The global energy trade is a colossus, on a par with China’s entire energy market in terms of size and carbon emissions. Trading is geographically concentrated, with Northeast Asia and Europe accounting for nearly half of global imports and the Middle East, Russia, Australia and the United States responsible for more than half of all oil, gas and coal exports.
This is all poised to change, however. As the major energy-importing nations lead the charge to net-zero carbon emissions, the course is being set for the most dramatic disruption to the global energy trade since the 1970s and the rise of the Organization of the Petroleum Exporting Countries (OPEC).
Electrification is at the heart of the changing energy mix, with innovation driving down the cost of renewable power, denting longer-term demand for hydrocarbons. Electrification, though, can only take the world so far. Many industrial sectors, as well as heavy-duty trucking, shipping, aviation and chemicals, will need alternatives. Low-carbon hydrogen has great potential to capture a sizeable market share, with the world’s major energy importers already rolling out their
hydrogen roadmaps.
In turning the energy-trade world order on its head, net zero simultaneously offers energy exporters – current and future – a once-in-a-lifetime opportunity to secure future revenues by developing low-carbon hydrogen supply. This will include blue hydrogen from those with access to low-cost natural gas resources and carbon capture potential – Russia, Canada, the United States and Saudi Arabia – and green hydrogen from those with vast renewable resources – Australia and the Middle East.
The stakes couldn’t be higher. Wood Mackenzie’s base-case Energy Transition Outlook (ETO) forecasts average growth in the seaborne trade of oil, gas and coal to slow from 4% per annum over the past two decades to only 1% a year from 2020 to 2050, while our accelerated energy transition (AET) scenarios see a collapse in trade, especially for oil and coal. Conversely, the currently minimal seaborne trade in low-carbon hydrogen is set to grow in all scenarios. It could account for around a third of the seaborne energy trade in a net-zero 2050 world, so the race for suppliers is on.
HORIZONS
The blue-green planet:
How hydrogen can transform the global energy trade
OCTOBER 2021
Jonny Sultoon, Vice President, Energy Transition
Contents
Executive summary
Hydrogen: from niche to net-zero hero
Blue or green? A tale of two options
Fortune will favour the bold
1.
2.
3.
4.
Hydrogen: from niche to net-zero hero
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Executive summary
Despite hydrogen’s high carbon emissions when produced from natural gas and coal currently, there are multiple routes to low-carbon hydrogen. The addition of carbon capture and sequestration (CCS) to natural gas reformation produces blue hydrogen, while the use of electrolysis combined with renewables yields green hydrogen.
Yet, for many of the world’s biggest energy markets, including China, Japan and Europe, shortfalls in competitive renewable capacity potential and a lack of access to low-cost natural gas plus CCS mean that imports will be needed to meet electrification and hydrogen demand. We estimate Northeast Asian (including China) and European imports of low-carbon hydrogen at about 80 Mt (55% of all seaborne trade) and 23 Mt (16% of all seaborne trade) annually by 2050, respectively. India and Southeast Asia would also need sizeable import volumes by 2050.
Several countries are hoping to benefit from developing export-oriented hydrogen megaprojects, with blue and green projects being developed in Russia, Canada, Australia and the Middle East. In the burgeoning green hydrogen space, nearly 60% of proposed export projects are located in the Middle East and Australia, principally targeting markets in Europe and Northeast Asia. Indeed, over the last 12 months, there has been a 50-fold increase in announced green hydrogen projects alone.
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Jonny Sultoon
Vice President, Energy Transition
Jonathan has over 18 years experience leading analysis for global energy markets: including power, coal, gas, LNG.
He leads a team of analysts designing research for the Energy Transition. These extend across all segments, all markets, and all fuels and technologies. Prior to that, Jonathan led our global coal markets practice.
His areas of expertise were in supply, demand and price forecasting for the international coal markets, competition between multi-fuels in the power generation sector across Europe and Asia, and corporate analyses of the major producers and utilities. Jonathan fulfilled a similar role in European Gas and Power between 2006-08 driving short and long-term European gas market fundamentals and provided expert support on bespoke consulting projects in the European Gas and Power arena.
