Nathan Hunt
Hi. This is the Seek & Prosper interview series. My name is Nathan Hunt. Today, I'm talking with Roman Kramarchuk, who is the Head of Energy Scenarios, Policy and Technology Analytics at S&P Global Commodity Insights. Our topic is going to be hydrogen's role in the energy transition. And Roman, I'm really excited about this conversation because I find hydrogen fascinating, and I am hoping that we are going to convince some people today that hydrogen is as interesting as I think it is.

Roman Kramarchuk
I think hydrogen is immensely fascinating. If you think about what fuels the universe, it's hydrogen. Now in our day-to-day lives, we haven't yet figured out how to directly use hydrogen and fuel us the same way that the universe fuels itself, but we do think there's a path forward in this space.

Nathan Hunt
What are the advantages of hydrogen that make it so compelling for the energy transition?

Roman Kramarchuk
I mean, when we think about the energy transition, one of the key directions of the energy transition is decarbonization. And if you think about what we're burning right now, it's their hydrocarbons, right? So it's a combination -- some combination of hydrogen and carbon.

And when you burn carbon, you get C plus O2, which is CO2. The beauty of just burning hydrogen is you have H2 and then you burn it and you get H2O, which in a world where we're trying to limit CO2 emissions, where trying to limit greenhouse gases, it's really a case of burning hydrogen is the byproduct is water with no greenhouse gases involved.

The challenge has become how do you actually get hydrogen in that sort of pure state that you need to burn it in. Among some of the other advantages, hydrogen is also a very dense fuel. So per unit of weight, it has a lot of energy. So it's yet another advantage it has. But once again, we get to the issue of how do we get that hydrogen in the first place.

Nathan Hunt
There are these different forms of hydrogen that we talk about a lot. And they tend to be color coated. There's green hydrogen and blue hydrogen. I think there's like a gray hydrogen out there.

Roman Kramarchuk
There's purple, there's yellow. Yes, there's a rainbow of hydrogen.

Nathan Hunt
So let us taste the rainbow of hydrogen. What are these colors designating?

Roman Kramarchuk
The colors are designating how that hydrogen is produced, and what initial element -- or what initial molecule does the hydrogen come from? And I'll start with probably the most the common in the current world, which is conventional gray hydrogen. And it's gray because it is conventional, it emits a lot of CO2.

Actually, hydrogen is not new. One of the things to remember is hydrogen is actually very much an incumbent industry. It's used in the production -- in the refining processes. It's used to help create a slew of different petroleum products. It's used in ammonia, and producing fertilizers, ammonia and petrochemicals.

So it's not as if this is some new industry. It's been around for a while. It's used in refining. And right now, because the vast majority of the hydrogen is produced from natural gas, what you have is you have the methane molecule splitting off and you have the CO2 being emitted into the atmosphere. So that's your conventional gray hydrogen.

You can have brown hydrogen, which is essentially taking coal and using that as your feedstock for creating hydrogen. So that is an even dirtier form of hydrogen. So none of these are part of the energy transition solution that we're talking about because you can use petrol -- you can use various hydrocarbons to produce that hydrogen.

If you're not capturing that CO2, then you have a situation where that CO2 is emitted into the atmosphere and contributes to global warming and climate change. So that brings us to the spectrum of clean hydrogen or low carbon hydrogen and that starts with blue hydrogen. And I can kind of alluded to this before. You start with the natural gas, you put it through a steam methane reformer, in the end, you get hydrogen and you get the CO2.

And what makes hydrogen, this hydrogen blue is taking that CO2 and sequestering it underground. So it doesn't enter the atmosphere. It doesn't lead to increased concentrations of CO2. It doesn't give us that greenhouse gas effect. So that's your basic blue.

Now some of detractors will say that carbon capture and sequestration, most of the time, you can get up to 90% to 95% capture, which leaves still 5% or so in the best cases that are still not captured. It also doesn't take into account the upstream emissions that come from, let's say, natural gas. So by the time the natural gas gets to your steam methane reformer, it had to have been produced. It had to have been piped. There are leaks and there are various emissions and vents across that piece.

So it all adds up. So that's -- the purest would claim that, that is not a fully green solution. Which leads us to the green solution. And that leads us to what we talk about in terms of the green solution in terms of green hydrogen. Now what is green hydrogen? It's basically using renewable or zero carbon power to split a water molecule and create the hydrogen.

So in that sense, there's no hydrocarbons involved. You have water, it has to be of a particular purity and you have electricity. And it's essentially running electricity, using an electrolyzer to create that hydrogen, and there are no emissions involved because essentially, if that electricity is coming from wind or from solar or from nuclear or from sustainable biomass, then that can be considered 0 CO2 electricity, which means that hydrogen is essentially 0 CO2.

So those are the 2 main categories. There are variations. There's hydrogen pyrolysis. There's hydrogen that can be produced from nuclear power, which people want to differentiate from, let's say, renewables just because even though they're both 0 carbon electricity, it has different characteristics that people want to distinguish.

And there's other flavors as well, but primarily when people talk about the main categories of low-carbon hydrogen, we're talking about the green hydrogen that's produced from renewable power or low carbon power that results in hydrogen coming from the water or you have the blue hydrogen coming essentially from methane and having the CO2 pumped and stored underground.

