Why Hydrogen and its Derivatives Will Be the Most Valuable Energy Commodities?
The current value of $2.1 T of the global oil market is far bigger than that from the sum of first 10 metals as commodities. This shows how oil is critical not only as part of energy commodities but also as a financial asset. Although this critical and strategic position of oil as energy commodities and financial asset; the world has no choice to decarbonize the global economy because of the externalities of climate change from greenhouse gas emissions, which are an existential threat to the mankind species survival.
Beyond the externalities of greenhouse gas emissions from oil and other fossil fuels; there is a major constraint from the limit of their available reserves at the global scale in the perspective of the long time. Although different estimates vary in measuring the size of such reserves over time and the timelines of their depletion; there is a common ground in recognizing that fossil fuel reserves are not eternal.
Technologies of electrification on batteries are being developed massively as an increasing alternative of the decarbonization of the global economy. However many challenges and issues will over time show the limits of this alternative.
Chat GPT describes such challenges and issues as followed: the electrification powered by batteries faces several challenges and issues that can limit its widespread adoption. Here are some key ones:
1. Limited Energy Density: Batteries have lower energy density compared to fossil fuels, which means they store less energy per unit of weight or volume. This limitation can impact the range and endurance of electric vehicles and other battery-powered devices.
2. Charging Infrastructure: The availability and accessibility of charging stations is crucial for the adoption of battery-powered vehicles. Building a comprehensive charging infrastructure that is convenient, fast, and widespread remains a significant challenge in many regions.
3. Charging Time: Charging batteries takes longer compared to refueling conventional vehicles. Fast charging technologies are being developed, but they still require more time than filling a tank with gasoline or diesel. This can inconvenience users and limit the practicality of battery-powered vehicles in certain applications.
4. Battery Cost and Lifespan: Batteries can be expensive, which contributes to the higher upfront cost of electric vehicles and other battery-powered devices. Additionally, battery lifespan and performance degradation over time are important considerations. Improving battery durability and reducing costs are ongoing research and development goals.
5. Rare Materials and Resource Constraints: Some battery technologies require rare and valuable materials like cobalt, lithium, and nickel. Meeting the growing demand for batteries could lead to resource constraints, environmental impacts, and geopolitical challenges associated with their extraction and supply chain management.
6. Recycling and Waste Management: Battery recycling and responsible disposal are crucial to minimize environmental impact and recover valuable resources. Developing efficient and cost-effective recycling processes for various battery chemistries is a significant challenge.
Hydrogen fuels and their derivatives remain the most promising alternative of the decarbonization of the global economy. The hydrogen energy and its derivatives are as versatile as the fossil ones. They can be used for a long range of technologies from combustion engines, electric ones, propulsion and jet ones, nuclear ones, etc. Hydrogen and its derivatives can be also used as an industrial input in many processes where fossil hydrocarbons are involved such as petrochemicals industries, the fabrication of steel, cement, etc. Hydrogen as industrial input will lead to the development of the hydrochemicals industries equaling the petrochemicals ones.
According to the International Energy Agency, «Hydrogen demand reached 94 million tonnes (Mt) in 2021, recovering to above pre-pandemic levels (91 Mt in 2019), and containing energy equal to about 2.5% of global final energy consumption.»
Based on these data; ceteris paribus, should the entire global energy consumption was based on hydrogen fuels and their derivatives; it would have required an average of 3 760 Mt of hydrogen per year of production to supply and meet such demand.
According to ChatGPT, The cost of producing 1 million tons of hydrogen can vary depending on several factors, including the production method, energy source, scale of production, and regional factors. Based on information available up until September 2021, here is a general overview of hydrogen production costs:
1. Steam Methane Reforming (SMR): SMR is currently the most common method for hydrogen production, primarily from natural gas. The estimated cost for producing hydrogen through SMR ranges from $1.5 to $3.5 per kilogram ($1,500 to $3,500 per ton) depending on factors like natural gas prices and plant efficiency.