Before joining Wood Mackenzie in 2006, Jonathan spent five years at Gas Strategies Consulting. He managed their European Gas supply and demand service and also project managed a number of consulting assignments, including; market entry and pricing strategy into Europe for an integrated major, project due diligence for a consortium operating an LNG liquefaction project in West Africa, and a pipeline monetization strategy routing into the Indian Subcontinent. He also provided expert support for QG2 and RG2 LNG liquefaction projects. Jonathan holds a BA (Hons) and MA (Hons) in Physics from the University of Oxford, UK.
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Get in touch with Gavin
Gavin Thompson
Vice Chair APAC Energy
Gavin joined Wood Mackenzie in 1997. His expertise spans across the Asia Pacific commodity sectors, and in particular, helping companies identify and build their international growth strategies.
He has led a range of consultancy and research projects with domestic and international energy companies across the region, providing LNG project evaluation and provincial gas price forecasting.
In 2017, Gavin took the role of Head of Asia Pacific research, and led a team of around 100 analysts.
Most recently in 2019, Gavin was appointed Vice Chairman, Energy for the company's Asia Pacific business. He is based in Singapore and frequently travels the region to meet with clients.
Join the debate.
Get in touch with Noel
Noel Tomnay
Global Head, Hydrogen Consulting
With 30 years of energy industry experience, Noel leads the gas and LNG consultancy practice for EMEARC. He is a gas specialist, with experience through the value chain, leading projects from strategy development to asset transactions. Clients include major gas resource holders, utilities, governments, international oil/gas companies and infrastructure funds. Noel established our Asia Pacific consultancy practice in Singapore and his experience addresses both Atlantic and Pacific basins.
In addition to his consulting expertise, Noel has developed several of our gas and LNG research products and multi-client studies. He also headed our global gas and LNG research for several years. Noel is on the Governing Body of the global Gastech conference.
Noel began his career as a facilities engineer with BP International; he has both lived and worked in the UK, Singapore, Indonesia and east Africa.
Join the debate.
Get in touch with Prakash
Prakash Sharma
Research Director, Markets & Transitions
Prakash has over 26 years’ experience in energy, metals & mining and climate change policy developments. His expertise ranges from operational management to commodity trading and business strategy.
Prakash joined Wood Mackenzie in 2006 and is currently based in Singapore. He leads integrated analysis, energy transition and cross-commodity discussions in
Asia Pacific.
Previously, Prakash spent two years in Beijing as head of China research guiding a team of analysts on China’s energy and economic trends, including supply-side reforms, inter-fuel competition and commodity prices. He has also led global coal markets analysis for five years delivering research on decarbonisation policies, impact of renewables, alternative scenarios and evolving patterns of supply and demand.
Prakash’s extensive experience in the commodity sector includes export of steel-making raw materials (metallurgical coal, iron ore and scrap) and energy coal to China for an established Canadian trading firm. He has also spent nine years in the mining industry specialising in technical services, international sourcing and ISO 9001 certification.
Missed our previous editions of Horizons? Download them here.
Edition 7 | July
Edition 6 | June
… but a challenging route from A to B
Current levels of enthusiasm will only take hydrogen so far. The supply chain and infrastructure needed to support its growth must first overcome tremendous challenges to establish a truly global trade. These include hydrogen’s volume at normal temperature and pressure.
Options are being considered to compress hydrogen and route it through existing gas transmission pipelines, from North Africa and Russia to Europe and from Central Asia to China. Beyond pipes, challenges with shipping hydrogen will also need to be overcome to realise hydrogen’s full potential. This could include liquefying hydrogen to reduce volume and transporting it in purpose-built ships with reconversion on delivery or using liquid organic hydrogen carriers (LOHC) with tanks of chemicals, such as toluene, to absorb the hydrogen then release it on delivery. While each concept is proven, neither has been undertaken on a large scale.