Nathan Hunt
I have heard before that hydrogen, in some ways, has more promise as a store of energy than as a source of energy in terms of the energy transition. What does that mean? And would you agree with that statement?

Roman Kramarchuk
I think it's an interesting concept, and hydrogen certainly has value as a store. But if you think about what hydrogen would be asked to do is historically, we've seen decarbonization. And we've seen the decarbonization over the last 5, 10 years. And we've seen decarbonization in sectors like power, where we've seen -- wind and solar certainly are stepping up. Coal is being retired. Carbon is being reduced there.

We're seeing electric vehicles essentially replace the internal combustion engine for gasoline for cars. In both -- in those cases, electricity is your carrier. And that electricity, if it is low carbon, it actually means that carbon is not being emitted. When we start going down to not 10% reductions of CO2, not 20% reductions, once we start talking 2-degree scenarios of climate change, once we start talking about then 0 scenarios, you really have to start decarbonizing sectors that are a lot harder to decarbonize.

So those are sectors where electrification may not be working as well. And where I'm going with this, why is -- what makes electrification a challenge? It's -- particularly, if you rely on renewables, it's the storage issue. The sun doesn't necessarily shine when you need the power. The wind doesn't necessarily blow when you need the power. You may have seasonal patterns where there's long periods of time where you'll have either low installation or low wind speed.

So what you really need is you need a carrier for energy that you can use when you need it. And you need what we would call dispatchable clean energy. We can get clean energy, we can get 0 carbon energy, but we can get it when we need it and when we want it. And if you think about how hydrogen can interact with renewables, there could be a time where you have much more solar than your grid needs. And we have these situations in California, where we see curtailment of wind and solar.

It's actually -- this power is being produced. It is not being used because there's no more room for it on the system. And batteries can store a certain amount of electricity. But these tend to be shorter duration. And if we're talking about 2 hours or 4 hours or 6 hours, these are -- batteries are perfectly fine solutions. When you start talking about longer duration storage and you need dispatchable clean energy, this is where hydrogen can play a role.

This is where hydrogen can be created when you have that surplus solar that's being essentially thrown away. And you can have hydrogen being created through electrolysis when the wind is blowing very slowly and demand just isn't there. So this is a way to solve a number of problems. It's a way to solve some of the curtailment issues, but it's also a way to build up that store of dispatchable clean energy that can then be utilized during that season where the sun isn't shining as well or where the wind isn't blowing.

Nathan Hunt
So what then is holding hydrogen back? Is it technology? Is it cost? Is it the infrastructure? Why isn't everything hydrogen now

Roman Kramarchuk
I think you've touched upon 3 of the very big reasons. And if you think about the early stages of any major transition, it's exactly those things you just mentioned. It's the infrastructure, it's the cost, it's the lack of policy support. Cost is certainly an issue. I think I mentioned earlier, the first thing about hydrogen is what you're doing is you're using energy to create a new form of energy. And there's an inherent efficiency loss there.

So you're already kind of downgrading the amount of energy you're using because you have to use energy to create a new form of energy. You also need the equipment to make those changes. So in the case of blue hydrogen, you need a steam methane reformer. You also need carbon capture sequestration equipment and a local site that actually -- if it's a depleted oil field or a salt cavern, it's got to be somewhere to put that CO2. These all costs money.

And when you're talking about green hydrogen, you're talking about electrolyzers, which is -- which are the -- essentially, the equipment that takes the electricity and the water and essentially splits the water and creates the hydrogen. Now those are expensive at this point. They're expensive, and they actually -- costs are coming down, just like we've seen in terms of cost curves of solar, in terms of cost curves around batteries. All these things, as they scale up, as we learn by doing, these costs are going to come down.

The other factor is -- so first of all, it's the cost of that equipment, which as we start making more electrolyzers, as we start having more green hydrogen, those costs will come down. But there's still the basic problem of underlying feedstock cost because you -- as I mentioned, to create blue hydrogen, you need natural gas. So how much is that natural gas cost? And if you're destroying some of the natural gas to create the hydrogen, then you have to be able to make up that difference.

If your power prices are extremely expensive, then guess what, your electrolyzer is going to be running on expensive power. That means your green hydrogen is going to be very expensive. So 2 factors. One factor is the equipment you need to create the hydrogen. We expect costs for that to be coming down. The second factor is the feedstocks. And the feedstocks are the power and the natural gas. And there are times like now when both power and natural gas are considerably more -- are getting more expensive. So if you have to use more of it to actually create some of that hydrogen, it makes it relatively more expensive as well.

So costs, definitely. You mentioned infrastructure. Well, for example, when we think about some of the sectors where hydrogen can play a role. And one of those sectors may be heavy-duty trucking. And we can go into this in some more detail if you'd like, but it's -- it's one of these things that if you have a trucking fleet, and you know you have to ship something from one destination to another, you may have that hydrogen become cost-effective.

