Rolling out cross-border hydrogen trade for the European Union

On 30 June 2022, the IEA hosted 79 government representatives from 22 countries at a virtual workshop on the practical aspects of scaling up hydrogen trade in support of European Commission targets.

The European Commission and the International Energy Agency are joining forces to help EU countries reduce their reliance on Russian fossil fuels. In the framework of this common endeavour, the Commission is offering support to Member States to reduce their dependence on Russian fossil fuels through a Technical Support Instrument.

Published on 18 May 2022, the REPowerEU Communication from the European Commission envisages a rapid scale up of the role of hydrogen to 2030, in particular as a substitute for imported natural gas and oil. The stated plan is to enter the 2030s with 250 bcm less natural gas demand in the EU compared with 2020; a 60% reduction. On 30 May 2022, the European Council agreed to ban seaborne imports of crude and oil products from Russia by early 2023. The hydrogen target to meet these goals goes beyond the 10 million tonnes of hydrogen from renewable electricity that was included in the Fit for 55 package in 2021, doubling it to 20 million tonnes consumed within the EU by 2030. Of this, 10 million tonnes are foreseen to be imported from third countries.

The workshop convened international experts to answer governments’ questions on four critical questions with near-term importance for policy:

•  In what sectors can hydrogen displace large amounts natural gas and other fossil fuels in a hurry?
• How quickly can significant quantities of hydrogen and hydrogen-based fuels be imported, and in what configurations?
• What policies are still needed to enable investments in low-emissions hydrogen supply for export within or to the EU?
• How will the necessary EU infrastructure for trading hydrogen get built and on what terms?

Among the many insights shared during the 4.5 hour event, there was a notable sense of optimism from some companies that have invested in Europe’s biggest electrolyser projects so far. These projects, at 10-20 MW, are in sectors with existing demand for hydrogen, secure demand for their final products this decade and an ability to integrate electrolytic hydrogen by varying hydrogen supplies from fossil fuel sources. Sectors such as fertiliser manufacture, refining, shipping and steel production (including steel finishing) are each targeting expansion to one million tonnes or more of hydrogen demand in Europe by 2030. However, speakers also conveyed a perception that some of these company plans are running ahead of the policy process, which still needs to iron out details. The most important policy work highlighted by participants is likely to be on certification of hydrogen’s environmental credentials and creation of demand for low-emissions hydrogen. Sectors that currently use hydrogen in the EU have only very limited economic incentives to switch to a hydrogen source that they expect to be more expensive in the medium term, and in total this existing demand represents less that one third of the REPowerEU target.

Throughout the event, speakers shared the state of the art and latest thinking on how to unlock investment decisions for large projects of 1 GW or more by mid-decade. A role for policy was identified in coordinating the multiple contracts that will need to be aligned and standardised through the value chain if projects for hydrogen supply, transport, storage and use are to go ahead in parallel. There are some opportunities to re-use existing infrastructure, but new pipelines, storage facilities and port terminals will certainly be needed. Aside from the most straightforward value chains in which a captive electrolyser can be installed at a European industrial site, these considerations apply to nearly all configurations of projects. When thinking about international trade into the EU, even the use of pipelines, which is perhaps the most straightforward route to achieve one hundred thousand tonnes of hydrogen, faces technical and investment hurdles. In addition, there were strong reminders that the challenge is international: Australia, Japan, the Middle East and South America all have projects with international consortia that are looking for the most secure opportunities to conclude trade deals. 

Looking at the projects seeking investment it is clear that no single molecule will attract all the capital. While ammonia is currently the most favoured for seaborne trade, potential exporters see a range of possibilities for moving up the value chain to fertilisers, sponge iron or even electricity. However, efforts are well underway to establish partnerships between regions, with the Port of Rotterdam setting an example and seeking to import over four million tonnes of hydrogen equivalents by 2030. Regardless of the main hydrogen production and reception locations for the EU, the workshop revealed a number of areas in which low-emissions hydrogen value chains could offer investment opportunities in all members states, including electrolyser manufacturing and high temperature industrial heat. It concluded with a perception that the sector is moving now from studies to investments, but policy action is needed quickly to enable the scale of projects that can significantly reduce natural gas and oil demand this decade.