Vertical integration vs. decentralisation in the hydrogen sector

3 Min Read

There is broad acknowledgement that hydrogen is a growth sector, and projections exist that predict a twenty-fold increase in demand for hydrogen over the next decade. Much of that growth will be driven by demand for new applications of hydrogen, including industrial decarbonisation and as a transport fuel.

Toyota's hydrogen powered vehicle

To date, the hydrogen industry has been highly vertically integrated. Hydrogen has been produced at a refinery or chemical plant by steam methane reformation, and often used as a feedstock for a process in the same plant. With such tight vertical integration, there is no market at scale for hydrogen.

However, we are starting to see two decentralisation processes taking place that are fast commoditising hydrogen. The decentralisation of hydrogen production, and the decentralisation of hydrogen demand.

Let’s start with the decentralisation of demand. In future, hydrogen will be necessary for transport (as a fuel), for industrial decarbonisation, and even for load balancing a renewable heavy grid.

These represent large markets, and as a result, opportunities for developing midstream hydrogen infrastructure will emerge, in order to bring hydrogen to market.

The end users will, of course, be agnostic to where the hydrogen came from, and most likely will not be located at a chemical plant steam reforming hydrogen anyway. As such, there will be an opportunity to market green hydrogen, alongside hydrogen produced by other mechanisms to these sets of users.

Hydrogen production is also decentralising, and will no longer be the exclusive preserve of large industrial gas and chemicals companies. There is an abundant pipeline of green hydrogen projects, as well other ‘colours’ of hydrogen production coming online, including, pink, yellow and turquoise.

Some of these new projects are large and consolidated in nature and some are much smaller and designed to serve local markets.

As a result of the diversification and decentralisation of the supply and demand of hydrogen, it is necessary to have meaningful assessments of the cost of production of hydrogen so that developers can commission competitive assets, and market hydrogen at appropriate prices. Indeed off-takers need this same visibility to ensure that they are paying an appropriate amount. The emergence of markets for hydrogen will also introduce margins that traders can arbitrage; a robust data service helps traders operate efficiently as hydrogen markets emerge.

Altroleum provides daily hydrogen production cost assessments with the highest temporal and spatial granularity on the market. Altroleum covers all of the well-established production technologies (SMR, SMR w/ CCS, AEM, PEM) and covers geographies across Europe and North America.

A hydrogen price assessment in the Altroleum platform

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