What’s the issue?
As the world seeks to move to reduce carbon emissions, natural gas is no longer being portrayed by certain environmentalists, policymakers and media groups as a bridge fuel, but instead is portrayed as a stumbling block on the path to net-zero.
Why does it matter?
The skill sets and assets possessed by the operators of natural gas pipelines could be used to facilitate the use of hydrogen on a path to net-zero, but even that path is being brushed aside by certain environmental groups, with objections about the cost-effectiveness of hydrogen.
What’s our view?
The IEA’s path to net-zero recognizes a substantial role for existing natural gas pipeline networks. Europe’s natural gas transmission companies have already put forth a plan for converting its natural gas networks to hydrogen. Here in the U.S., the private ownership of pipelines can hamper the ability of the industry to mount a coordinated response. The lack of a coordinated response in this case, though, could lead to a hydrogen-based solution being completely bypassed for a much riskier and more costly model that relies completely on renewables and complete electrification. It may be in the industry’s interest, therefore, to get out in front of this issue in support of current pipeline projects, like Williams’s Regional Energy Access Expansion Project, which is designed to be adaptable to green hydrogen.
Here at Arbo, we are working with our customers as they negotiate what we call the energy evolution. (Many feel that the “energy transition” moniker doesn’t quite capture the long-term role that existing infrastructure must play in our world’s pathway to net zero.) While some outside of the oil and gas industry believe it is working against the evolution to a low-carbon future, we see our customers embracing the evolution and charting a path that leverages their companies’ skill sets and assets to enable them to thrive from the scale-up of renewables and decarbonization technologies.
We have been discussing the report issued by the International Energy Agency (IEA) and the course it lays out in its Net Zero by 2050 report as the “most technically feasible, cost‐effective and socially acceptable” path to net-zero carbon emissions by 2050. Today we focus on the report’s views on natural gas and, in particular, how natural gas pipelines can remain relevant by embracing a move to hydrogen as a natural gas replacement in a net-zero world.
As our customers realize, the skill sets of their employees and the assets they own could be used to facilitate the use of hydrogen as the energy marketplace evolves over the coming decades. As we discuss below, Europe has already announced plans for converting its natural gas transportation system to a hydrogen one. Here in the U.S., there is a risk that an energy evolution that embraces hydrogen will be passed over in favor of a riskier complete electrification solution.
IEA Path Basically Calls for No Longer Using Geologic Natural Gas
While the natural gas industry sees itself as a bridge fuel or an enabling fuel for renewable energy, the IEA path essentially calls for the complete elimination of the use of geologic natural gas as an electricity fuel source. The report calls for no new oil or gas exploration, starting immediately, on the path it proposes. It calls for natural gas consumption to decline by 55% to 1,750 bcm and notes that “the fossil fuels that remain in 2050 are used in the production of non‐energy goods where the carbon is embodied in the product (like plastics), in plants with carbon capture, utilization and storage (CCUS), and in sectors where low‐emissions technology options are scarce.” More than half of that natural gas is actually used to produce hydrogen in combination with CCUS.
Conversely, Hydrogen as a Fuel Grows
Under the IEA’s path, global hydrogen use expands from less than 90 Mt in 2020 to more than 200 Mt in 2030 and to more than 500 Mt in 2050. It is this growth in hydrogen use that presents an opportunity for the current pipeline companies. As the IEA notes in its report, the large level of hydrogen and biomethane means that the “decline in total gaseous fuels is more muted than the decline in natural gas.”
Europe is Already Planning its Hydrogen Pipeline Network
A consortium of European natural gas transmission companies has already announced a plan for building a hydrogen pipeline backbone throughout Europe. Under this proposed plan, the “European Hydrogen Backbone” by 2030 would consist of an initial 7,200-mile pipeline network and would grow to a total length of almost 25,000 miles by 2040. The cost of building this 25,000-mile network is expected to range from $51 to $97 billion. The costs used to create this estimate vary based on the diameter of the pipeline and whether it is newly built or is created through the conversion of existing natural gas pipelines.
As seen above, the cost of converting an existing natural gas pipeline to hydrogen use is substantially lower than building a new pipeline, ranging from about 10% to as high as 30%. In the European plan, the total cost estimate assumes that 69% of the pipeline network will be repurposed natural gas pipelines and 31% will be new construction.
U.S. May Need to Develop Similar Plans
The U.S. does not currently have a similar plan for the development of a hydrogen pipeline network, but the existing natural gas pipeline companies could benefit from the development of one, even as they seek approval of new natural gas pipelines. In its recent application for its Regional Energy Access Expansion Project, Williams’s Transcontinental Gas Pipe Line noted that the project was designed and would be “constructed in a manner that is adaptable to green hydrogen” which would allow it to be part of the “critical infrastructure needed to meet clean energy demand for generations to come.” Interestingly, the Sierra Club in its intervention and comments dismissed this statement out of hand, asserting that “hydrogen is not cost-effective” and there is no “economically viable scenario that would include transporting hydrogen through this pipeline.”
It is opinions like this, that if allowed to become accepted, could lead the U.S. down a path that leads to the adoption of a purely renewable energy solution to a low-carbon economy, with the attendant added costs and increased risks from such a solution. The natural gas pipeline industry is already facing a skeptical FERC that views a 16,500 dth/day project as an environmental catastrophe. The ability to show that hydrogen is not only essential to a low-carbon future, but that pipelines are now being developed to accommodate that future, may be critical to getting those pipelines approved.
A plan similar to the European Hydrogen Backbone proposed for Europe could be used to rebut unsupported objections like those made by the Sierra Club. It may be time for the pipeline industry to get out in front of this issue and cooperatively develop a plan that would demonstrate how current projects will fit within a system that allows for hydrogen to meet the future needs of this country on its path to net-zero.
If you would like to discuss how hydrogen would fit within your plans, please contact us.