Is Hydrogen the Next Hot Trading Commodity?
Hydrogen shows great promise as a future fuel source in a decarbonized economy. It has long been recognized that hydrogen could provide the world with a virtually endless supply of clean energy. It burns clean with no carbon emissions, so all it leaves behind is water vapor. In this energy transition, many in the energy industry are speculating that hydrogen is the next big commodity for producers and trading companies.
The concept of an entire energy revolution has gained a lot of traction in the aftermath of the pandemic’s drastic effect on the energy sector. In fact, the World Economic Forum has even called for a “great reset,” leading many experts to begin thinking out of the box, with hydrogen under consideration. Hydrogen power is nothing new because it’s already used in industrial processes, like the production of ammonia, as a raw material for chemicals and in refineries.
However, the type of hydrogen used in these processes does not burn as clean as you might think because fossil fuels, mostly coal and natural gas, are used to create it. This type of hydrogen is referred to as “grey hydrogen” and it cannot help the reduction of greenhouse gas emissions.
On the other hand, green hydrogen is currently being produced with renewable energy. However, it is still far more expensive to produce than grey hydrogen. But over the years there have been quite a few renewable energy projects out there determined to make green hydrogen more competitive. Earlier this year the clean energy sector got an enormous boost with Royal Dutch Shell’s investment in a wind farm.
For any commodity to be traded, there needs to have a market for buying and selling with established market prices. With more market participants, the market liquidity will improve and financial institutions will provide credits. Will hydrogen become the next hot commodity for trading companies? Right now, it sure looks like it is getting some of the major companies’ attentions. When that happens, EnHelix already incorporated both green and gray hydrogen into its trading platform.
Green hydrogen is now the subject of a burning debate on the future of energy. Just last week Greentech Media reported, “Within a week’s time major utility companies NextEra, Iberdrola, and Uniper all made inroads into the hydrogen market, which reminds us that energy production is not exclusive to the oil and gas sector.”
“What is still an open question is whether utilities would be able or have the need to compete with the oil behemoths in the still emerging hydrogen market.” While major oil companies like BP, Equinor and shell have been dominant players in the hydrogen sector with their gigawatt scale, the utility companies are right on their heels, especially in Canada, Europe, and the U.S.
Greentech media reports, “NextEra just announced in the U.S. a 20-megawatt electrolyzer, which produces green hydrogen for individual use at a gas-fired plant located in Florida. The $65 million pilot project will be fueled by Florida’s abundant solar resources. It will use hydrogen in the raw material for the 1.75-gigawatt gas plant located in Okeechobee. Expectations are for it to be operational in 2023, if it obtains regulatory approval.”
German utility Uniper has now entered into partnership with Siemens and GE, striving for the utility’s complete decarbonization. “These two industrial behemoths will help Uniper convert its gas-powered fleet to hydrogen. At the same time, Siemens will also be working to build an electrolysis infrastructure for the company.”
Despite tremendous progress with these huge projects getting off the ground one after another, green hydrogen is still too expensive compared to fossil fuels. The truth is that Spain’s Iberdrola green hydrogen project does not expect to be profitable at all. This 20-megawatt electrolyzer project costing €150 million ($176 million) is for an ammonia plant in Spain. It should be finished next year but will make no money at all.
Greentech Media says this innovative project will test technology, lower future costs, and increase Iberdrola’s experience and knowledge. A spokesperson for Iberdrola said, “Unfortunately, the economics of green hydrogen cannot compete with alternatives derived from fossil fuels. For green hydrogen to be a viable option, the price of electricity would need to be almost nothing, with the cost of electrolyzer utilization quite high.”
The upshot is that oil and gas companies will continue to control the green hydrogen sector while such deep pockets are required to survive. However, as technology advances and gets more efficient, and more countries across the world (except for the U.S.) come onboard with green stimulus packages with big incentives for renewable energy included in their post-pandemic economic recovery plans, utility companies may prevail after all.
Trading hydrogen is about speculating on short-term price movements based on supply, demand and trading strategies. Rather than trying to assess the “intrinsic” value of hydrogen. By using a combination of different trading instruments and long or short positions, commodity traders can turn a profit when price of hydrogen raise or falls.