Can the Hydrogen Market Take Off? Air Products Q&A

Copyright © 2021 Energy Intelligence Group

An explosion of activity has occurred in the clean hydrogen space lately — from road maps and initiatives to proposals and partnership announcements. But while there's a great deal of hype around hydrogen, the number of substantive projects currently advancing remains small. Seifi Ghasemi is the CEO of Air Products, a firm with deep expertise in industrial gases and the fast-expanding hydrogen market, who caught up with us at Energy Intelligence Forum 2021.

Q: Perhaps we can start with the big picture and your thoughts on the wider energy transition. With a huge, anticipated growth of clean electricity driving much of the transition, what role does that leave for a company like Air Products?

A: People don't want to use hydrocarbons, whether 50 or 70 years from now, and that means that all of our energy will be produced either by wind, solar, hydro, geothermal or nuclear. But all of these forms of energy are used to generate electricity. So you can imagine a world where we are using these sources of energy and are generating a huge amount of clean electricity.

That will not be sufficient to power all of the requirements in the world. Because we think half of that energy converted into electricity, can be used directly. Sure, you can use electricity to drive cars, in heating, air conditioning, cooking and light industry. Fine. But where you need energy to drive a heavy truck, a heavy train across the country, ships, planes and most important, steelmaking, chemicals — there, electricity by itself cannot meet the demand. So the electricity will be used to break down water, to produce hydrogen, and hydrogen will be a source of energy for the applications that I mentioned.

For a company like Air Products, we obviously have the expertise dealing with hydrogen. We have been in the hydrogen business for the last 60 years. If that is the distant future — which might not be as distant as people think — we want to be ready for that. This means we need to start today with significant, large demonstration projects that prove you can produce green hydrogen on a massive scale. Now, in the meantime, we are the largest producer of what they call “gray hydrogen," which is taking natural gas and breaking it down into hydrogen. That hydrogen today is being used to clean up the fuel that you put in the truck or in your car. So there are applications for that hydrogen or for making chemicals. We will continue making hydrogen using hydrocarbons.

The next step will be to produce hydrogen from hydrocarbons, but capture the carbon dioxide as blue hydrogen, and we have massive projects for that. And then obviously you get to green. So, what we are trying to do is be ahead of the game by demonstrating the viability of the technology and the economics of green hydrogen and blue hydrogen, and obviously we are making gray hydrogen. So that is how we see the energy transition and specifically the role of Air Products. We continue to produce gray hydrogen while being the leading in producing blue hydrogen, which means carbon capture, and be the leader in making green hydrogen, which means a project like the one we have announced in Neom.

Q: You mentioned the pathways through blue hydrogen and into green hydrogen. There's a lot of debate around the world on exactly how that pathway should develop and the extent to which blue versus green should play a role. As you have the opportunity of working in both of those technologies already, what factors do you see determining which of those technologies will ultimately dominate?

A: Well, there is no question that the ultimate solution is green hydrogen, because if you go with blue hydrogen, that means you're using hydrocarbons. And if people want to get to net zero, that means there is no other card. But I think it is totally impractical to think that we can get to green hydrogen for all of our energy users in the next 10 years or 15 years. Therefore, what do you do? It is better to make blue hydrogen than to make gray hydrogen because at least you capture the CO2, although you're using hydrocarbons. Therefore, I think there will be significant growth in blue hydrogen, and people will use that until, gradually, depending on the speed with which the energy transition appears and moves forward, then that will disappear and it will all be green hydrogen.

Q: Concerning the factors which need to fall into place for green hydrogen to play a role as the fuel of the more distant future, how much of that is down to the availability of renewable electricity generation capacity? How much of it is down to factors like cost?

A: I don't think the cost is relevant here because, at the end of the day, if you take all of the costs associated with using hydrocarbons, in terms of damage to the environment and people's health and all of that, and add it up, the subsidiaries and so on, hydrocarbons are costing a huge amount more than what people see on a day-to-day basis.

