Will shift to hydrogen economy break old geopolitical constraints?

The rapid growth of a global hydrogen economy could significantly shift geoeconomics and geopolitics as new interdependencies arise, according to a new analysis by the International Renewable Energy Agency (IRENA).

Geopolitics of the Energy Transformation: The Hydrogen factor posits that hydrogen will change the geography of energy trade and the way energy relations are regionalised. The IRENA analysis paper hints at the emergence of new centres of geopolitical influence predicated on the production and use of hydrogen, as traditional oil and gas trade declines.

IRENA estimates that hydrogen could be used to generate up to 12% of the world’s energy use by 2050 as countries ramp up their research efforts because of climate urgency and their individual commitments to achieving a net zero future. Growing trade and targeted investment in a market dominated by fossil fuels and currently valued at $174 billion will probably boost economic competitiveness and influence foreign policy. This is especially as new bilateral deals diverge significantly from the hydrocarbon relationships formed in the 20th century.

Francesco La Camera, IRENA Director-General thinks hydrogen could prove to be a missing link to creating a climate-safe energy future. “Hydrogen is clearly riding on the renewable energy revolution with green hydrogen emerging as a game changer for achieving climate neutrality without compromising industrial growth and social development. But, hydrogen is not a new oil. And, the transition is not a fuel replacement but a shift to a new system with political, technical, environmental and economic disruptions.

“It is green hydrogen that will bring new and diverse participants to the market, diversify routes and supplies and shift power from the few to the many. With international co-operation, the hydrogen market could be more democratic and inclusive, offering opportunities for developed and developing countries alike,” said La Camera.

Will establishing a hydrogen economy follow old energy trading patterns?

IRENA estimates that more than 30% of hydrogen could be traded across borders by 2050 which represents a higher share of the energy trade than natural gas today. Countries which have not traditionally traded energy are establishing bilateral energy relations around creating their own hydrogen economy. IRENA’s analysis suggests that more players and new classes of net importers and exporters means the hydrogen trade will not become weaponised and dominated by cartels, which would be in stark contrast to the current geopolitical influence of oil and gas.

The Agency posits that cross-border hydrogen trade will grow as more than 30 countries and regions are already planning for active commerce. Some countries like Germany, Japan and the Netherlands are setting themselves up as net importers and have started a diplomatic charm offensive to attract potential producers.

Newcomers to energy production and trade on a large scale are countries like Namibia which is determined to become one of the Africa’s first exporters of green hydrogen. It has already signed an MoU with the Port of Rotterdam and agreed to partner with Germany to develop its hydrogen production sites.

India’s Ministry of New and Renewable Energy has signed a strategic partnership with IRENA, signalling its intent to strengthen its collaboration with the Agency in the field of renewable energy. India installed 13GW of RE in 2021 is the fastest growing renewable energy adopter in the world right now. The country wants to become a major producer of green hydrogen to supports the decarbonisation of its industrial economy.

As such, India will be working closely with IRENA to assess the potential role green hydrogen can play to enable the country’s energy transition and as source of a national energy export.

Then there are the current fossil fuel exporters who are considering hydrogen as a way to diversify their economies. The government of Oman has just signed an agreement with BP to assess the country’s solar and wind potential and potentially develop a multi-GW renewable energy and hydrogen project by 2030.

Saudi Arabia is exploring how to use its hydrocarbon resources to begin producing hydrogen as well as starting solar and wind energy production for hydrogen exploitation.

New energy trade could mean new industrialisation hubs

However, broader economic transition strategies have to be explored in the case of the Middle East countries as switching to hydrogen production only will not compensate for the inevitable losses in oil and gas revenue as the world turns away from fossil fuels.

The technical potential for hydrogen production exceeds the estimated global demand. Counties which can generate cheap electricity from renewable energy like wind and solar are the ones best placed to produce competitively priced green hydrogen.

Though countries like Chile, Morocco and Namibia are energy importers right now, they are poised to become green hydrogen exporters.

There are many countries across Africa, South America, the Middle East and Oceana who exhibit the same potential, but they need technology transfer, infrastructure and investment at scale to limit the risk of export concentration.

The geopolitics of green hydrogen is going to play out in different stages and IRENA’s analysis sees the 2020s as one big race for technology leadership. They expect demand to really take off in the mid-2030s. By then green hydrogen should be cost competitive with fossil fuel hydrogen, something that will happen in Brazil, China and India even faster.

Green hydrogen was technically already affordable in Europe last year when natural gas prices spiked even though a global hydrogen economy does not really exist yet. Refurbishing natural gas pipelines to accommodate H2 is likely to boost demand and facilitate the trade in the molecule.

It is hoped that countries that demonstrate the potential to create renewable energy could become the site of green industrialisation as they attract energy-intensive industries. Being part of that hydrogen value chain would hopefully boost economic competitiveness as well.

Manufacturing equipment like electrolysers and fuel cells could potentially drive business. While China, Japan and Europe have a headstart in the production stakes, innovation in the field could shape the current manufacturing landscape in unforeseen ways.

Creating new policies to change energy trade

The theory is that green hydrogen could strengthen energy independence, security and resilience by cutting import dependency and price volatility and boosting the flexibility of the energy system. But, hydrogen production needs some very particular raw materials and shortages and price fluctuations would negatively affect cost and revenues.

Creating the rules, standards and governments of a global hydrogen market could either lead to geopolitical competition or open up a new era of enhanced international cooperation. Assisting developing countries to deploy green hydrogen technologies and advance hydrogen industries could prevent the widening of a global decarbonisation divide, promote equity and inclusion, create local value chains, green industries and jobs in renewable-rich countries. Or, if handled poorly it could reinforce geopolitical and geoeconomics patterns created in the 20th century. Time will tell which way it goes.

Source: https://www.esi-africa.com/

Tags: Decarbonisation, Hydrogen fuel, IREA, Natural Gas, NetZero