The Hydrogen Economy: It's a Gas

really tiny molecule. Today we're going to kick off the discussion about hydrogen with some of the basics and some talk of the economics. We'll be joined by Kobad Bevnagrey, who heads up special projects for BENF, and Martin Tangler, who wrote the report will discuss today hydrogen the economics of storage. BENIOF users can get this report on benif dot com, the benof mobile app, or on terminal at BENFC.

But before we get into the discussion with Cobad and Martin, I thought we'd have Albert Chung, global head of research for BEANIF, will ease us into the topic and just real quick. Please note that BENIF does not provide investment or strategy advice, and you can hear a full disclaimer at the end of the show. I'm Mark Taylor. He was Dana Perkins and you're listening to Switch Down Bean podcast. Albert Welcome, Thanks Mark. Can you give us a little

bit of background on why BENF has started covering hydrogen now? Well, the history of BENF and hydrogen actually goes back a long way because when any F was founded back in two thousand and four, it was founded as a hydrogen fuel cells research and data gathering shop UM and since then we kind of dip in and out of it. Probably every every three or four years we've gone into it, done a deep dive and said, oh, it's probably three

or four years away. I think what's different now is that the number of countries and companies that are getting quite serious about investing into the technology and deploy real projects and pilot projects and so on from the orine gas companies and beyond. And I think things are changing a bit in terms of the cost outlook as well. I remember, I think it was back in two twelve. In my team at the time, we actually did take a look at fuel cell vehicles and basically concluded way

too expensive, going to take years supring costs down. But now when we look at you know, particularly the electrolysis and hydrogen production piece, it seems like costs have come down quite a lot. Um, So you know, we feel like it's definitely worth another look. So okay, so one part of it is a cast story. But why are our companies investing in it because of the cast story or are they seeing some other benefit to developing this

technology further? Yeah, good question. Um. Again, if I if I rewind a few years, I think everyone was really focused on passenger vehicles and including us, you know, that's why we looked at it as well. Um. I think what we've realized now is with cheap renewables and cheap batteries, there are solutions now in place for you certain chunks of the emissions pie where the hydrogen's kind of been

priced out of the competition. But now there's kind of more serious discussions about decarbonizing the rest of the economy, so things like long haul trucking, things like steel production, pemumonia production, really difficult sectors that where frankly, you know, renewables and batteries probably won't make the cut. And there you're really talking about alternative clean fuels molecules rather than electrons, and that's where hydrogen comes in. Now, hydroens not the

only solution. Things like CCUS that we're going to look at as well. But I think in terms of why companies are starting to look at it more seriously, I think they see the momentum towards de carbonization of these trickier sectors. So besides the class coming down, they see

as an growth opportunity. Yeah, I think so it's a growth opportunity, and especially if you think about the competencies of some of the companies that are investing, their competencies are around fuels and you know, fuels production, fuels management and storage and transportation and fuels provision um and hydrogen as well as you know, potentially other kind of renewable fuels are a pathway to an energy transition to low carbon that maintains a major role for fuels, and so, yeah,

certainly an opportunity for those companies. Can you tell us a little bit of how it works? So I said in the intro, you know, I've heard of this term electrolysis. But what is that? Yeah. Sure, Electrolysis essentially is when you split water and produce hydrogen. So you it by putting power in and water in and you get hydrogen out. So it's pretty straightforward. It's a bit like a reverse fuel cell. So if you'll sleep hydrogen and you get

powered out, electrolysis is the other way around. Now, the great thing about electrolysis is if you do it using renewable power as the input, then you have renewable hydrogen. You have carbon free hydrogen on the back end of it, which is different from the traditional ways of producing hydrogen.

So basically all the hydrogen in the world today is produced by steam methane reformation, which is not zero carbon um So if you if you use hydrogen in the process today, chances are it's not clean hydrogen um So, so you need to either have electrolysis from renewables or steam methane reformation with carbon capture in future to to get to clean hydrogen. Okay, thanks for joining us, Albert, Thank you, Mark. I think now we're going to jump

in with the discussion with Dana and Martin and cobad Hi. Martin, thank you, for joining us today, and Hi Cobad welcome, Hidanna, good to be here. When you think about the future of hydrogen, do you think about it in terms of fossil fuels with CCS, is being the dominant source of H two or is it renewables with an electrizer sub question, are the players that are the main players now in making H two are those going to be the main

players going forward? Yeah, that's that's a great question. So, and that's one of the things we're trying to figure out. Is this going to be a fossil fuels plus CCS story or is this going to be a renewable power story? And um In some ways, actually it's a bit of a false question because the first part is is hydrogen going to become that fuel for a for a clean economy?

