Hydrogen market evolution to mirror LNG market growth: InterContinental Energy

The hydrogen market is expected to evolve on the lines of the LNG market, with project finance for large projects, long-term agreements for offtakers and a gradual move into a merchant market once the industry matures, Alicia Eastman, co-founder and president of InterContinental Energy, said June 7 at the Ecosperity Week 2022 conference in Singapore.

"I think it will develop in much the same way as LNG. You will start with these large offtake agreements. That's certainly the way that we are approaching that," Eastman said.

She said InterContinental Energy's projects, spread across Western Australia, Oman and Saudi Arabia, will have a few large customers and as the company gets closer to finalizing the projects there will be long term contracts and announcements of offtake agreements, and other industry players will do so as well.

Eventually the industry will get to a merchant spot market when it's more mature but in order to build large hydrogen projects, such as the 25 GW plus capacity projects planned by InterContinental, a standard project finance model is more appropriate, Eastman said.

When asked about the prospects of green and blue hydrogen, she said both are viable.

"I think we're definitely going to see both. I think eventually green will be cheaper than blue, but that's eventually, it's not today," she said.

Blue hydrogen refers to hydrogen production from natural gas with carbon capture, while green hydrogen is made from electrolysis using renewable electricity sources.

Eastman said one of the benefits of green hydrogen in the long term is that the projects can predict what the price will be for the whole 20-year or 25-year offtake agreements.

"People can actually know what the price of their fuel will cost for the next 20 years as opposed to being tied to Henry Hub, or any other formula that includes fossil fuels as your base. So I think that is an advantage," she said.

But in the short term and medium term, there are lots of natural resources like natural gas and carbon capture which makes a great stopgap to green hydrogen as they are easier to get off the ground and will play a big role in the intermediate architecture, Eastman said.

Henry Hub gas prices reflect the price of gas traded in the US, and are used to price LNG exports from the US, but the LNG industry has also increasingly factored in market-based pricing for LNG to reflect demand-supply fundamentals in end-user markets like Asia.

Eastman also pointed out that the Ukraine crisis is an accelerator for the adoption of hydrogen as it gives countries the option to choose from different energy options versus their current situation of relying on a single uncertain supplier.

"I think the war has also shown that pricing is highly unreliable and even when the price falls, it can do a lot of damage," she added.

Hydrogen demand

"There's a lot of demand in the market, much more than supply," Eastman said.

She said Japan and South Korea are driving the hydrogen market in Asia in terms of demand for co-firing in gas-fired power plants, and for shipping as a marine fuel to switch over from dirty bunker fuel.

"We see Singapore playing a really active role in being an ammonia bunkering hub," Eastman said. "We've already seen JERA put out an RFP (request for proposal) for green ammonia and Japan has a green ammonia purchasing office," she said, adding that the use of ammonia is the preferred transportation vector for InterContinental Energy's projects.

Eastman said that while Australia will be one of the only hydrogen exporters in the Asia Pacific, irrespective of the medium of transport, different countries have a role to play in the supply chain such as electrolyzer manufacturing and diversifying solar panel production.

In many places even making hydrogen locally with limited renewables will be both cheaper and cleaner than burning diesel, making it viable in several island regions like Indonesia.

"One of the biggest and earliest markets that we see is for shipping," Eastman said. She said there's a commitment for all shipping companies to use 5% of their fuel as hydrogen or hydrogen derivatives by 2030 and most of these companies want to use much more than 5%.

"A lot of them are in Asia," she said.