How hydrogen could impact geopolitics of energy transformation, disrupt global trade and bilateral energy relations
Clean hydrogen production methods can yield low greenhouse gas emissions
95% of hydrogen produced today is grey, produced from fossil fuel resulting in a substantial CO2 footprint and is not compatible with moving towards net zero emissions.
Clean forms of production include green, produced from renewable energy,and blue hydrogen, produced from gas with CCS and therefore can yield low greenhouse gas emissions.
Currently, hydrogen production from renewable sources is limited, but this is set to change with the global focus on its potential.
Hydrogen will bring new patterns of global interdependence and shifts in bilateral relations
Cross-border hydrogen trade is set to grow considerably with over 30 countries and regions planning for active commerce already today. Countries that have not traditionally traded energy are establishing bilateral energy relations centred around the hydrogen value chain.
An expanding network of bilateral deals indicates that these relations will be different from the hydrocarbon-based energy relationships of the 20th century.
As economic ties between countries change, so might their political dynamics.
Hydrogen diplomacy is becoming a standard fixture of economic diplomacy
Access to hydrogen is often seen as an element of energy security and overall national resilience, particularly for industries where other decarbonisation solutions are not feasible or uneconomical.
Some countries that expect to be importers are already engaged in dedicated hydrogen diplomacy.
Potential exporters are deploying similar strategies, with many including hydrogen – green hydrogen in particular – at the highest levels of their diplomacy.
Countries able to generate cheap renewable electricity will be best placed to produce competitive green hydrogen
2020s will see a race for technology leadership. But demand is expected to only take off in the mid-2030s. By that time green hydrogen will fullycompete on cost with blue hydrogen, poised to happen much earlier in countries like China, Brazil and India.
Green hydrogen was already affordable in Europe during the 2021 spike in natural gas prices. Refurbishing natural gas pipelines can also facilitate hydrogen trade.
Hydrogen may strengthen energy independence, security and resilience, but most benefits come from the green variety
Green hydrogen may strengthen energy independence, security, and resilience by reducing import dependency, diversifying supply options, mitigating price volatility and boosting flexibility of the energy system.
Helping developing countries grow hydrogen industries early on could improve energy security for all, while preventing the global decarbonisation divide from widening.
As a manufactured product rather than a raw material or energy source, hydrogen can be produced from many primary energy sources and in a wide variety of places worldwide. Therefore hydrogen trade is unlikely to become weaponised or cartelized like oil and gas.
International co-operation will be essential to effectively navigate the unknowns, mitigate risks and overcome obstacles in the years ahead.
Hydrogen could disrupt global trade and energy relations
Building global hydrogen markets will bring geo-economic and geopolitical shifts and further regionalise the energy relations. Hydrogen is likely to further disrupt energy value chains in coming years.
Hydrogen could disrupt global trade and bilateral energy relations, reshaping the positioning of states with new hydrogen exporters and users emerging in the years to come.
Going forward, countries with an abundance of low-cost renewable power could become producers of green hydrogen, with commensurate geoeconomic and geopolitical consequences.
Green hydrogen could be most economical in locations that have the optimal combination of abundant renewable resources, space for solar or wind farms, and access to water, along with the capability to export to large demand centres.
The hydrogen business will be more competitive and less lucrative than oil and gas
Fossil fuel exporters consider clean hydrogen an attractive way to diversify their economies. Many current exporters are pivoting to clean hydrogen to develop new export industries.
Over 30% of hydrogen could be traded across borders by 2050, a higher share than natural gas today, estimates IRENA. Countries that have not traditionally traded energy are establishing bilateral energy relations around hydrogen.
It is anticipated that total oil and gas revenue will fall significantly by 2050, but clean hydrogen will not generate returns comparable to those of oil and gas today. Therefore, fossil-fuel producers should continue to develop broad-based economic transition strategies.
As hydrogen can be produced competitively in many places, more players and new classes of net importers and exporters emerge on the world stage. As the costs of green hydrogen fall, new and diverse participants will enter the market, making hydrogen even more competitive.
Hydrogen economy hints at the new global power dynamics
The eventual role of hydrogen is yet to be determined, with the bulk of it still produced with fossil fuels. Green hydrogen production is set to thrive, but also in locations other than today’s oil and gas fields.
Supporting the advancement of renewable energy and green hydrogen in developing countries will be critical for decarbonising the energy system and can contribute to global equity and stability.
Governments have a unique opportunity today to shape the advent of hydrogen, avoid the flaws and inefficiencies of current systems, and influence geopolitical outcomes. Policy makers should consider broader impacts of hydrogen development on sustainable development to ensure positive, long-lasting outcomes.
As markets develop, policy attention is crucial
Global efforts should focus on the applications that provide the most immediate advantages and enable economies of scale, particularly in the coming years.
Prioritising high demand applications for which hydrogen is the best — and perhaps the only — alternative is more likely to be cost-effective and less susceptible to the risks of nascent markets.
Policy attention should be given to the more mature and centralised hydrogen solutions. This attention can involve dedicated research, planning and supporting policies.