With hydrogen economy to new global energy dynamics?

The global hydrogen economy is growing rapidly. According to the International Renewable Energy Agency (IRENA), this may bring about significant geoeconomic and geopolitical changes. These could lead to a number of new interactions. The analysis, titled "Geopolitics of the Energy Transformation: The Hydrogen Factor" assumes that hydrogen will change energy trade, for example by regionalizing energy relations. New geopolitical centers of influence will emerge based on the production and use of hydrogen, while conventional oil and gas trade will decline.

Hydrogen economy will continue to grow until 2050

Based on the urgency of climate action and countries' commitments to the net zero target, IRENA estimates that hydrogen will account for up to 12 % of global energy consumption by 2050. Growing trade and targeted investment in a market dominated by fossil fuels, currently valued at $174 billion, is expected to increase economic competitiveness and influence the foreign policy landscape, with bilateral agreements markedly different from 20th century hydrocarbon relations.

Hydrogen is not the new oil

"Hydrogen could prove to be a missing link on the road to a climate-friendly energy future," said Francesco La Camera, IRENA's director general. "Hydrogen is clearly being driven by the renewable energy revolution, and green hydrogen can set the course toward climate neutrality without compromising industrial growth and social development. But hydrogen is not the new oil. And the energy transition is not a replacement for fossil fuels, but a shift to a new system with new political, technical, environmental and economic rules of the game." Green hydrogen will bring new and different players to the market, Francesco La Camera further explains. Transport routes and supply will become increasingly diversified, he adds. International cooperation could contribute to a democratization of the hydrogen economy with equal opportunities for both developed and developing countries.

Cross-border hydrogen trade

IRENA estimates that over 30 % of hydrogen could be traded across borders by 2050 - a higher share than natural gas today. Countries that have not traditionally traded energy are building bilateral energy relationships around hydrogen. As more players and new classes of net importers and exporters emerge on the international stage, hydrogen trade is unlikely to be used as a weapon and lead to cartelization - unlike the geopolitical influence of oil and gas.

Already, more than 30 countries and regions are planning active trade. Some countries that see themselves as future importers are already engaging in targeted hydrogen diplomacy, such as Japan and Germany. Fossil fuel exporters increasingly view clean hydrogen as an attractive way to diversify their economies, such as Australia, Oman, Saudi Arabia and the United Arab Emirates. However, broader economic transition strategies are needed, as hydrogen cannot compensate for losses in oil and gas revenues, IRENA notes.

Hydrogen economy brings out new players

The technical potential for hydrogen production far exceeds the estimated global demand. The countries most capable of producing cheap electricity from renewables will also be the most capable of producing competitive green hydrogen. Countries like Chile, Morocco, and Namibia, which are net energy importers today, are on the path to becoming green hydrogen exporters. Realizing the potential of regions such as Africa, North and South America, the Middle East, and Oceania could limit the risk of export concentration, but many countries will need technology transfers, infrastructure, and investment on a significant scale. However, demand for green hydrogen is not expected to pick up until the mid-2030s, according to IRENA estimates. By then, green hydrogen will be able to compete globally with hydrogen from fossil fuels in terms of cost - in countries such as China, Brazil and India, this is likely to be the case even earlier. Green hydrogen was already affordable in Europe during the rise in natural gas prices in 2021. The modernization of natural gas pipelines should further boost demand and facilitate hydrogen trade.

New sites for green industrialization

Countries with large renewable energy potential could become sites of green industrialization by attracting energy-intensive industries. In addition, participation in the hydrogen value chain can increase economic competitiveness. In particular, the production of electrolyzers and fuel cells could prove to be an economic driver. China, Japan and Europe have already established a lead in production, but innovations will continue to shape the current production landscape.

Some problems still need to be solved

While green hydrogen could make energy supplies more independent, secure, and robust by reducing dependence on imports and price volatility, and by increasing the flexibility of the energy system. However, the feedstocks required for hydrogen and renewable technologies could shift the focus to feedstock security. Shortages and price volatility could impact the entire hydrogen supply chain, negatively affecting costs and revenues.

Shaping the rules, standards, and governance of hydrogen could lead to geopolitical competition or usher in a new era of increased international cooperation. Helping developing countries in particular to adopt green hydrogen technologies and promote hydrogen industries could prevent the global decarbonization gap from widening. There is an opportunity to create local value chains, green industries and jobs in countries rich in renewable energy sources.

Source: IRENA