Hydrogen industry must reset expectations, standardize technologies: experts

As the initial wave of hydrogen hype slows, the nascent industry must take a step back and readjust its expectations to allow for initial projects to get off the ground, industry experts said at Sept. 18 Gastech conference panels.

A net-zero future without hydrogen is "inconceivable," speakers said at Gastech conference panels in Houston. However, building the entire hydrogen value chain from scratch is going to take more time than the industry originally thought, panelists said.

The industry is "clearly" underestimating in the short term when it comes to the time needed to deliver on hydrogen commodification, Ana Quelhas, managing director for hydrogen at EDP Renewables, said. Building necessary regulatory and policy frameworks is taking much longer than the industry originally expected, which is partially why the hydrogen market is "on pause" in the US, Quelhas said.

"My understanding now is that most of the targets defined for 2030, they will clearly not be met in 2030, but that does not mean that they will not be met at all," she said.

One of the main issues in the market so far is a lot of new players with overly hopeful capital and operational expenditure numbers with little planning or structure, Vinay Khurana, managing director of the Claremont Operating Center at Technip Energies, said. As the industry goes through early engineering and FEED studies, it is finding out which projects are "real," he said.

The process of uncovering the true costs of up-and-coming hydrogen projects is a positive sign of a maturing market, Marguax Moore, head of the energy transition group at Trafigura, said.

"I've grown probably quite frustrated alongside a lot of the people in this room with these, these kind of unrealistic expectations that the market has been facing," Moore said. "We need to be not necessarily resetting these expectations, but we need to be reinforming these expectations. What are we trying to achieve? What is what is achievable over the next couple of years?"

The European hydrogen market is advancing faster than the US due to having more clarity on regulatory framework, Quelhas said. However, the demand side is the weakest link in successful project development, she said. She called offtakers the "most valuable partner," and pointed to heavy industrial refineries and fertilizer producers as the current main drivers of clean hydrogen demand.

"The market will start in a decentralized form, and decentralized doesn't mean small scale," she said. "Decentralized in the way that we're avoiding a complex logistics of transport and distribution that is not in place, and taking advantage of the many existing sites in the world where you can actually do that."

"I'm a bit skeptical of very ambitious projects aiming for large and complex chains of transport and distributing the products without having gone through the learnings and the pains of doing something in first place," Quelhas added.

Meanwhile in the US, the Inflation Reduction Act includes incentives for hydrogen supply, but incentives for demand do not currently exist, currently framing the country as a strict exporter, said Ahmed El Sherbiny, vice-president of energy transition funds at Copenhagen Infrastructure Partners.

A May market analysis by S&P Global Commodity Insights showed that a small minority -- around 7% -- of announced global clean hydrogen projects have taken positive final investment decisions.

A "good project" that could be worthy of investment is going to have a strong development team that has an understanding of the full value chain, including infrastructure and energy sources, Sherbiny said. He pointed to blue ammonia projects in Louisiana that did not have available carbon sequestration sites as a weaker example. He also highlighted certainty in projected cash flows as a green flag for investment.

Investors and offtakers currently do not have a willingness to invest long-term in hydrogen projects and pay the premium attached to the lower-carbon product, Quelhas said.

A factor that will help with project cost transparency and in-turn helping hydrogen projects reach a positive final investment decision is standardization of projects and technologies, Khurana said. Moore echoed this idea, saying she worries about initial hydrogen projects not being replicable.

Projects should be aiming for "low-hanging fruits" to get off the ground, Moore said, using cheap natural gas in the US as an example.

"My biggest fear, what keeps me up at night when I talk about hydrogen, is not building a first-of-a-kind, it's building a one-of-a-kind," Moore said. "That's absolutely what we want to be avoiding."