Hydrogen. It’s the clean energy of the future. As the most abundant element in our universe, there are lots of ways to produce it here on Earth; electrolysis, steam methane reforming (SMR) of natural gas, coal gasification, to name a few. The tricky part though, is isolating it without creating a carbon footprint that harms our planet. Scientists have worked on this problem for decades. The most promising solution seemed to be electrolysis, which separates water into hydrogen and oxygen but up until now, the economics of that process were uncompetitive compared to SMR. That all changed on 7 July, when a large American industrial gas producer, Air Products*, announced it will build the world’s largest “green” hydrogen plant in Saudi Arabia – almost 100 times larger than any similar project that’s ever been built. Wind and solar renewable energy will power an enormous ThyssenKrupp electrolyser, with the hydrogen produced then shipped around the globe and used to power clean transport solutions. The net impact will be the removal of three million tons of carbon dioxide from our atmosphere every year; that’s equivalent to taking 700,000 cars off the roads. Effectively, it marks the birth of global infrastructure for green hydrogen (ie, hydrogen produced without ANY carbon footprint).
This is a game-changer. It wasn’t easy though – the project took four years to get to this stage. Plus there were technical challenges along the way; how do you achieve global economies of scale when shipping hydrogen is notoriously expensive? That would require a whole new fleet of specially engineered ships, involving significant time and cost to build. Using innovative Haldor Topsoe technology, Air Products has solved this problem by converting its green hydrogen to ammonia (simply by adding nitrogen) to make transport easier. This allows it to use the existing global LNG shipping fleet because ammonia is liquid at only -34°C, compared to hydrogen which needs to be cooled to -235°C. Using existing LNG ships successfully lowers transport costs to around $60 a ton for export to Europe. Once exported, Air Products will then build local fuelling stations in its desired end-markets for hydrogen-powered buses and trucks. Initially, there should be enough hydrogen to fuel 20,000 buses but if demand is sufficient, production will be scaled up. Given there are over 250 million commercial vehicles currently in operation globally, the potential market for green hydrogen and scope to decarbonise this fleet, is huge. Air Products estimates it to be worth $60-70 billion by 2030, and believes it can generate returns of up to 50% on capital employed.
We are excited about the potential of this project to fundamentally reshape the economics of green hydrogen, while reinforcing Air Products’ sustainability credentials. Over the five years it takes to become fully operational, we look forward to hearing more from management about how they will remove carbon from the entire supply chain. Our world is clearly changing, and our investment portfolios are positioned well for this change. Air Products’ decision to go ahead with such a significant capital expenditure provides clear validation to the green hydrogen opportunity, and should be beneficial to other companies in the space that we have mentioned before, like Plug Power. Saudi Arabia is looking at new ways to fuel a green revolution, and this represents a significant step in the ongoing shift away from the world’s dependence on fossil fuels.
*At the time of writing Kames holds Air Products
About the author
Matt Harding is an investment manager in the Equities team, responsible for generating investment ideas for our North American and global equities portfolios. He joined us in 2015 from Zolfo Cooper, where he worked in financial restructuring. Prior to that, Matt worked in similar restructuring and advisory roles for RBS and Deloitte. He studied Accountancy & Law at Glasgow University and is a chartered accountant, a chartered banker and a CFA®charterholder. He has 15 years’ industry experience. *As at 30 November 2019.