Because if it is, it's going to play such a massive role, and you're going to need to have so much supply of hydrogen that it's almost unquestionable that you'll need both. You'll need it to come from fossil fuels, you'll need it to come from renewables. Different countries have different resources. Countries with a lot of gas are going

to want to keep doing it from gas. Um Countries which are fossil fuel poor but have great wind or solar resources are obviously going to do it from renewable so there will be to some extent of horses for courses approach, But we are trying to get to the bottom of that. The companies. That's also an interesting thing

that we'll have to see how it goes. But it's some of the main actors that are sort of pushing the hydrogen barrow, if you will, are the big producers the current the chemical giants who already have skin in the game and would love for that game to get bigger. Dating into the topic of this note specifically, which is storage and economics around storage. The storage of hydrogen has a lot to do with factors that are beyond anyone's

control physically, what is the geology of that space? So Martin, can you actually explain a little bit what the ideal scenario is and what maybe some of the less preferable ones are and why you can think of storing hydrogen again, similar to storing natural gas. The easiest way today to store natural gas at scale is to put it in a deepleted natural gas field. That's the cheapest way to store a very large volume of natural gas for a

long period of time. You cannot necessarily do that with hydrogen as easily because you might end up with that hydrogen being contaminated by that residual natural gas. So you're going to have to use something else. And the most the best choice when it comes to cost and the purity of hydrogen that comes out of that storage is

salt caverns. And salt caverns are large cavities in the ground that we can make in the salt rock by leaching it, by pumping water in taking it out, and what's left is a cavity into which we can pump natural gas or hydrogen or many other different substances. And the benefit there is that it keeps the natural gas very pure and sorry keep keep the hydrogen very pure. And it's the cheapest way to store hydrogen at scale.

The problem, and I think you are alluding to this, is that you need salt deposits, deep salt deposits in order to use salt caverns or to be able to mind them, and not every country is lucky to have those. So we are seeing lots of salt caverns and lots of salt deposits in North America, especially the Gulf Coast

of the US, parts of Canada. We are seeing salt caverns or the opportunity to build them in many parts of Europe, but we are not seeing the opportunity for salt caverns in places like Japan or South Korea, which by the way, are one of the two countries are very very interested in having or pursuing a hydrogen economy. So that natural question is what are these countries going to do to store the hydrogen that they're going to

need to power that hydrogen economy. Is this a case of I mean you hear US and Canada being just the lucky ones for the salt caverns again, right, it seems to be the case where you have fossil fuels, you know, you have the right geology for salt caverns as well, so they're going to be winners here as well. Yes, So it depends on the on the geology, and the geology of salt caverns is very much linked. The geology of salt deposits is very much linked to the geology

of oil because the salt tends to trap oil. So any place with large oil deposits That includes, for example, the Middle East has good potential for building salt caverns. Any place that does not have good oil deposits is unlikely to be lucky when it comes to salt caverns. How big a piece of the pie from an economic standpoint is the storage cost in this game, storage costs are very very important or could be very very important, depending on your location and depending for how long and

for what purpose you are storing that hydrogen. But we have seen that the cost of producing hydrogen today from fossil fuels are anywhere between a dollar or two two dollars per kilogram of hydrogen. If you're going to store that gas in a salt cavern, you might add another cents for storing that gas. If you are not lucky enough to have salt currents, you might be paying three

times that much. And that means the one or two dollars is going to become one dollar seventy five to two dollars seventy five, So you're almost doubling your cost of hydrogen. So on an LCOE basis, it's pretty far behind pretty much anything else, right, So hydrogen will always cost more than fossil fuels, particularly always particularly at the chap end, and the reason for that is physics. Hydrogen

has to be produced from something. Fossil fuels can be very cheap because they exist in the natural state, so if you can get it out easily, it can be produced cheaply. Hydrogen has to be made either from an existing hydrocarbon, hydrogen stripped out from the carbon, or from water, which case you need energy to split the oxygen and the hydrogen. So because you have to produce it from something else, it's always going to be more expensive than

what that original source of the energy was. Let's pivot a little bit to the companies that are looking to bring this technology forward. Who are the players? Are they big or they little? So there is a whole host of really quite big companies. Many of them are the sorts of big companies that you don't hear about in your day to day life because they are behind the scenes.

Chemical giants players like air Liquid who make a lot of industrial gases like um Martin can speak to some of the Japanese ones, players like Karalasaki Heavy and Iwatani, which are very interested in getting a liquid hydrogen supply chain and the liquid hydrogen market off the ground, You've got your your industrial conglomerates, the siemens is of the world, that the teas and croups who make a lot of heavy machinery and and things that plants that make other things.