You may actually have policy supported, but you also need to know that you have hydrogen fueling stations at every step of the way from point A to point B so that you can actually execute on that sort of strategy. So it's a bit of a chicken and egg problem, and this is where policy comes in. It's the same situation with electric vehicles. That dance between charging stations and EV uptake, you'll have the same dance between hydrogen fueling stations and heavy-duty fuel cell-based trucks.

Nathan Hunt
So what is S&P Global’s current involvement with hydrogen markets?

Roman Kramarchuk
We are working on -- with hydrogen from different sides. On the one side, with S&P Global Commodity Insights, the sort of the Platts pricing side of things, we offer price assessments, which allow players to engage and understand and have transparency on the markets or the potential markets for hydrogen. In this particular case with ammonia, we have markets, and we're offering some transparency on those markets.

For hydrogen, a lot of hydrogen in the current state of affairs was done very much on site. It was very much a refinery needed hydrogen and the hydrogen was provided either within the refinery or from the outside through some sort of bilateral arrangement. We do believe that we're going to be moving to markets for hydrogen, markets for green and blue ammonia. These are markets of the energy transition that we want to provide pricing and transparency around.

At the same time, the analytics side of what we do at Commodity Insights, we always try to figure out where is the energy system going in the future? What are the pathways? What are the pathways towards net zero? What are the pathways in a business as usual case? So we're in the regular state of looking and assessing, okay, how does hydrogen stack up in terms of its costs? What happens if the Build Back Better build passes the Congress?

Or if another sort of set of support mechanisms gets implemented in Europe, what does that mean for relative costs? Because that's what -- when we think about decision-making and energy, it's really about what can provide you the energy needs that your customers need at low cost that's affordable, that's available and that doesn't provide for other dangers or security of supply risk.

So these are all the things that we regularly look at. We're currently working through and updating our sense of how big a role do we think hydrogen will play going forward. And this is a function of policy. This is a function of costs. This is a function of infrastructure, and these are the things that we're looking at.

Nathan Hunt
At what point do you think hydrogen enters the mainstream, not a majority of energy source, but a significant energy source? Are we talking about 3 years, 5 years, 7 years, more?

Roman Kramarchuk
We can use a crystal ball, but we can also use our hydrogen asset database, for example. And what we do there is we track essentially all of the announcements for new hydrogen projects. We characterize them by technology. We characterize them by location, by size, by expectation of online date.

And what we've found is that, that -- our database of projects has gone from less than 1 million tons of hydrogen production to the ranges of 25 million to 30 million tons of hydrogen. Now if we consider the current hydrogen market, which is pretty big, serving all refineries and ammonia plants being in the 75 million to 80 million ton range, in the span of 2 years, we've seen announcements for getting close to 1/3 of that amount.

So we're seeing this grow. We continue to expect to see it grow. A lot of these projects are going in different sectors, but we do also see particular sectors, when they turn on the hydrogen switch, it will be a big deal. And one of those sectors is, for example, the steel sector. It's one where when experts think about what are really hard things to decarbonize, I mentioned before, power sector, okay, they've figured out how to do that. There's obviously some issues with storage. Automobiles yes, and we do believe the electrification of personal transport is going to happen.

Harder is to figure out how do you decarbonize, let's say, steel, an integrated steel facility. And where you have coking coal, where you have fuel needs, where you have reduction needs for the iron, these are very carbon-intensive processes. So the bang for the buck on the hydrogen there in terms of CO2 is very big. And European steelmakers are currently at the forefront, exploring this.

So that's the one piece of it. The other piece of it is, if you think about some of the pressures on oil and gas. And we know oil and gas, we believe oil and gas will be with us for a while. We're not in a world where all of a sudden oil and gas use will stop. So the question is how will that oil and gas be used? How will the oil be turned into petroleum products?

So what we're seeing is a lot of the oil companies are looking at ways to clean up their own processes. And for example, any refineries, we talked about how refining was one of the core incumbent industries for hydrogen. Well, one way to clean up that refining process is to use green hydrogen or blue hydrogen for the refining process. So there is the ambition of moving into steel some place -- some places where you're penetrating a new sector, but another set of real important gains for hydrogen may be not new sectors, but replacing the dirty hydrogen in the existing sectors.

And then the third piece of it, I mean -- and these are all happening at the same time, which is what makes this so fascinating, is that hydrogen can be blended into natural gas grids to varying degrees. There's various operators who are testing various blend levels. So if you think about all the natural gas that's being sold, once you start blending 1%, 2%, 3%, 5%, 10%, depending on the type of gas pipeline network there is, this is kind of an easy way to start blending hydrogen in, driving up the production level.

And in terms of -- and it doesn't -- depending on the use case, it doesn't have to necessitate a full replacement of your downstream equipment. So you can actually burn a small mixes of hydrogen together with natural gas. And this is a way to start seeing uptake in a very real way. So a little bit of blending, a little bit of steel, a little bit of incumbent hydrogen. I think all these things can move.

Nathan Hunt
So Roman, we're going to have to leave it there for today. But thank you so much for joining me today.

Roman Kramarchuk
Exciting to talk about one of the key elements of our universe and how we can use it.

Nathan Hunt
And thanks to all of you for joining us on this Seek & Prosper interview series.