Help! Part 3 - Making Sense of the Hydrogen Buzz, Production Economics Edition

When it comes to hydrogen, it’s fair to say that hard data on what it costs to produce the fuel is difficult to come by, particularly for “green” hydrogen. If you’ve followed our current work on the fuel, we hope you know at least a few more facts than the average person on the street, though we must admit we’ve really just been scratching the surface so far. Diving deeper into the nitty gritty of hydrogen production costs and economics is not for the faint of heart, but it’s necessary, unless you are of the mind to dismiss the fuel altogether. (We are not.) While it’s very early days for many production pathways to hydrogen, especially green hydrogen, time will tell if the costs to produce it follow a downward trend similar to those for producing hydrocarbons from shale or remain at levels so high the current hydrogen bubble bursts like others before it. We’re optimistic the former may pan out, and in today’s blog we continue our series on hydrogen with a look at the factors impacting production costs.

These are interesting times for financial and energy markets. Crude oil prices are back near $60 per barrel, the coldest weather in years is perking natural gas markets, and you can now buy a Tesla using Bitcoin. While conventional oil and gas fundamentals, particularly in the Permian Basin, are once again a hot topic here in the RBN blogosphere, interest also remains high in green energy markets, especially hydrogen. As you may or may not know, we started blogging about H2 late last fall and will now be devoting this space to the fuel once every two weeks on Thursdays for the foreseeable future. Our first two hydrogen blogs were somewhat introductory in nature, the first focusing on the basics and the second outlining some general production pathways. With the ground level information established, we now come back to the subject of production to dive deeper into the key drivers behind H2 production costs. We’ve also covered this topic in our weekly Hydrogen Billboard, which is published each week on Wednesday mornings. (It’s currently free!)

Looking back to our blog from two weeks ago, you might remember that it focused primarily on two main methods of producing hydrogen. The first was a process called steam methane reforming, or SMR for short. The SMR process is how almost all hydrogen is produced today. It involves reacting natural gas with steam over a catalyst to produce hydrogen. Unfortunately, the carbon in the methane is usually emitted to the atmosphere, which is why the H2 produced with SMR is usually considered “gray” hydrogen. In fact, emission estimates from the International Energy Agency (IEA) show that gray hydrogen emits about 830 million metric tons of carbon dioxide (CO2) per year, or about 2.5% of global carbon emissions. Naturally, expanding gray hydrogen production isn’t going to help meet anyone’s climate goals. That’s why there is a push to make existing gray hydrogen more carbon friendly, by either capturing the CO2, thereby creating “blue” hydrogen, or replacing the SMR altogether with a green hydrogen process. How quickly this shift in the current hydrogen market occurs will, predictably, come down mostly to cost. With that in mind, let’s review and expand on what we covered around production costs in our last blog.