Emergence of hydrogen markets (what can we learn from LNG?)

3 Min Read

LNG is a foundational piece of our energy infrastructure. In energy applications, LNG provides system flexibility, is economical to store and use, and is relatively clean, at least in comparison to other fossil fuels, such as coal.

LNG storage facility

Hydrogen, on the other hand, burns completely cleanly. There is speculation that hydrogen can obsolete the role of natural gas in the energy system, find use as a transport fuel, and find new and more widespread use in various industrial applications, including heavy industry, such as steel or cement making, as well as chemicals.

Hydrogen has not yet become commoditised in the same way that LNG has. In its early days, natural gas was a vertically integrated industry, yet the emergence of technology and deregulation allowed commercial innovation and decentralisation of the industry. The entire industry benefited through more efficient pricing and greater variety of contracts. Specifically, the emergence of commodity markets and transportation markets for natural gas promoted the efficient growth of natural gas as a commodity.

Commodity traders at the New York Mercantile Exchange

So where are we with hydrogen? At the moment, hydrogen production and use are often vertically integrated at chemical refineries. However, this is rapidly changing.

Hydrogen production, spurred by the growth in green hydrogen, is becoming ever more decentralised. Hydrogen usage is also becoming more decentralised; hydrogen’s emergence as a transport fuel and hydrogen’s role in decarbonising heavy industry is evidence of this. Hydrogen transportation and storage, hitherto a great concern regarding the feasibility of hydrogen at very large scale, is being resolved. Indeed, many existing pipelines are suitable for transporting hydrogen and the first ship to carry hydrogen between Australia and Japan was commissioned in 2020.

Cryogenic container truck

So when will secondary markets for hydrogen emerge? Given the rate of investment in hydrogen technology, the eagerness of commodity traders to arbitrage this new asset class, and the uptake of hydrogen technology in various decentralised applications, it is likely that there will be functioning secondary markets for hydrogen within 1-5 years.

In order to operate efficiently in these markets, it is incumbent on hydrogen producers, off takers and traders to have access to the most detailed and granular information possible regarding the cost of hydrogen production in order to benchmark their activity. Sign up for a free 7 day trial of Altroleum’s hydrogen service to access daily cost assessments for hydrogen production in Europe and North America.

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