And then of course you've got your big oil and gas companies who are now very interested in the prospect. So the bps of the world, the shells, the totals, the woodsides, they're all there sort of existing well and gas giants that have started hydrogen business units. They're funding pilot projects and they're investigating the technology to prepare for a low carbon future. What is the general perception around the safety of hydrogen because it conjures up this view

of that exploding zeppelin. Uh and I think about that sometimes when I see the occasional but not frequent hydrogen vehicle driving around. That's right. So a lot of focused groups discussing the issue of hydrogen safety. If you look at the word cloud, it includes things like bomb and

and explosion. So safety is always identified in the national road maps that countries at the at the forefront of of this um push and the exploration of the potential of hydrogen safety is always one of the key things that they are looking at, imagine along with leakage and corrosion. Is that true or not so that that those play into the safety and the compatibility issues of hydrogen. But um certainly so that the safety issue actually spans a whole bunch of areas. So, for one, the usage of

production of hydrogen is currently really tightly regulated. There's a lot of safety codes. There's a lot of prohibitions on where you can use hydrogen, on when you can use hydrogen, on how you store it, on how you handle it. So, for instance, in China, liquid hydrogen is um illegal to possess or to make because it is considered a rocket fuel, which it is. The space shuttle follow eleven they were

all powered by liquid hydrogen. UM. Likewise, there's lots and lots of safety codes on and often prohibitions on putting hydrogen into pipelines because hydrogen can make pipelines weak and cause them to rupture. But you can do it in in smaller percentages um. The latest science is saying five you can blend and without a problem, but to be on the safe side, and in years gone by, these

hydrogen has often been prohibited. There's there's a whole bunch of other safety concerns, concerns about UM and issues of social acceptability which will have to be worked through, which is all a key part of their consideration of whether hydrogen can play the role that some people hope it will. So how do you see hydrogen coming into let's see my daily life, right, Will it come into play practically by me buying a as fuel cell car or will it be more in industrial processes that I don't see?

That's right, yes, So one of the beauties about hydrogen actually is that UM it can be used almost everywhere and in almost every major industry and sector. It could be the natural gas of the future, and that it's this you know, ubiquitous Lee used fuel that UM. You know, people who just need energy end up using it and buying it. So m Hydrogen could be the fuel that powers your vehicle or the battery electric vehicles are definitely

winning that race for the moment um. It could be the fuel that is going into the manufacturing it what will is ending up somehow powering your airplane. It could be the fuel that is allowing steel to be made and for the chairs we sit on. UM. It can also be the fuel which ends up producing the fertilizers which make a tomato is nice and red um It can perme at all different parts of the economy, so

it could being incredibly useful. It can also, as Cobad has already mentioned, be blended with natural gas into existing natural gas pipelines about five concentrations depending on the pipeline, depending on the regulations, and it could then end up heating your home or you could cook your dinner with a partly hydrogen gas mix. So the storage part has to be built from scratch, but the transportation through existing pipelines can mean we could use existing infrastructure, so that

could actually help drive it towards economic viability sooner. That is one way in which we think that hydrogen could start taking off is if a government, for example, mandates that five percent of the volume in a natural gas pipeline any given time must be hydrogen. And if that happens, that creates large demand for hydrogen, which would then help reduce the costs of producing the hydrogen. So hydrogen can be used in our existing gas pipes to a point.

Depending on what material those gas networks are made of, um they have you know, varying levels of compatibility or

safety with hydrogen. So if you have a more modern network of polyurethane based pipes, which are common when um in in new cities and new population centers, and also where there's been a deep retrofital replacement, then hydrogen can can be piped through their up to a hudd percent concentration with with a little bit of work done on making sure it's sealed of because you'd also have to adjust the appliances or by new appliances to burn that hydrogen.

That's right. So, just in the way that cities and towns and countries switched from town's gas back in the sixties, seventies and eighties to natural gas, a similar type of whichever will be required in order to start to use a large high blends of hydrogen. In effect, towns gas is a blend of hydrogen and carbon monoxide. So we used to have hydrogen running under the streets of London,

under the streets of Sydney, of Tokyo, et cetera. So um, that comes back to the point that the idea of hydrogen as a fuel is actually not an old not a new one. It's an old one and it's ebbed and flowed over the years and had various backers and then it's fallen, fallen over, but this time may be different. Well, I am certainly interested in watching this space because you have sold me on the excitement of a potentially emissions

free future. So thank you very much for joining us today about kind of this new and exciting area in the spaces that we cover. Cobad Martin, thank you for being here right pleasure. Thank you, Dana. Bloomberg. An e F is a service provided by Bloomberg Finance LP and its affiliates. This recording does not institute, nor it should it be construed as investment advice, investment recommendations, or a

recommendation as to an investment or other strategy. Bloombergin e F should not be considered as information sufficient upon which to base an investment decision. Neither Bloomberg Finance LP nor any of its affiliates makes any representation or warranty as to the accuracy or completeness of the information contained in this recording, and any liability as a result of this recording is expressly disclaimed.