An alternative is transporting hydrogen in a carrier such as ammonia, capitalising on existing supply chains, with the ammonia used either as a fuel and feedstock, or cracked to release the hydrogen on delivery. But as with all options, scaling up the ammonia trade presents challenges. Significant technical and safety hurdles must be surmounted, and with nearly all ammonia currently used in the manufacture of fertiliser, its adoption as a hydrogen carrier risks putting upward pressure on fertiliser and global food prices.
Edition 8 | August
Hydrogen is not traded internationally at the moment. Despite the hype, it remains a niche market. The 100 million tonnes of hydrogen produced globally each yearare used mostly in carbon-intensive industrial processes, such as fertiliser manufacturing, refining and chemicals.
But hydrogen has far wider appeal as a fuel to help achieve a zero-carbon future. Unlike fossil fuels, it does not emit carbon when combusted and offers a cleaner substitute to the power-generation and heating sectors. It is a particularly attractive option for hard-to-decarbonise sectors where low-carbon alternatives are scarce. Hydrogen’s high energy density is suitable for industries such as steel and cement, which need high-temperature heat. In the transport sector, it looks set for adoption in heavy-duty trucking, shipping and aviation, possibly through conversion into a synthetic fuel. It also has immense potential as a long-duration energy storage medium.
Wood Mackenzie forecasts global demand for hydrogen to increase two- to sixfold between now and 2050 under our ETO and AET scenarios. Under our AET-1.5 scenario (1.5 °C warming), low-carbon hydrogen demand reaches as much as 530 million tonnes by 2050, with almost 150 million tonnes of that traded on the seaborne market.
Figure 2: Green hydrogen projects announced to date, GW of electrolyser by location, developer (%)
Middle East
34%
Australia
23%
All others
13%
Italy
7%
Netherlands
7%
South America
5%
Norway
4%
U.K.
4%
Germany
3%
International oil companies
34%
Industries
33%
National oil companies
28%
Utilities
5%
Figure 1: Seaborne energy trade by commodity under Wood Mackenzie scenarios
Source: Wood Mackenzie
Source: Wood Mackenzie
A promising path from blue to green …
While no two hydrogen export projects look the same, the most obvious difference in proposed projects is between blue and green hydrogen. Portraying this as an either-or choice is an over-simplification, however. And while current costs of green hydrogen production are typically more than three times higher those that of blue hydrogen, green hydrogen costs are expected to fall as electrolyser manufacturing technology improves and renewable electricity costs decline.
In Australia, for example, the levelised cost of electricity (LCOE) for solar photovoltaic (PV) power has fallen 80% over the last decade. With further declines, Australia’s green hydrogen costs could be competitive with blue hydrogen within this decade. And while this will put Australia on a par with other sun-rich countries, a proven track record in bringing complex energy projects to market and its stable regulatory regime is already attracting investment from the IOCs and major industrials.
A drop in costs of this order of magnitude will support a longer-term pivot from blue to green hydrogen. But the reality is that the world needs both to achieve the required pace of global decarbonisation. Blue hydrogen production has a scalability advantage over green hydrogen at present and can already be developed in the requisite volumes, though lead times are longer.
Most proposed projects are currently a combination of the two. A blue hydrogen exporter in Australia or the Middle East, for instance, could establish a market position while expanding into green hydrogen as costs decline over time and capacity becomes available. Producers could thus build-out their low-carbon hydrogen supply chains as green hydrogen becomes more competitive over time.
Blue or green? A tale of two options
Figure 3: Global hydrogen production and trade, Mt
Source: Wood Mackenzie
2000
2025
2030
2035
2040
2045
2050
Mt
0
800
700
600
500
400
300
200
100
Green
hydrogen
production
Seaborne trade
(Low-carbon hydrogen)
Blue
hydrogen
production
A current challenge is defining what exactly constitutes ‘clean’ hydrogen and what level of lifecycle emissions are acceptable. The development of global trade will benefit from clear rules.
