Hydrogen Prices Explained

Hydrogen prices continue to surge as demand from refining and industry applications remains robust. Experts projected that the market will remain bullish in the coming years as government implementation, incentive schemes, and market development tools support its global demand. 

This approach is a nod to the Net Zero Emissions by 2050 Scenario. As a result, the demand for this commodity continued to rise as regional markets posted northern trends. 

The focus is on low-carbon hydrogen production, with companies like Air Products and Chemicals leading the way in developing hydrogen infrastructure in North America. Europe is at the forefront of project announcements, with countries like Germany and the Netherlands investing heavily in hydrogen technologies. 

Asia (particularly China and Japan) expanded its hydrogen infrastructure to become a global leader in hydrogen production. The Middle East (with its abundant natural gas reserves) is also exploring hydrogen production, with countries like Saudi Arabia and the UAE investing in hydrogen projects.

Why are hydrogen prices fluctuating?

1. Government Support

Depleting oil deposits and warming temperatures urged most countries to switch to more sustainable energy production and consumption. The European Union and the United States led the policy action. 

For instance, the new U.S. administration (under Trump) seeks to loosen hydrogen tax credits (45V program). This incentive is available to hydrogen producers using clean electricity and carbon capture technology to minimize their emissions.

Germany, the Netherlands, Poland, France, and Italy collectively contribute 57% of the total hydrogen production capacity in the European Union. The region ramps up its production to decarbonize industries and reduce reliance on fossil fuels.

On the other side of the world, China takes the lead in deployment, making the country the largest producer of hydrogen (25 million metric tons). Experts projected that this would increase in the coming years as the country explores green hydrogen production to meet the needs of its soaring EV market.

2. Clean Energy

Clean hydrogen produced with renewable, nuclear energy, or fossil fuel using carbon capture decarbonizes greenhouse gases.

Also, hydrogen-powered vehicles improve air quality and promote energy security. While millions of EV cars are sold worldwide, Honda, Hyundai, and Toyota have produced car models powered by hydrogen.

Additionally, hydrogen’s high energy density by weight makes it an attractive option for energy storage. Compared to batteries, it stores more energy in a smaller and lighter package. And when it’s converted to electricity, the only by-product is water (making it a clean and environmentally friendly storage solution).

3. Competition and Supply Chain

The hydrogen market showed intense competition as companies vie for dominance in different hydrogen formulations (green hydrogen produced via electrolysis and blue hydrogen generated with carbon capture and storage (CCS)). 

This competition stems from the growing demand for low-emission hydrogen, which is expected to reach 49 million tons per annum (Mtpa) by 2030. However, regulatory uncertainties, financing difficulties, and operational issues led to delays and cancellations of several projects. 

These supply chain disruptions caused fluctuations in hydrogen prices, making it difficult for producers to meet the rising demand consistently. Adding pressure is the geopolitical tension in the Strait of Hormuz (a critical choke point for hydrogen shipments). As a result, the hydrogen market experiences price volatility due to supply chain constraints and the competitive landscape among producers.

Which variables impact the price of hydrogen?

• Government Support
• Clean Energy
• Competition and Supply Chain
• Geopolitical Tensions
• Fuel Prices

Where does hydrogen come from?

Hydrogen is produced through several methods but the two most common are steam-methane reforming (SMR) and electrolysis.

In the SMR process, high-temperature steam (1,300°F to 1,800°F) reacts with methane (the primary component of natural gas) in the presence of a catalyst to produce hydrogen, carbon monoxide, and a small amount of carbon dioxide. This method accounts for the majority of commercially produced hydrogen but also results in significant CO2 emissions.

To manage this, carbon capture and storage (CCS) technologies are employed to create blue hydrogen. On the other hand, electrolysis uses an electric current to split water into hydrogen and oxygen. When powered by renewable energy sources, this process produces green hydrogen (environmentally friendly but more expensive than hydrogen produced from fossil fuels).

What are the uses of hydrogen?

Here are the top 5 uses of hydrogen. These applications highlight the versatility and potential of hydrogen as a key component in the transition to a sustainable and clean energy future.

1. Transportation – Hydrogen is used as a clean fuel for vehicles, particularly in hydrogen fuel cell electric vehicles (FCEVs). These vehicles convert hydrogen into electricity, powering an electric motor with only water vapor as a byproduct. Companies like Toyota and Hyundai are leading the way in hydrogen-powered transportation.

2. Industrial Processes – The production of ammonia for fertilizers, refining petroleum, and producing methanol need hydrogen. It serves as a reducing agent in various chemical reactions and helps in the desulfurization of petroleum products. Air Products and Chemicals and Linde are key players in supplying hydrogen for industrial processes.

3. Electricity Generation – Hydrogen is used to generate electricity through fuel cells or gas turbines. Fuel cells convert hydrogen into electricity and heat, providing a reliable and clean energy source for power generation. This application is particularly useful for grid balancing and peak shaving, complementing intermittent renewable energy sources like wind and solar.

4. Heating – It is burned directly or used in fuel cells to produce heat for space and water heating. Companies like Centrica are exploring hydrogen heating solutions to provide a sustainable alternative to traditional fossil fuels.

5. Energy Storage – Hydrogen serves as an energy storage medium, allowing excess renewable energy to be stored and used when needed. This is important for balancing supply and demand in renewable energy systems. HyDeploy projects in the UK are demonstrating the feasibility of blending hydrogen into the natural gas grid for energy storage and distribution.

What is the future price of hydrogen?

The availability of renewable sources such as wind, solar, and geothermal energy powers the production of hydrogen. The reliability of these energy sources ensures a steady supply of electricity, making hydrogen production more consistent and sustainable. 

For example, companies like Siemens Energy and Nel ASA are heavily investing in electrolyzer technology to harness renewable energy for green hydrogen production. Also, the European Union’s Hydrogen Strategy for a Climate-Neutral Europe aims to support the development of renewable hydrogen production infrastructure.

Green hydrogen (produced using renewable energy) and blue hydrogen (produced from natural gas with carbon capture and storage (CCS)) offer significant market opportunities. 

Green hydrogen is particularly attractive due to its potential to decarbonize steelmaking and aviation sectors. Blue hydrogen provides a transitional solution while renewable infrastructure is being scaled up. Companies like Air Liquide and Shell are investing in green and blue hydrogen projects to capitalize on these opportunities. 

However, the production of hydrogen faces challenges such as high capital costs and safety concerns. The initial investment required for electrolyzers and renewable energy infrastructure is substantial and ensuring the safe handling and storage of hydrogen is critical due to its flammability and potential for leaks.

Overall, the market is expected to reach $175 billion in 2035, with a price tag of $665 per ton.