Green hydrogen is already cheaper than LNG gas in 8 European countries

Green hydrogen, so called because it does not generate polluting emissions, has reached a milestone never seen before: green hydrogen, obtained from renewable energies, is cheaper than liquefied natural gas (LNG).

The prices of hydrocarbons in general, and of natural gas in particular, have reached stratospheric heights in recent months. In Spain, as in the rest of the European Union, we are suffering from it on different fronts: in the price of electricity, raw materials such as steel or aluminium, the price of fertilizers… In short, in all sectors where gas is needed to heat furnaces or produce energy (electricity) from gas in combined cycle plants.

The energy crisis that the European Union is experiencing, aggravated by the conflict between Ukraine and Russia, is making it clearer than ever that it is necessary to seek greater independence from third countries in terms of energy. In recent months, we have not only seen gas and fuel prices skyrocket; also fly over the threat of a power outage by Russia, a situation that is particularly feared by Germany, which buys around 55% of the gas it uses from Russia, and other countries such as Austria, the Czech Republic, Slovakia or Romania.

The high prices of hydrocarbons, and of liquefied natural gas (LNG) in particular, have made green hydrogen cheaper than natural gas in Germany, Spain, France, Italy, Poland, Sweden, Turkey and the United Kingdom. With a average price of $18.8 per million BTU1Spain is the cheapest European country to produce green hydrogen and the second cheapest in the world, only behind the United States.

Let us remember that, depending on the way it is obtained and its emissions, three types of hydrogen are distinguished. Gray hydrogen is produced from natural gas, by steam reforming, and generates large amounts of carbon dioxide (CO2). Blue hydrogen is also obtained from fossil fuels but without the release of carbon dioxide (they are captured and stored and/or reused). Green hydrogen, for its part, is obtained through electrolysis and renewable energy sources such as solar or wind energy, and does not generate polluting emissions.

Green hydrogen can be a clean and non-polluting substitute of some gas-powered industrial processes, as well as serving as a power source for fuel cell vehicles. In this sense, the European energy crisis has led politicians and companies to move forward more quickly in the search for alternatives to hydrocarbons. Last week the European Union approved its first “project of common European interest” in the sector: the hy2tech planwhich covers 41 projects from 35 companies and will have a investment of 5,400 million euros. According to the International Energy Agency, there are already 990 hydrogen projects in various stages of development.

Another advantage of green hydrogen is that its future prices appear relatively stable compared to the volatility of hydrocarbon prices. In the medium and long term, gas prices can be expected to decline and stabilize. But in the short term, far from improving, the situation is getting worse by the minute. This week Russia has halved the supply of gas through the Nord Stream 1 pipeline, from 40% to 20% of its capacity. This has caused a new rise in gas prices, surpassing the historical record of last March, closing the session at 205 euros per MWh this past Wednesday.

For its part, the costs of hydrogen depend fundamentally on two factors: the price of electrolyzers and the cost of electricity from renewable sources. In both cases, costs can be expected to continue to decline as the technology matures and scales. Unlike hydrocarbons, a green hydrogen plant can be built anywhere with sun (Spain stands out here), abundant wind or water, which allows it to be produced locally and not have to be imported from other regions. It also allows greenhouse gas emissions to be reduced, in line with the policies of climate neutrality of the European Union for the year 2050.

It is to be hoped that the current situation will not last forever. New LNG facilities currently under construction will come on stream from 2024, which should give the current market a break and reverse the price gap.

According to a report prepared this year by Rethink Energy, the cost of green hydrogen will drop from the current $3.70/kg to just over $1/kg in 2035 and to $0.75/kg in 2050. According to Wood Mackenzie, in some countries the outlook is more favourable, and they predict that some can produce green hydrogen for $1/kg by 2030.

1BTU is the acronym for British Thermal Unit, or British thermal unit. It is a unit of energy used, among others, in the energy industries.

The BTU indicates the amount of energy needed, under normal atmospheric conditions, to increase the temperature of one pound of water by one degree Fahrenheit. 1 BTU equals 1055.06 joules and 252.16 calories.

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