Blue hydrogen production includes emissions in the upstream and those associated with the steam methane reforming of natural gas to hydrogen. Producing both green and blue hydrogen can result in midstream emissions from the shipping of hydrogen to customers, the process/losses of compression/shipping/decompression, or use of LOHC. The adoption of blue and green ammonia presents additional scope for emissions – in its manufacture and cracking – though actual emissions differ markedly. Where CCS is used to address emissions, the capture efficiency of suppliers will also vary.
And while all suppliers will no doubt claim a clean hydrogen product, it is inevitable that the emissions standards and measurement associated with some suppliers will be better than others, affording better access to markets. Quality always rises to the top.
Standards are needed
Suppliers with access to major, low-cost gas resources and CCS have a natural advantage for blue hydrogen exports. Regions such as the Middle East, Russia and the United States, with competitive onshore drilling costs, appear best placed to develop an interregional export position. Countries able to exploit existing ammonia infrastructure will also be on the front foot.
Similarly, suppliers with access to low-cost renewables will tip the scales when it comes to green hydrogen production. Based on Wood Mackenzie’s analysis of future costs, Australia and the Middle East sit in the top echelon for solar irradiance and offer massive green hydrogen potential. And with conversion and transport costs making up as much as two-thirds of the delivered cost of the interregional hydrogen seaborne trade, proximity to market will also be important. For supply to Northeast Asia, for instance, suppliers in Australia would appear to be ahead of the pack.
The battle for green supremacy
2021
2030
2040
2050
South America
2021
2030
2040
2050
Middle East
2021
2030
2040
2050
Australia
US$/kg
$0
$8
$7
$6
$5
$4
$3
$2
$1
Production cost
Ammonia conversion
Shipping cost
Figure 4: Green hydrogen delivered cost to Northeast Asia, US$/kg (real terms)
Source: Wood Mackenzie
Wood Mackenzie’s proprietary model examines costs for green, blue, grey and brown hydrogen from 2020 to 2050 for Australia, China, Germany, Japan, Saudi Arabia, the United States and several other countries. For simplicity, we present the green hydrogen delivered cost to Japan from potential suppliers, assuming a range of electricity prices, utilisation hours and system sizes. The chart shows ammonia as the ‘carrier method’ for shipping green hydrogen for use in power generation. If other carrier methods – liquid hydrogen or a liquid organic hydrogen carrier – are used for shipping and if the end-use requires reconversion, mid-stream costs may change significantly.
Building hydrogen supply chains would also allow Australia and countries in the Middle East to transition from the export of raw materials to the supply of value-added products, becoming manufacturing and industrial hubs for green steel, green cement or green chemicals/ammonia. Manufacturing has a multiplier effect on economic growth and value creation.
Many countries are positioning for hydrogen exports, including promoting their hydrogen export strategies. But countries with experience in developing complex, large-scale energy export projects and supplying customers for 20-plus years will stand out from the crowd when trying to convince buyers of their credibility – at least in the early stages of market development. This could place proposals from hopefuls such as Morocco and Chile at a relative disadvantage to those from the likes of Australia, Saudi Arabia and Russia.
Credibility may be key
Exporter
North America
Exporter
Russia
Exporter
Australia
Exporter
MIDDLE EAST
Exporter
Brazil
Exporter
Chile
Importer
EUROPE
Hover for data
Importer
Northeast Asia
Hover for data
Hydrogen trade with Europe
Hydrogen trade with Northeast Asia
Bubble size indicates market potential
16%
of global trade
55%
of global trade
Hover here to see the other emerging importers
Figure 5: The future of hydrogen trade in 2050
Conclusion:
Fortune will favour the bold
Hydrogen’s future role in the energy transition is not yet a given. The strategic, commercial and technical complexities associated with hydrogen as an energy platform must be overcome across the value chain to realise the full benefits of the hydrogen trade.
