Low-carbon hydrogen must play a vital role in driving global decarbonization, particularly in hard-to-abate sectors such as heavy transport and chemicals. Given the mismatch between where production and demand will be located, global trade of low-carbon hydrogen will be vital to achieving targeted emissions reductions. However, volumes are currently held back by a lack of long-term offtake agreements among buyers and sellers, increasing equipment and energy prices, and the absence of supportive government policies. The looming supply shortage of green hydrogen has major global implications to limit the global temperature rise to 2°C.
Right now, ambitious scenarios show global trade in low-carbon hydrogen starting to scale by 2030, with total export volumes in that year hitting 16 Mtpa according to International Energy Agency (IEA) tracking of announced projects. But the reality is likely to fall far short of such projections. A Boston Consulting Group (BCG) study of the market, along with extensive client work in the sector, reveals that a significant shortage in supply of low-carbon hydrogen for trade will exist through 2030.
Europe, which has limited ability to produce the renewable energy required for large-scale hydrogen production, will be the primary importer of low-carbon hydrogen volumes by 2030. But forecasts show that in 2030 European demand for imports of low-carbon hydrogen and derivatives (such as e-ammonia) are unlikely to exceed 5 Mtpa well short of the 10 Mtpa that is required to keep the region on track to hit 2030 net zero targets. Meanwhile, 2030 supply of imported low-carbon hydrogen in Europe will likely come in well below even that 5 megatons.
Green hydrogen project challenges
What is causing this looming shortage of green hydrogen? Large-scale, low-carbon hydrogen projects are extremely complex—in some cases combining chemical production and renewable power into one project. To get such projects off the ground, a host of factors must align including permitting offtake agreements between producers and buyers, manufacturing of items with long lead times (such as electrolyzers), finance, and export infrastructure.
In the early stage, project developers focus on the overall technical concepts, the business case, and the commercial foundations. The advanced-stage development and execution, which includes detailed engineering, procurement, construction, commissioning, takes another six to eight years. Given this timeline, projects that have not currently moved to the advanced development stage are unlikely to bring low-carbon hydrogen to the market by 2030.
Unfortunately, the ramp-up of supply is being dampened by three factors:
- There are a limited number of offtake agreements being signed. BCG’s analysis indicates that announced deals between buyers and sellers, including memorandums of understanding, letters of intention and joint ventures, cover total volumes of 11 Mtpa globally in 2030. However, when it comes to formal offtake agreements—arrangements under which buyers have committed to set volumes—the market signals are weaker. The information that is available shows less than 2 Mtpa covered under firm, signed offtake agreements.
- Energy costs, which are a primary cost driver for hydrogen production, remain high. Meanwhile, over the last year, prices for critical equipment in the renewable energy market have failed to decline, or even surged, due in large part to inflation and disruption in supply chains. For example, electrolyzer prices were expected to fall due to economies of scales and learning rates. However, costs have held steady at around $2,000/kW and are expected to remain at that level at least through 2025.
- Although supportive policies for the market have been passed in some regions—the Carbon Border Adjustment Mechanism in the EU and the Inflation Reduction Act in the US, for example—the full impact of such policies will not be felt for five to ten years.
Infrastructure developments
The most efficient means of transporting hydrogen up to 5,000 km is through pipelines. However, a limited number of hydrogen pipelines are in operation globally today. Transmission systems operators, a mix of public and private entities, have announced that more than 30,000 km of hydrogen pipeline will be operational in the EU by 2030. However, pipeline construction typically takes about seven years from the start of advanced stage design to operation. Today, just 4,000 km of the planned hydrogen pipelines are in advanced stages.
There is, however, capacity for longer range transportation of low-carbon hydrogen. Typically, transport of hydrogen over distances greater than 5,000 km will be done by marine transport, with the hydrogen molecules being synthesized into a derivative, most commonly ammonia, for more efficient transport. Today 18–20 Mtpa of ammonia is shipped globally every year and capacity is expected to expand 30% between now and 2026. This growth will be sufficient to handle global ammonia shipping volumes. Meanwhile, a number of ammonia-import terminals with additional capacity of 14 Mtpa are expected to come online by 2027. This will enable supply of green hydrogen from across the world and will therefore reduce the looming shortage of supply.
Between now and 2030 the primary use of this ammonia will be as a chemical feedstock or as a fuel in shipping as well as in power generation. A secondary use could be to convert the ammonia back to hydrogen through cracking. However, technology for cracking ammonia is immature and expensive today, making it economically unattractive to deliver hydrogen via this route before 2030. Beyond 2030, as the low-carbon hydrogen market develops, we will need both robust pipeline infrastructure and lower-cost, large-scale cracking capabilities to transport the growing volumes
A call for action
Hydrogen will play a vital role in combating climate change. But we can no longer ignore the fact that global trade in hydrogen will not reach the levels required over the next seven years. The looming shortage of green hydrogen supply in 2030 cannot be completely eliminated, but there are critical actions that can help materially reduce it.
Governments can take steps that strengthen the business case for low-carbon hydrogen, including establishing mandates to create demand certainty and spark investment in infrastructure. Governments can also eliminate obstacles including through streamlining of the permitting process and support the development of robust supply chains via trade policies and agreements. And companies can collaborate to speed up the development of complex and capital-intensive hydrogen projects and to create platforms that match supply and demand.
