotes dialogues in particular with fossil fuel exporters about challenges and opportunities inherent in an energy transition towards a greener and more sustainable economy," German Minister of State for Europe and Climate Anna Lührmann told the IRENA Assembly 15 January.

"If Europe and others managed to substitute fossil fuels [with] CO2-neutral hydrogen, this will have profound consequences for the global markets of fossil fuels. For a foreign policy point of view, it is essential to consider and mitigate security and economic risks," she added.

Reduced geopolitical risks

In the IRENA's view, hydrogen trade is unlikely to become weaponized and cartelized like oil and gas as new classes of net importers and exporters emerge.

"This is because hydrogen can be produced from many primary energy sources and in a wide variety of places worldwide.… It is a manufactured product rather than a raw material or energy source," the report said. "Green energy trade flows are unlikely to lend themselves as easily to geopolitical influence as oil and gas."

The IRENA said trade relations in oil and gas markets have largely been shaped by geology, with hydrocarbon reserves concentrated in a limited number of countries, and 80% of the world's population living in net countries that are importers of fossil fuels.

This has made it easier for major producers to exert their geopolitical influence. Mired in the conflicts over Ukraine with the West, Russia was recently accused by the IEA of undersupplying gas to Europe during this winter. The country has also formed the OPEC+ with OPEC and some other producers to influence the oil market.

In contrast, the IRENA said every country has renewable resources, even though some are stronger in wind or solar while others in better positions to develop hydropower or geothermal energy.

"Since renewable energy is ubiquitous, countries may gain the flexibility to choose preferred trading partners in the clean fuel markets of the future," the report said.

Worries remain

However, there are still some potential flashpoints in the future hydrogen economy.

Speaking to the Assembly, IHS Markit Vice Chairman Daniel Yergin suggested many energy firms that produce grey hydrogen today may want to stay in the business by adopting carbon sequestration technology.

"Big industrial companies see this is a role that they can play," Yergin said. "There is a large hydrogen business today that involves oil and gas and companies.…They have the capabilities [in handling hydrogen]."

Even in IHS Markit's "Green Rules" scenario where countries tighten emissions regulations, analysts expect almost 43% of global hydrogen production to come from fossil fuels in 2050, mostly from natural gas.

The IRENA report, however, said the geopolitical benefits in a hydrogen economy mainly result from a dominant role of green hydrogen. "Conversely, blue hydrogen would follow the patterns of gas markets, resulting in import dependencies and market volatilities," the report said.

In the early stages of a hydrogen market, the IRENA expects countries to compete for technology leadership and set emission standards, which could give rise to tensions. "Setting standards could be an arena for geopolitical competition or international co-operation.… Countries have an incentive to set standards to maintain their competitive advantages," the report said.

Separately, potential importers have incentives to establish trade practices as they enter the market. The EU has sought to mainly import hydrogen in euros in the future.

"The currencies and pricing mechanisms that take hold in the emerging market are likely to have considerable geopolitical effects," the IRENA said.

"The currency chosen will be positioned to become a global benchmark as the market expands. Those associated with that currency will to some degree be sheltered from exposure due to fluctuating import costs," it added.

The IRENA urged countries to work together rather than create rivalry in the embryonic market.

"Much can be gained with strong international cooperation and constructive political and economic engagement. Governments have a unique opportunity today to shape the advent of hydrogen, avoid the flaws and inefficiencies of current systems, and influence geopolitical outcomes," according to the report.

"International cooperation will be essential to effectively navigate the unknowns, mitigate risks and overcome obstacles in the years ahead."

Posted 17 January 2022 by Max Tingyao Lin, Principal Journalist, Climate and Sustainability

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