Hydrogen is back. Earlier attempts to popularize the use of the world’s smallest molecule in the 1970s and early 2000s faded, but the dire need to curb carbon emissions has revitalized its case. Germany just issued its hydrogen strategy and, together with five other European countries, called for European Union legislation and increased funding for developing hydrogen technology and infrastructure. Japan is seeking to import hydrogen from Australia (among others) and wants to make a hydrogen statement during the Summer Olympics in Tokyo. Elsewhere, oil-producing countries in the Persian Gulf see hydrogen as an opportunity to remain energy exporters once fossil fuel usage starts to decline. Hydrogen also re-enters global energy forecasts just as China seems to dominate everything electric, from solar photovoltaics to batteries to critical materials. As such, it provides an opportunity for other countries that may be looking to position themselves for a new energy future.
Although much depends on the extent of its use and trade, hydrogen has the potential to reshuffle global energy relations, and its geopolitical implications must therefore be identified and understood to assist policymakers in their long-term strategic choices.
Hydrogen Production, Use, and Trade
Key determinants for hydrogen’s use and trade are its diverse nature as an energy carrier, the limits of electrification,and further strategic considerations.
Hydrogen is a very diverse, flexible, and potentially green energy carrier. Currently, it is mostly used as industrial feedstock in the petrochemical industry. However, future plans see it as a means of storage through power-to-gas technologies; as fuel for heavy-duty vehicles, ships, and aircrafts; and as a source of heat for households and heavy industry. It can be produced via steam methane reforming of natural gas (gray), possibly with the use of Carbon capture, use and storage technologies (blue), and via electrolysis using renewable electricity (green), among others.
Hydrogen is currently produced onsite near petrochemical clusters and can be transported as a gas or liquid. Gasified hydrogen is largely compatible with existing natural gas infrastructure, but will require dedicated infrastructure in the future. Pipelines are the most cost-effective mode of transportation for large hydrogen quantities. Liquefaction is energy-intensive and costly but enables transportation by ship and truck to regions that are difficult to access through pipelines. In the future, onsite production may also occur near cheap renewable electricity generation sites. Ultimately, the more synergies that can be exploited from hydrogen’s various means of production, transportation, and utilization, the more hydrogen will grow into a global commodity.
Electrification will also affect the growth of hydrogen. The rapid growth of solar and wind capacity indicates an increasingly electric future. Electricity also has a head start in personal transportation vehicles and is getting increasingly efficient in powering heavier vehicles and alternative forms of heat (e.g., heat pumps). In addition, electricity usage is already firmly entrenched in the built environment. Why transform renewable electricity into hydrogen if electricity can be transported and sold directly?
Nevertheless, limitations to electrification exist. The decarbonization of heavy industry and heating seems unlikely without hydrogen. It remains the primary candidate for long-distance and heavy transportation because it is more efficient and therefore less costly. In addition, increasing levels of renewable electricity generation encourage the use of hydrogen as a means of storage. Moreover, the scarcity of materials like copper and lithium, and geographic conditions limit electricity grid reinforcements, batteries, and other storage options.
Hydrogen’s geopolitical implications also depend on how much it is traded. Because of the diversity of hydrogen sources, its production could take place in many countries, diminishing the need for trade across borders in large quantities. Yet, trade is still likely to develop because of cost-advantages, limitations to domestic production capacity, and a desire to diversify distribution vectors for strategic considerations. Especially considering hydrogen’s transportability, it presents an opportunity for overseas trade, allowing countries to circumvent electricity’s problem with long-distance losses and a reliance on a single, interconnected network with neighbors.
If hydrogen’s use and trade grow, there are a number of resulting geopolitical implications. These include changes in supply chains and trade flows, increasing infrastructure complexities, modifications to the geopolitics of energy, and the cross-sectoral implications on other industries.
Supply Chains and Trade Flows
The large-scale development of hydrogen changes existing energy supply chains and the volume, location, and nature of related trade flows. For example, trade in energy sources, generation materials and technologies, distribution means, and user appliances change as a result of more hydrogen usage. In the short to medium term, leading natural gas producers could become dominant exporters of hydrogen production and distribution assets, since they possess the necessary know-how and experience in gas technologies and infrastructure construction and management. In the longer term, countries rich in renewable energy sources, fresh water, or fossil fuels and that have strong infrastructure potential-- such as harbors, pipeline and fleet capacity, generation facilities, and storage means-- are likely to become hydrogen net-exporters. In addition, whether hydrogen is traded as a gas or a liquid also makes a big difference. For instance, natural gas remained limited to a regional market before liquified natural gas made it a global commodity.
