Will Hydrogen Take up Natural Gas’ Role in the Energy Mix?

Natural gas is at the heart of a heated debate within the European Union (EU) over whether it should be included in the EU’s taxonomy classifying green investments[1]. Some member states consider its development necessary in order to limit the social and economic costs of their energy transition. This position is in line with that of the hydrocarbon industry, which plays a large economic role in states such as Poland or the Czech Republic via coal production and heavy industry. One common narrative mentions that transitioning from a coal-intensive energy mix to a carbon neutral one relying heavily on renewables without an intermediary transition via natural gas would be too costly financially and socially. Other member states, notably Western European and Nordic countries, reject this conception of natural gas as a “transition fuel” over fears that it will lead to greenhouse gas emissions incompatible with the EU’s pledge to be carbon neutral by 2050[2].

Hydrogen, on the other hand, has benefited from a significant political momentum over the past years, leading to major commitments from the EU and its member states to develop clean hydrogen production and consumption[3][4][5]. These strategies share a common goal: on the one hand, electrifying and decarbonizing hydrogen production, and on the other hand using hydrogen as a way to decarbonize hard-to-abate sectors of the European economy, such as transportation, heat-intensive industrial processes and feedstock as well as dispatchable electricity production. While this last end-use comes with a lower priority given the large losses induced by the re-electrification of hydrogen, could the take-off of green hydrogen spell the end of natural gas’ role in the energy sector’s transition towards a Paris Agreement-compatible mix? What would the costs, consequences, challenges and limits to this shift be? After assessing the incompatibility of natural gas with a swift and efficient energy transition, this paper argues that although it represents a meaningful asset in replacing fossil fuels in a number of cases, hydrogen cannot be considered a silver bullet enabling the achievement of the objectives of the Paris Agreement.

One of the main advantages of natural gas is its low environmental impact compared to coal, which some member states heavily rely on in their energy mix. Having an existing power plant shift its power source from coal to gas in order to produce electricity is technically feasible and, until recently, was largely driven by an economic rationale (more efficient new natural gas turbine technology, and until recently low natural gas prices)[6]. According to the International Energy Agency (IEA), coal to gas switching has saved large amounts of GHG emissions over past years and helped increase air quality. Although a lot of coal-to-gas switching potential remains in some specific member states, natural gas still remains extremely carbon-intensive compared to renewable energy sources (RES)[7], especially if you also factor in methane emissions.

Natural gas has multiple other characteristics making it a facilitator of the energy transition. Its flexibility gives it the ability to balance the intermittency of some RES technologies, enhancing security of supply, while representing an affordable investment giving price visibility and stability to consumers. However, these advantages do not balance the risk of lock-in associated with the technology. Investments cycles in natural gas-based energy production are lengthy and thus represent significant greenhouse gas emissions over multiple decades that could end-up harming transition efforts on the medium and long-term despite the short-term advantages[8]. Beyond this environmental risk, financial risks are a raising concern for current and future gas-powered power plants. Over the past few years, an increasing number of projects have been abandoned or halted over the risk of becoming stranded assets if they had been pursued[9].

Against this background, hydrogen has a significant potential to replace natural gas in multiple end-uses in the energy mix. Since the discovery of industrial processes enabling its production on an industrial scale, hydrogen production has been and still is largely based on fossil fuels (coal and natural gas)[10]. However, an alternative, technologically mature solution – water electrolysis – enables hydrogen production based on water and electricity, which if produced from renewable sources creates “green hydrogen”. Other low-carbon solutions exist, including electrolysis from nuclear plants, resulting in “yellow” or “turquoise hydrogen” and conventional production from natural gas associated with carbon capture and storage, resulting in “blue hydrogen”[11].

Green hydrogen has the technical ability to replace natural gas’ role in the energy system with significant environmental gains. It can provide dispatchable electricity to compensate the variability of RES, be burnt to generate heat for households or industries with marginal adaptations to their installations and absorb excess renewable electricity production through power-to-gas. Hydrogen can also benefit from existing infrastructure dedicated to the transport and dispatch of natural gas by being injected in existing pipelines, limiting the risk of stranded assets in this case[12]. Moreover, hard-to-abate sectors, where electrification to benefit from renewable electrons is too technically complex or not cost-effective, could be effectively decarbonized by replacing their current hydrocarbon based primary energy source with limited adaptations to their processes. These notably include long-distance transport, heavy industry and the petrochemical sector[13].

Despite numerous significant advantages, giving a major role to hydrogen in the energy mix remains linked to significant challenges, starting with the cost of decarbonized hydrogen. Cost competitiveness compared to conventional hydrogen production and natural gas is a major challenge for green hydrogen to become a mainstream solution the way solar or wind have in the electricity sector[14]. Carbon pricing and learning curve of renewables could help the sector reach cost competitiveness, but time and resources would still be necessary to deploy new storage and transport infrastructure or adapt existing ones dedicated to fossil fuels[15].