But, but the point that you are making is the availability of green, of enough sun and wind in order to make these projects viable to meet all of the energy requirements. Just to put it in perspective, we are doing a $7 billion project in Saudi Arabia’s Neom to produce green hydrogen. The green hydrogen that will be produced is enough to power only 20,000 trucks while we have a hundred million heavy trucks and light trucks running around the world. So the transition is obviously going to be very much dependent on availability. I think it will end up being a little bit like oil because people will want to use the energy, but they don't have sun and wind, therefore they will have to import it the same day that they're importing oil. So some of these countries who are exporting oil, but have a lot of sun and wind, will be exporting clean energy. But the pace of that is obviously going to depend on mankind's commitment to climate change, to political pressures and the different generations to come. But it is an eventuality that will happen. And I think the companies that will win will be the companies that are ahead of the game. All of these new technologies and new ideas are going to take a long time.

From the time when the telephone was invented until it was used by everybody took 50 or 60 years. So we think this is a transition and it's important to be ahead of the curve and be the leader. And that's what we are going to do.

Q: You talked about the potential development of an international market in clean hydrogen, perhaps mirroring something like aspects of the oil or the LNG industry today. Where do you see the greatest market potential for green hydrogen and in which demand segments, like transportation, and in which regions of the world?

A: Because the market is small and in need of a distribution chain, Air Products decided to lead all the way through. That means we will produce, transport it and come up with an innovative idea of transporting it in the form of ammonia, which is the most practical way of transporting hydrogen, whether it is blue or green. So we will be involved in making it, transporting it, associating it into hydrogen, distributing it, whether it is to a pipeline or with liquid at the distribution locations ... building hydrogen fueling stations and even taking the lead in encouraging people to develop heavy-duty trucks and so on, which are fuel-cell power, because we ourselves operate 2000 trucks that we are going to convert into hydrogen.

So we are taking the lead in developing the total chain as we go forward. But I think as the market develops, and I'm sure other people will be interested in developing the distribution and logistics. For initial projects, we are committed to going all the way from production to the end-customer.

Q: There are very large, complex consortia putting together or proposing clean hydrogen projects. They could involve upstream, natural gas or clean energy providers, or technology partners running all the way through downstream. But it sounds like you are proposing a different, more vertically integrated model. Is that right?

A: This is right. Because we would like to move with speed. Then when you have a project which has 20 different partners, it is very difficult to achieve speed. Everybody has a different agenda. I think right now, what you are seeing is something like 500 hydrogen projects around the world. Because everybody would like to announce a hydrogen project, because that helps with their stocks, and it helps getting a headline on the paper. We actually don't want to get headlines. We want to get something done. And we think that if we have fewer partners, we will be able to get things done. We do have partners; are you see in Neom we have partnered with the Saudi government and Acwa Power. But that's two or three partners rather than a cast of 20 different ones.

Q: If you were to look across the potential applications for clean hydrogen — heavy trucking, shipping, power, industrial uses like steelmaking — where do you see the most promising potential? Is it a question of moving in some areas more quickly, but other areas having more potential in the long run?

A: I think at the beginning, the most obvious and visible application will be in mobility because that is the easiest thing to serve and it is the most visible because it helps clean up your cities and your environment. But in the long term, in terms of the volume of hydrogen, the biggest use, which will be tremendous, will be in steelmaking and in chemicals. But in the beginning it will be mobility.

Q: On the mobility side, how does the price question then come into play? At least in the short term, it looks like the cost of something like green hydrogen, once transportation and distribution costs are factored in, could be significantly higher than some existing fuel options.

A: The way we see it, right now we are selling grey hydrogen for fueling buses and trucks around the board at around $12-$14 a kilogram. Once you add some of the additional incentives that are around — in states like California, the programs that are being adopted in New York, in the UK, in Germany — it does make a gray, blue and even green hydrogen, economically viable. We would not be committing $7 billion to $8 billion to projects if we didn't think that they had a reasonable return; we are a commercial public organization.

Q: What do you see as the most important policy levers? Could carbon pricing or carbon border adjustment taxes be part of that picture?

A: The most important thing here is that we, as Air Products, can make all the hydrogen in the world, whether it is gray, blue or green, but it is only practical if somebody is using it. Therefore, the policymakers need to focus their attention, not on giving a handout to somebody to go build a hydrogen plant, but to encourage the end-customers to use the product. How do I encourage a truck company to go and buy a fuel-cell truck? This is how the electric car started. In the United States, 10 years ago, if you went and bought an electric car, the government would give you $8,000. Find a way to encourage the end-customers, which are the truck makers, the shippers, train users, the steel companies, the chemical companies, to use green energy. Then that would make a whole market because once there is demand, then companies like us will produce it, make money and then build the next line.