Similar questions also ariseabout the demand side: Where will major hydrogen demand centers be located in the future? What large industrial clusters will use hydrogen as a feedstock? While so many uncertainties are unsatisfying, they clearly signal the need to rethink strategic partnerships for the coming decades. Policymakers and industry leaders should prepare plansfor several scenarios, be ready to seize new trade options, and develop exit strategies for increasingly less relevant trade relations.
Increasing infrastructure complexities leave countries with a strong reliance on natural gas at a critical juncture. They must decide whether to use their existing natural gas infrastructure for natural gas or hydrogen. Timing this transition is complicated. While usage of natural gas must mostly cease by 2050 to curb carbon dioxide emissions, it is expected to gain prominence in the short term as a cleaner alternative to oil and coal. Even by 2050, full termination of natural gas production remains unlikely, as it may still be needed for dedicated industrial processes or blue hydrogen production. Pipelines are preferably employed for one gas at a time, so the transition to hydrogen may proceed in conjunction with a natural gas phase-out.
Coordination between countries with intricately connected gas networks is also necessary to avoid a hold-up problem. Different energy forecasts in the Netherlands and Germany serve as an example. While both countries have recently committed to ambitious plans for a hydrogen economy, their short-term outlooks for natural gas consumption are diametrically opposed. The Netherlands aims to reduce its natural gas usage to compensate for dwindling domestic production, whereas Germany turns to natural gas as an alternative to oil and nuclear. As a result, shared strategic national goals aimed at reducing carbon emissions may backfire due to different transition tactics.
The large-scale use and trade of hydrogen modify some of the geopolitical implications of renewable energy, as stated by the International Renewable Energy Agency, Harvard, Nature, and several academic publications. These works paint a future of prosumer countries situated in continental sized grid communities, considering the abundant and widespread nature of renewable energy sources and the electric nature of their distribution, with associated long-distance losses. Energy geopolitics in this renewable world is dominated by regional trade in energy carriers rather than global trade in energy sources and by relatively symmetrical energy relationships. In this setting, strategic emphasis shifts from access to overseas energy sources, diversification strategies, and strategic reserves to a focus on make-or-buy decisions between secure domestic energy or cheaper imports, timely availability of cheap energy or storage, and access to key interconnectors and critical materials for clean technologies. The transition to this future will create rivalries in the clean tech industry and strand fossil fuel assets, potentially amplifying risks in unstable regions and rentier states.
Hydrogen adds nuance to this picture because it provides electricity storage through power-to-gas, ensuring availability and lessening the burden on electricity grids. A fully-fledged hydrogen infrastructure also prevents an over-reliance on electricity grids and ensures a more robust and resilient energy system. Hydrogen negates the regionalization that electrification would bring and could make energy relations even more symmetrical than an all-electric scenario. If hydrogen becomes a global commodity, longer distance trade would provide countries with a back-up connection outside of their grid community to guard against an unreliable provision of services from neighboring countries. Of course, all of this potential comes at the cost of constructing hydrogen infrastructure in addition to the existing electricity grid.
Hydrogen’s geopolitical impact also goes beyond the energy sector, affecting various other industries. For instance, the heavy industry relies on cheap energy for heat, now provided by oil and gas. These industries may choose to move to regions that produce renewable hydrogen the cheapest. This could greatly affect countries such as Germany and in turn, Europe as a whole, as it would lead to a loss of jobs and tax revenue. Moreover, a transition from hydrogen production via steam methane reforming of natural gas to electrolysis opens up opportunities for petrostates. Their resources and existing infrastructure position them well to kickstart this transition while the centralized nature of hydrogen production fits their rentier state model.
These expectations for a future hydrogen-based energy system, and its potential geopolitical implications, force policymakers to face a few key strategic choices. Countries need to assess how much hydrogen they intend to use and produce. National hydrogen strategies should define when and how hydrogen development occurs, and plan for connecting with their neighbors’ initiatives as well as global (hydrogen) energy markets. Critical questions surrounding which sources and distribution means should prevail, what balance between electricity and hydrogen can and should be struck, how both infrastructures would interact, and what the ideal balance between domestic production and imports would look like, should all be explored.
Countries also need to estimate how much hydrogen they intend to trade. Hydrogen is a strategic alternative to electricity and fossil fuels and offers industrial opportunities. Politically, hydrogen usage allows countries to rethink energy partnerships because it will alter future trade flows. Fostering a global hydrogen trade may become a strategic imperative if neighboring countries are unreliable in their energy production and/or delivery, potentially causing new trade dependencies. Economically, hydrogen and related technical and material exports, and heavy industry siting present new opportunities, but will also produce new winners and losers. The big question policymakers are looking at is what their country’s chances are in this hydrogen competition.