A one-size-fits-all approach will not work. In a nascent market, hydrogen participants will need to adopt robust but flexible strategies and business models that support a potentially transformative development in the global energy transition. Today, a number of countries have the opportunity to harness their resources and, through hydrogen, become dominant exporters and players in low-carbon energy trading.
Nonetheless, while the scale of these countries’ ambition and success will affect global energy systems in an unprecedented way, the irony remains that the dynamics of the future global trade in hydrogen are likely to look similar to those of traditional fossil fuels. Northeast Asia, including China, and Europe will be the big importers of hydrogen; Australia, the Middle East and, possibly, Russia and the US have the greatest potential to be big exporters.
As their revenues from fossil-fuel exports dwindle, it is particularly important for these would-be hydrogen suppliers to capture new markets. All boast track records on the delivery of complex, capital-intensive energy projects, all are looking at major hydrogen investments and all have existing customers in these key markets. The decisions these potential suppliers make next will determine their future success.
Edition 9 | September
Seaborne energy trade by commodity under AET scenarios
Green hydrogen projects announced globally, GW of electrolyser by location, developer (%)
Australia
23%
All others
13%
Italy
7%
Netherlands
7%
South America
5%
Norway
4%
U.K.
4%
Germany
3%
Middle East
34%
International oil companies
34%
Industries
33%
National oil companies
28%
Utilities
5%
2000
2025
2030
2035
2040
2045
2050
Mt
0
800
700
600
500
400
300
200
100
Global hydrogen production and trade, Mt
Source: Wood Mackenzie AET-1.5-degree scenario
South America
2021
2030
2040
2050
Middle East
2021
2030
2040
2050
2021
2030
2040
2050
Australia
US$/kg
0
$8
$7
$6
$5
$4
$3
$2
$1
Production cost
Ammonia conversion
Shipping cost
Figure 4: Delivered cost of green hydrogen to Northeast Asia, US$/kg (real terms)
Source: Wood Mackenzie
Note: Wood Mackenzie’s proprietary model examines costs for green, blue, grey and brown hydrogen from 2020 to 2050 for Australia, China, Germany, Japan, Saudi Arabia, the United States and several other countries. For simplicity, we present the green hydrogen delivered cost to Japan from potential suppliers, assuming a range of electricity prices, utilisation hours and system sizes. The chart shows ammonia as the ‘carrier method’ for shipping green hydrogen for use in power generation. If other carrier methods – liquid hydrogen or a liquid organic hydrogen carrier – are used for shipping and if the end-use requires reconversion, mid-stream costs may change significantly.
North
America
Russia
Australia
MIDDLE
EAST
Brazil
Chile
Importer
EUROPE
Importer
Northeast Asia
Tap here for data
Tap here for data
Bubble size indicates market potential
Hydrogen trade with Northeast Asia
Hydrogen trade with Europe
Exporters
Importer
Europe
Importer
Northeast Asia
16%
of global trade
55%
of global trade
Figure 5: The future of hydrogen trade in 2050
Legend
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Missed our previous editions of Horizons? Download them here.
Edition 8 | August
Edition 7 | July
Edition 6 | June
Edition 9 | September
Seaborne trade
(Low-carbon hydrogen)
Green
Hydrogen
production
Blue
Hydrogen
production
Back to top
Back to top
Back to top
Back to top
Back to top
Back to top
Seaborne trade
(Low-carbon hydrogen)
Green
Hydrogen
production
Blue
Hydrogen
production
2000
2025
2030
2035
2040
2045
2050
Mt
0
800
700
600
500
400
300
200
100
Figure 3: Global hydrogen production and trade, Mt
Source: Wood Mackenzie AET-1.5-degree scenario
as a fuel to help achieve a zero-carbon
future
hydrogen
has far
wider
appeal
in announced
green hydrogen
projects
a 50-fold
increase
over the last 12
months, there
has been
Current levels
of enthusiasm
will only take
hydrogen so far
the reality is that the
world needs both to
achieve the
required pace
of global
decarbonisation
Quality always rises to the top
when it comes to green hydrogen
production
suppliers with access
to low-cost
renewables
will tip the
scales
Gavin Thompson, Vice Chair APAC Energy
Noel Tomnay, Global Head, Hydrogen Consulting
Prakash Sharma, Research Director, Markets & Transitions
Jonny Sultoon, Vice President, Energy Transition
Join the debate.