With every policymaker that I have talked to, my focus has been: please implement policies that promote the consumer to use green products, whether it’s green hydrogen for their trucks. I keep talking about trucks. I don't try to talk about cars because I think cars are going to go electric. And that makes sense. If you have electricity, you put it in a car. You don't need to have the electricity converted to hydrogen and then put the hydrogen into the car. But for a truck that's not possible. So again, focusing on your question, my recommendations for the policymakers would be to focus on helping the final consumer to actually use green and clean energy.

Q: Are you indicating more of a preference for targeted incentives to consumers, such as in heavy road transportation, rather than something that applies across economies such as carbon pricing?

A: If you are asking me what is the ultimate solution that would be the most effective, I would definitely say a global carbon tax. But I'm trying to be practical. What are the chances of a global carbon tax today? Therefore, for people to do something that has an effect, it would be good to be targeted, but if somebody has the leadership qualities and the ability to convince the entire world that they should put a global carbon tax, I am all for it and I think it would solve the problem and it would encourage people. But that takes a lot of things to come together. But if it can be done, it would be the ideal solution.

Q: On carbon capture — this is an area you are already involved in. It is already playing a significant role in the energy transition but progress today has been relatively slow. Are you more optimistic about the scope for growth in carbon capture technology? And is this a business opportunity for Air Products to looking beyond blue hydrogen?

A: We believe carbon capture is a significant opportunity for us. It is one of the pillars of our growth. Carbon capture will be a very big thing because that's the only way that we can make blue ammonia and blue hydrogen. The issue with carbon capture is not technology. We have the technologies; we do operate one of the world's largest carbon capture opportunities in Port Arthur, Texas. Capturing the carbon, from chemical process units — we have the technology. The issue is what do you do once you have captured? That means sequestration. Because you have to get rid of the CO2.

So, finding space, a place to put this in, that is the challenge. Obviously right now, there are a lot of projects in the world where companies are trying to capture the carbon, build the pipeline and take it to the North Sea to put it in old oil wells. There are a lot of other solutions, but that is the challenge of carbon capture. Obviously, once you capture the CO2, you can use it for enhanced oil recovery, but not all the places in the world need enhanced oil recovery or are close to that. But that is the challenge. And the companies who can find a way of capturing the CO2 from process units, where they, and finding a place to sequester that CO2 in a practical way, they are the ones who are going to be ahead of the game.

Q: Is there a regulatory dimension here as well for policymakers to support sequestration and the storage? Are there key areas where you see weaknesses — for example, in the US in Texas or in other parts of the world — and how that could be addressed by policymakers?

A: In the US, there is a policy if you capture CO2 and sequester it, you get about $45 or $50 per ton as a tax credit. And that has been in place for a while, and some companies are taking advantage of it. But the issue is that when you try to do it on a huge scale, you need to have a huge tax space to be able to use that. Therefore, we have suggested to lawmakers in the US at least that instead of a tax credit, you make it a direct payment ... and if you take a ton of CO2 and sequester it permanently, and you get up to $100 of incentive, it would be very helpful for the promotion of CO2 capture and making it more practical.

Q: Many have talked about hydrogen as a fuel of the future for quite a few decades now. If you were to look ahead to 2030, how do you think this conversation might have moved on? Do you think hydrogen will have graduated to being a regular part of the energy mix or will we still be discussing its potential?

A: I am an optimist and I genuinely think that in 2030, if we were having the conversation, both of us would be a little bit surprised about how fast this thing has moved. I really believe that now there is significant pressure from the younger generation that they need to take action. And their point of view is that look, some of you guys are not going to live in this world until 2100, but a lot of us are going to live until then. And we want to change now because we don't want to live in a world that is warming. It is obvious that global warming is man-made, and we need to do something about it. So, I think this time it is different. Technologically we have come a long way and, most important, I think politically we have matured. There is significant pressure on governments all over the world to make a move. The progress will be faster than some people think.

As European consumers face a winter of presumably high energy prices, Brussels is discussing ways to cushion the blow.
Wed, Oct 13, 2021
As he looks to protect his right flank ahead of April's presidential election, French President Emmanuel Macron is dialing up support for new nuclear.
Fri, Oct 15, 2021
The energy transition, with its multiple moving parts, has made the complex analysis that energy economists do even more challenging.
Wed, Oct 13, 2021