The production of green hydrogen has also been the subject of questioning over its lack of efficiency in the use of renewable energy. Electrolysis and RES are mature technologies but using green or yellow hydrogen produced through electrolysis as a form of storage of renewable electricity is a largely inefficient process (the roundtrip efficiency of the process is estimated to be 40%)[16]. Blue hydrogen has also been under scrutiny by environmental protection associations on the basis that it relies on fossil natural gas, whose extraction is associated with major methane leaks[17]. These leaks are heavy contributors to global warming and are often unaccounted for in the greenhouse gas emissions of blue hydrogen. Moreover, this process relies on carbon capture and storage, a heavily criticized technology far from industrial maturity[18]. A recent scientific paper analysing the life-cycle emissions of blue hydrogen goes as far as saying that this technology would lead to more greenhouse gas emissions than the conventional burning of natural gas or hydrogen conventionally produced from natural gas[19].

Despite the EU deploying a major hydrogen strategy to decarbonize its energy system, with hundreds of billions of euros associated, widespread scepticism remains concerning the ability of this strategy to provide the expected results in terms of clean hydrogen production volumes. The development of the hydrogen supply chain (supply, demand and transport) remains unclear and the hypothesis that the hydrogen market will structure itself efficiently is unconvincing[20]. Furthermore, the EU has yet to define whether its green hydrogen production objectives will be fulfilled by relying on renewable energy production units included in the EU’s RES production target or whether additional capacity will be required.

Overall, hydrogen could be an efficient and significant contributor to the decarbonisation of the European energy mix in the relatively short run, alongside other solutions such as direct electrification, demand-side-management and other sources of renewable fuels. However, the environmental externalities associated with carbon capture and storage and natural gas when assessing the potential of blue hydrogen (notably by including methane emissions from the extraction of fossil gas) is just one of the many barriers and challenges that will need to be tackled before hydrogen can effectively contribute to the EU’s decarbonization strategy. While the pricing of these negative externalities – through the EU’s emission trading system for instance – could make electrification and green hydrogen the most relevant solutions for most if not all energy uses, the challenges associated with the hydrogen supply chain also need to be considered.

Moreover, giving hydrogen a major role in the energy transition could be associated with major cost rises for some energy users, implying that strategies favouring hydrogen production need a holistic approach taking into account the socio-economic consequences of this choice for end-users. Finally, a significant study of the market integration of hydrogen needs to be made in order to ensure the smooth commercialization and use of this promising energy source for the energy transition.

[1] https://ec.europa.eu/commission/presscorner/detail/en/qanda_21_1805

[2] https://www.reuters.com/business/sustainable-business/eu-reassessing-role-natural-gas-green-finance-rules-commission-says-2021-05-17/

[3] https://ec.europa.eu/energy/topics/energy-system-integration/hydrogen_fr

[4] https://www.economie.gouv.fr/presentation-strategie-nationale-developpement-hydrogene-decarbone-france

[5] https://www.bmwi.de/Redaktion/EN/Publikationen/Energie/the-national-hydrogen-strategy.html

[6] https://www.eia.gov/todayinenergy/detail.php?id=44636

[7] https://iea.blob.core.windows.net/assets/cc35f20f-7a94-44dc-a750-41c117517e93/TheRoleofGas.pdf

[8] https://www.sciencedirect.com/science/article/pii/S1364032120308364

[9] https://globalenergymonitor.org/wp-content/uploads/2021/03/GEM-Europe-Gas-Tracker-Report-2021.pdf

[10] https://www.sciencedirect.com/science/article/pii/S1464285920305460

[11] Ibid

[12] https://www.sciencedirect.com/science/article/abs/pii/S0360319920307023

[13] https://www.nature.com/articles/s41558-020-0891-0

[14] https://www.oxfordenergy.org/wpcms/wp-content/uploads/2020/07/EU-Hydrogen-Strategy.pdf

[15] See note 14.

[16] University of Paris Saclay, Momentom programme

[17] https://onlinelibrary.wiley.com/doi/full/10.1002/ese3.35

[18] https://uploads-ssl.webflow.com/605b60ab53fde0b68d56a333/60e60e026a8a76223b228dd6_Report%20Layout%20Eng.pdf

[19] https://onlinelibrary.wiley.com/doi/full/10.1002/ese3.956

[20] https://www.oxfordenergy.org/wpcms/wp-content/uploads/2020/09/Insight-73-EU-Hydrogen-Vision-regulatory-opportunities-and-challenges.pdf

*Aimé Boscq is an EPG Fellow. The views expressed in this paper are those of the author and do not necessarily reflect the opinions of EPG.

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