Get in touch with Ed
Jonny Sultoon
Vice President, Energy Transition
Jonathan has over 18 years experience leading analysis for global energy markets: including power, coal, gas, LNG.
He leads a team of analysts designing research for the Energy Transition. These extend across all segments, all markets, and all fuels and technologies. Prior to that, Jonathan led our global coal markets practice.
His areas of expertise were in supply, demand and price forecasting for the international coal markets, competition between multi-fuels in the power generation sector across Europe and Asia, and corporate analyses of the major producers and utilities. Jonathan fulfilled a similar role in European Gas and Power between 2006-08 driving short and long-term European gas market fundamentals and provided expert support on bespoke consulting projects in the European Gas and Power arena.
Before joining Wood Mackenzie in 2006, Jonathan spent five years at Gas Strategies Consulting. He managed their European Gas supply and demand service and also project managed a number of consulting assignments, including; market entry and pricing strategy into Europe for an integrated major, project due diligence for a consortium operating an LNG liquefaction project in West Africa, and a pipeline monetization strategy routing into the Indian Subcontinent. He also provided expert support for QG2 and RG2 LNG liquefaction projects. Jonathan holds a BA (Hons) and MA (Hons) in Physics from the University of Oxford, UK.
Join the debate.
Get in touch with Gavin
Gavin Thompson
Vice Chair APAC Energy
Gavin joined Wood Mackenzie in 1997. His expertise spans across the Asia Pacific commodity sectors, and in particular, helping companies identify and build their international growth strategies.
He has led a range of consultancy and research projects with domestic and international energy companies across the region, providing LNG project evaluation and provincial gas price forecasting.
In 2017, Gavin took the role of Head of Asia Pacific research, and led a team of around 100 analysts.
Most recently in 2019, Gavin was appointed Vice Chairman, Energy for the company's Asia Pacific business. He is based in Singapore and frequently travels the region to meet with clients.
Join the debate.
Get in touch with Noel
Noel Tomnay
Global Head, Hydrogen Consulting
With 30 years of energy industry experience, Noel leads the gas and LNG consultancy practice for EMEARC. He is a gas specialist, with experience through the value chain, leading projects from strategy development to asset transactions. Clients include major gas resource holders, utilities, governments, international oil/gas companies and infrastructure funds. Noel established our Asia Pacific consultancy practice in Singapore and his experience addresses both Atlantic and Pacific basins.
In addition to his consulting expertise, Noel has developed several of our gas and LNG research products and multi-client studies. He also headed our global gas and LNG research for several years. Noel is on the Governing Body of the global Gastech conference.
Noel began his career as a facilities engineer with BP International; he has both lived and worked in the UK, Singapore, Indonesia and east Africa.
Prakash Sharma
Research Director, Markets & Transitions
Prakash has over 26 years’ experience in energy, metals & mining and climate change policy developments. His expertise ranges from operational management to commodity trading and business strategy.
Prakash joined Wood Mackenzie in 2006 and is currently based in Singapore. He leads integrated analysis, energy transition and cross-commodity discussions in
Asia Pacific.
Previously, Prakash spent two years in Beijing as head of China research guiding a team of analysts on China’s energy and economic trends, including supply-side reforms, inter-fuel competition and commodity prices. He has also led global coal markets analysis for five years delivering research on decarbonisation policies, impact of renewables, alternative scenarios and evolving patterns of supply and demand.
Prakash’s extensive experience in the commodity sector includes export of steel-making raw materials (metallurgical coal, iron ore and scrap) and energy coal to China for an established Canadian trading firm. He has also spent nine years in the mining industry specialising in technical services, international sourcing and ISO 9001 certification.
Join the debate.
Get in touch with Prakash
