“Ha-ha-H2” By IRINA SLAV
“The hype around green hydrogen has been massive. Making hydrogen from water using energy from sun and the wind, how cool is that? Well, it’s so cool that Schroders’ head of commodities called it…”
Ha-ha-H2
NOV 06, 2024
∙ PAID
Saudi Arabia is planning to invest $10 billion in green hydrogen, Bloomberg reported earlier this week. The report cited the usual unnamed sources, who also told the publication the Saudis were going to set up a special new company for the investment.
Interestingly enough, the report came on the heels of another, also in Bloomberg. That one carried a different tune: it said that Abu Dhabi’s Masdar was delaying its own green hydrogen plans, from 2030 to 2035 or thereabouts. Naturally, the company didn’t say what necessitated the delay. But the FT did. Bloomberg did, back in August. Uniper did. Fortescue’s Andrew Forrest did. And Fortescue’s Andrew Forrest was for green hydrogen what the IEA’s Fatih Birol is for the whole transition.
The hype around green hydrogen has been massive. Making hydrogen from water using energy from the sun and the wind, how cool is that? Well, it’s so cool that Schroders’ head of commodities called it “rubbish”, that’s how cool it is. Green hydrogen is still too expensive, still too much of a headache to transport, and it still makes sub-zero sense for anyone but the energy illiterate climate crusaders.
“Share prices of US and European clean hydrogen companies have collapsed while projects have been delayed as the industry battles lower than expected demand, regulatory uncertainties and growing investor scepticism,” the FT reported at the end of October.
The stock massacre was on a scale last seen with EV startups, with some companies seeing 50% or more in value destruction, which is what one would expect to happen when you put a cart in front of a horse or, to be literal, try to put supply in front of demand. In fairness, the latter sometimes works, if you’re crafty enough to create demand. Demand creation in green hydrogen, however, has failed. It would take nothing less than mandates to do that.
That’s why Schroders’ Mark Lacey called it rubbish, saying it was still “not investable”. “We had unrealistic expectations about how fast this initially could move,” the chief executive of one hydrogen fuel cell developer told the FT. Unrealistic expectations would make a nice epitaph for the transition as a whole, by the way.
Speaking of unrealistic expectations, Andrew Forrest has been a fountain of them. “Some are arguing that the technology we need to beat global warming is not with us yet,” Forrest told the Washington Post two short years ago. “I say that is completely false. The most optimal technologies aren’t with us yet, but we’ve got enough now to make huge heavy-industry companies green.”
Besides the awkwardness of using the word optimal with the modifier most, it’s always awkward to prove unrealistic expectations unrealistic but sometimes it cannot be avoided, so here’s an update on Forrest’s plans to be producing 15 million tonnes of green hydrogen by 2030: it’s not happening. Forrest, per a “person familiar with his thinking” has realised his 15-million-tonne ambition was “unrealistic”, the FT told us in July.
Of course, it would be too awkward to cancel the green hydrogen plan altogether, so Fortescue is just pushing back its deadline, just like Masdar. Yet the Saudis are pouring billions into the stuff as if they don’t read the papers. In fact, they probably do, but the siren song of diversification is too strong. And they’re already building a green hydrogen hub in the futuristic smart city Neom. And they’ve got a long-term buyer for the future output.
The absence of such buyers has been one of the biggest stumbling blocks on the road to green hydrogenation of the world’s energy systems. Bloomberg put it unusually plainly in August, citing a BNEF analyst as saying that “No sane project developer is going to start producing hydrogen without having a buyer for it, and no sane banker is going to lend money to a project developer without reasonable confidence that someone’s going to buy the hydrogen.”
But the Saudis do have a buyer, and that’s Air Products — a U.S. gas provider. Air Products is an investor in the Neom green hydrogen hub and a buyer of its future production, pretty much like Gulf Coast LNG investors. Incidentally, “Management at Air Products has come under fire from major investors in recent weeks due largely to the heavy, high-risk investments it has made in green hydrogen,” fellow podcaster and rare energy literate individual David Blackmon wrote a couple of weeks ago.
Now, why might Air Products investors be unhappy about the company’s investments in green hydrogen, you might wonder. Well, here’s some more awkwardness: it’s that absence of “adequate offtake agreements with potential customers,” per David. In other words, Air Products has agreed to buy the green hydrogen whenever it starts getting produced but it has no one to sell it on to. Meanwhile, the Neom project is facing cost overruns of a couple of billion dollars and the start has been delayed from 2025 to 2026.
It all looked so well on paper, though. Air Products was to build the Helios plant in Neom, buy the hydrogen and sell it to bus companies for their hydrogen-fuelled vehicles. Per Bloomberg, from back in 2021: “Enough green hydrogen will be produced to maintain about 20,000 city buses. There are about 3 million buses operating worldwide, and Air Products wants to be a mainstay in depots switching to hydrogen, said Simon Moore, vice president of investor relations.”
At the time, Bloomberg’s NEF outlet forecast that the green hydrogen market was a $700-billion opportunity in the making. Now, the same outlet says that green hydrogen still costs four times as much to make as natural gas-derived hydrogen. It says that “Most of the businesses that could run on hydrogen would need expensive new equipment to use it, a leap they’re reluctant to make.” It says, essentially, that green hydrogen expectations have been highly unrealistic.
Here’s one final recent piece of evidence: Germany’s Uniper was going to invest billions of euro in green hydrogen. To be more specific, it was going to invest 8 billion euro in green hydrogen by 2030. No more. “As things stand today, there are hardly any major customers who buy green hydrogen,” Uniper’s CEO told the Frankfurter Allgemeine Zeitung, if we are to believe the translation of Clean Energy Wire and we probably should because as the name suggests it is not an oil shilling outlet.
“That's why we have to step on the brakes a little,” Michael Lewis added. I guess you could call it that when the reality is too awkward to admit. Stepping on the brakes “a little” is a nice euphemism for “We’re getting out of here” when there’s 8 billion euro on the line. That, and the obligatory note that the green hydrogen plan is not dead, it’s just delayed.
Alas, unlike most of the recent admissions of unrealistic hydrogen expectations, Uniper’s CEO didn’t shut up when he should have. He went and said there must be subsidies for green hydrogen. He called it “a long-term system of incentives”. If there’s a clearer admission that green hydrogen is an unviable industry, well, that would have to be that absence of buyers.
But fret not, because the Saudis are forging ahead, with ACWA Power, Air Products’ partner in Neom’s Helios plant, eyeing a second plant in Uzbekistan of all places. “We have a very ambitious growth plan,” ACWA’s CEO, Thomas Brostrom told Al Arabiya last week, and much of that growth plan has to do with green hydrogen. The awkward part, because yes, there is an awkward part again, is what happens when oil prices remain depressed and Riyadh begins to tighten the belt. Oh, well, that’s too much awkwardness for one post, so here it endeth.