One thing to start: Oil major Chevron has been accused of “greenwashing” in a complaint to the Federal Trade Commission, the U.S. consumer protection agency, marking a novel approach by activists in their battle with Big Oil.

Hydrogen is vogue again. In the media, at conferences, in company presentations, there is no escaping the buzz around it.

Industry players are increasingly convinced that the so-called “fuel of the future” can provide the missing piece of the puzzle in the energy transition: a route to cutting emissions in sectors where carbon-free electricity can’t.

Today’s first item takes a step back and looks at where things stand in the development of hydrogen as a key part of the energy complex.

Our second item takes a look at the International Energy Agency’s oil market outlook for the next half-decade. It is not buying into the supercycle hype.

The ‘rock star of new energies’

Bill Gates said it’s “a huge deal”. Frans Timmermans, the EU’s green boss, said “it rocks”. Shell chief Ben van Beurden said “we cannot aim to be a net-zero economy [without it].”

In the energy world, it has become increasingly difficult to avoid the subject of hydrogen. 

“It is really hard to pick up industry trade press these days without seeing at least one, if not two, three or four stories on hydrogen,” said Sandra Safro, a lawyer and partner at K&L Gates, at a panel I moderated last week at MIT’s annual energy conference.

But for all the buzz around this “rock star of new energies” (another Timmermans moniker), understanding of where it fits into the future of energy remains slim.

At the MIT event, panelists delved into where things stand now with hydrogen and the road yet to be traveled. Here is some of what was discussed:

Why now?

Hydrogen is not new. It has played a role in the U.S. for almost a century and is widely used today in oil refining and agricultural fertiliser.

Efforts to give it a meaningful role in energy have not been lacking: General Motors built its first hydrogen-powered vehicle in the 1960s and there was a drive under the Bush administration to incentivise its use as a fuel.

But for all the hype, it has yet to take off. Today, though, the drive to tackle climate change has focused minds:

  • Most countries have signed up to the goals of the Paris Agreement and governments are scrambling to find feasible strategies to cut emissions nationally.
  • Energy companies, under pressure from environmentally-conscious investors are being forced to develop their own strategies to achieve net-zero emissions at the corporate level.
  • And the plummeting costs of wind and solar power mean the wide scale production of “green hydrogen” from renewables is no longer a pipe dream.

Most hydrogen produced today is either dubbed grey (from natural gas) or brown (from coal). In order for it to play a role in decarbonizing the energy sector, the key is to develop production at scale of blue (from natural gas with carbon capture technology) and green (from the electrolysis of water by renewables) hydrogen.

“There’s a lot of opportunity right now to use hydrogen, as part of an overall carbon emission reduction strategy,” said Safro. “And countries around the world . . . are devoting significant dollars towards making those efforts into a reality.”

Where would it be used?

The lion’s share of decarbonization can be achieved by electrification—fueling everything from cars to heating systems with electric power (provided it comes from clean sources). Seventy per cent of the energy spectrum could likely be decarbonized this way, according to analysts.

But for some so-called “hard to decarbonize” sectors, that will not possible. Enter hydrogen.

“If we have obvious ways of decarbonizing certain parts of say our light duty vehicle transportation sectors. . .battery electric vehicles make a tonne of sense in that space,” said Mark Ruth, who heads up the Industrial Systems and Fuels Group in the Strategic Energy Analysis Center at the National Renewable Energy Laboratory.

“The value of hydrogen on the demand side is where it’s really hard to decarbonize in other ways.”

That means the likes of steel, concrete and heavy-duty transportation such as long-distance trucks could be decarbonized through a shift to clean hydrogen. It could also be used in energy storage, providing dispatchable power to compliment intermittent renewables.

When would this happen?

Barclays estimates the hydrogen market could grow by a factor of eight by 2050 to a $1 trillion industry, saving up to 15% of energy-related emissions.

Key to this is bringing down the costs of clean hydrogen.

They have a long way to fall. Producing green hydrogen via electrolysis currently costs between $900-$1,100 per kilowatt of power, said Ruth. For the process to be competitive, that needs to fall to $200-250/kW.

Most of that cost can be slashed quickly, falling to about $400/kW as supply chains are developed. “If the market starts to develop . . . you’ll be able to get components cheaper, you no longer have PhDs turning wrenches to be able to build these things,” said Ruth.

To go the final few yards, the market will need to turn to technological advances. But industry players are optimistic this can be achieved.

Belén Linares, innovation manager at renewables group Acciona, which is pivoting into hydrogen, reckons green hydrogen should be profitable within the next decade.

“Green hydrogen for us is going to be a business,” she said. “I believe that the tendency of the cost decrease of the electrolyzers is similar as what we saw in solar PV panels.”

Acciona is targeting profitability from its green hydrogen production by 2030. “It’s huge work that we will have in the next nine years in order to reach that,” said Linares.

Forecasting the global oil market’s next 5 years

The pandemic, coupled with the low-carbon energy transition, has prompted serious debate about the trajectory of the global oil industry.

The International Energy Agency jumped into the fray on March 17 with its first five-year outlook since the outbreak, a 163-page deep dive into the market. Some key takeaways:

  • The IEA is not buying the supercycle hype. Wall Street has grown increasingly convinced that oil is heading into another supercycle as supply lags demand growth, which has helped fuel oil’s rally towards $70 a barrel this year. But the IEA argues “there is more than enough oil in tanks and under the ground to keep global oil markets adequately supplied”.
  • Oil demand has not peaked, but growth is set to slow. The group sees a sharp rebound in demand this year after last year’s collapse, but growth quickly fizzles from 2022. Forecasted global consumption of 104.1 million barrels a day (MMbbl/d) by 2026 is up more than 4 MMbbl/d from 2019. Yet the 2025 demand outlook is 2.5 MMbbl/d lower than the group’s last forecast, reflecting a rise in electric vehicles and more efficient petrol engines. Although oil consumption growth has been dented, it remains far too robust for the world to hit long-term net-zero emissions targets, the group said. Serious policy and consumer behaviour changes are needed to bend the trajectory lower.
  • America’s frackers have been (mostly) tamed. The IEA largely agrees with a growing consensus that U.S. supply growth will be markedly lower in the coming years—it only expects the U.S. to add 1.6 MMbbl/d of supply through 2026, less than it added in 2018 alone. The industry will see a dearth of cheap capital and is taking a “more conservative approach to investment”, argued the IEA.
  • OPEC+ might finally be winning the market share fight with U.S. producers. With U.S. growth slowing, the IEA sees the market share fight starting to tip into OPEC+’s favor for the first time in years. It could “encourage Saudi Arabia and other key Middle East producers to boost investments and accelerate expansion plans,” the group said.

Power Points

  • The oil price rally is testing discipline in the U.S. shale patch.
  • Shell and Eni have been cleared of corruption in a long-running case over a 2011 Nigerian oil deal.
  • The U.S. has warned China it will enforce Trump-era sanctions against Iranian oil as shipments soar.
  • Power producer NRG had its profits wiped out by the Texas freeze.
  • A host of vehicle charging companies are entering U.S. stock markets through mergers with special purpose acquisition companies.

Endnote

The IEA, the US Energy Information Administration, and Opec have all released their monthly oil-market reports. Here is our round-up of what matters and what changed:

FT

Energy Source is a twice-weekly energy newsletter from the Financial Times. It is written and edited by Derek Brower, Myles McCormick, Justin Jacobs and Emily Goldberg.