2. Electrolysis: Electrolysis is an emerging method for hydrogen production, particularly through renewable sources. The cost of electrolytic hydrogen is higher than that of SMR due to the costs associated with electricity generation. Estimates suggest a range of $3 to $7 per kilogram ($3,000 to $7,000 per ton) for renewable electrolytic hydrogen.
These cost estimates are subject to change as technology advances, economies of scale are realized, and renewable energy costs continue to decline. Additionally, the cost of hydrogen can vary regionally based on factors such as energy prices, infrastructure availability, and policy support.
Ceteris paribus, if we consider the average cost of production of hydrogen at 3750$ per ton; by assuming that it would have required an average of 3760 Mt per year to power the entire global economy with hydrogen energy and its derivatives; such scenario of hydrogen and its derivatives as energy commodities would have represented a market valued at $14 T per year today, which is 7 times bigger than the current value of the global oil market. Our assumptions are far conservative given the fact that it is very probable that the required global supply of hydrogen and its derivatives would be far 2 to 3 times bigger. We used the average cost of production, which may not reflect the final pricing of energy consumption made from hydrogen fuels and their derivatives. This can also underestimate the value of the market of hydrogen and its derivatives in this scenario.
Some may pretend that the costs of hydrogen and their derivatives are too high for making them the alternative to fossil fuels. Such argument would be a shortcut that doesn’t include the fact that fossil energy externalities in pollution are far more expensive. Another fact is that hydrogen energy is like a iPhone product of the energy market. You get the highest quality of green and clean energy without greenhouse gas emissions when it is produced with electrolysis.
For sure, to make hydrogen and its derivatives the most viable and efficient alternative to fossil energy as commodities; there should be massive investments in innovations of technologies for the production, storage, distribution and consumption of hydrogen and its derivatives as energy fuels and industrial inputs. It is critical that disruptive innovations make the Energy Return on Investment (EROI) of hydrogen fuels and their derivatives as efficient as that of fossil fuels.
ChatGPT provides an overview of the comparison of the EROI of both hydrogen and fossil energies as followed: the Energy Return on Investment (EROI) is a measure of the energy efficiency of a fuel source, indicating how much usable energy is obtained per unit of energy invested in its extraction, processing, and distribution. Here’s a general comparison of the EROI of fossil fuels and hydrogen fuels:
Fossil Fuels:
- Crude oil: The EROI of conventional crude oil can vary widely depending on the source, extraction methods, and refining processes. On average, estimates range from 10:1 to 30:1, meaning that for every unit of energy invested, 10 to 30 units of usable energy are obtained.
- - Natural gas: Natural gas typically has a higher EROI than crude oil, with estimates ranging from 20:1 to 40:1. This is due to the relative ease of extraction and its cleaner burning properties.
- - Coal: Coal typically has a higher EROI compared to oil and gas due to its relatively abundant and accessible reserves. Estimates for the EROI of coal typically range from 30:1 to 80:1, indicating that for every unit of energy invested in its extraction, processing, and distribution, 30 to 80 units of usable energy are obtained. However, coal extraction can be more environmentally damaging.
Hydrogen Fuels and Derivatives:
- Hydrogen produced from fossil fuels: When hydrogen is produced from natural gas or coal through steam methane reforming or coal gasification, the EROI is from 0.7:1 to 2:1. This is because of the energy losses in the conversion process.
- - Green hydrogen (renewably produced): The EROI of green hydrogen, produced through electrolysis powered by renewable sources like solar or wind energy, ranges from 2:1 to 4:1. The exact ratio depends on various factors such as the efficiency of the electrolysis process and renewable energy source.
It’s important to note that these EROI values can vary depending on several factors, including technology advancements, regional differences, and specific production methods.
By any standard, the value of the market of hydrogen and its derivatives as commodities of energy and industrial inputs will far be bigger than that of the oil given the fact that it will require huge quantities of these commodities as global supply to meet the demand making it one of the most valuable assets in the world.
