Market Opportunity

Hydrogen and Its Applications

Hydrogen (H2) is the simplest and lightest element in existence. At sea-level atmospheric pressure, a cubic foot of hydrogen weighs just 0.09 ounce. An atom of hydrogen consists of only one proton and one electron. Hydrogen is also the most plentiful element in the universe. Despite its simplicity and abundance, hydrogen doesn't occur naturally as a gas on the Earth - it is always combined with other elements. Water, for example, is a combination of hydrogen and oxygen (H2O).

Hydrogen is also found in many organic compounds, notably the hydrocarbons that make up many of our fuels, such as gasoline, natural gas, methanol, and propane. Hydrogen can be separated from hydrocarbons through the application of heat - a process known as reforming. Currently, most hydrogen is made this way from natural gas. An electrical current can also be used to separate water into its components of oxygen and hydrogen. This process is known as electrolysis. Some algae and bacteria, using sunlight as their energy source, even give off hydrogen under certain conditions.

Hydrogen is high in energy, yet an engine that burns pure hydrogen produces almost no pollution. NASA has used liquid hydrogen since the 1970s to propel the space shuttle and other rockets into orbit. Hydrogen fuel cells power the shuttle's electrical systems, producing a clean byproduct - pure water, which the crew drinks.

Hydrogen has number of applications from chemical processing, petroleum recovery and refining, metal production and fabrication, aerospace, and fuel cells. The sectors with the greatest demand for hydrogen are petroleum refineries for hydrocracking and ammonia production for fertilizer. Transportation fuel is an emerging sector with enormous potential in the future.

Market Size

Hydrogen production is a large and growing industry. Market size of global hydrogen production was estimated to be 53 million metric tons in 2010, of which 12% was shared by merchant hydrogen and rest with captive production. With decreasing sulfur level in petroleum products, lowering crude oil quality and rising demand of hydrogen operated fuel cell applications, global hydrogen production volume is forecasted to grow by compound annual growth rate of 5.6% form 2011 to 2016. The Hydrogen production market in terms of value was estimated to be approximately $150 billion in 2011.

Production of Hydrogen and Delivery

Hydrogen is either produced centrally or on-site. On-site generation (also known as distributed generation) eliminates number of problems associated with transportation and delivery and thus the market for on-site generation systems is growing significantly. Also, in recent years, small scale on-site generation option has become more lucrative since new on-site hydrogen generation technologies offering low cost when compared to delivered merchant hydrogen. When hydrogen is produced using a centralized plant, it has to be delivered to the point of consumption by various delivery modes such as pipeline, trucks or cylinders.

For large quantities, pipelines are the preferred option. Although pipeline delivery is cheaper in the long term than packaged options like trucks and cylinders, it can only be economically justified when the quantity is sufficiently high. Pipelines require significant initial investment and extremely high volume to pay out over the long term. On the other hand, cylinders are used for small quantities and preferred by industries such as glass manufacturing, metal production and fabrication, food processing and electronics.

The Asia and Oceania region is the largest market with 39% of global production share in 2010. This region generated around 21 million metric tons of hydrogen in 2010. The Asia and Oceania region pioneered in refinery and ammonia production capacity and this makes it the largest consumer. Europe and Eurasia is the second largest producer followed by North America, the third largest region. North America is the largest market for merchant hydrogen with 60% of global merchant hydrogen production in 2010. By country, the U.S. is the largest merchant producer with 47% of global merchant hydrogen production share. China is the largest consumer with 22% of global hydrogen consumption share. China's greatest demand comes from ammonia producers and it is the world's largest producer and accounted for 32% of worldwide ammonia production in 2010.

Presently, most of the hydrogen for industrial purposes is produced by steam reforming of natural gas or methane. This production technology dominates due to easy availability and low prices of natural gas. Partial oxidation of petroleum oil is second in production capacity after steam reforming of natural gas. The third largest production technology in terms of production capacity is steam gasification of coal. In 2010, an estimated 25.6 million metric tons of hydrogen was produced using steam methane reforming (SMR). Production costs vary according to size of production plant, type of plant, utilization factor, feedstock cost, transportation and delivery.

Hydrogen and Fuel Cells

A fuel cell combines hydrogen and oxygen to produce electricity, heat and water. Fuel cells are often compared to batteries. Both convert the energy produced by a chemical reaction into usable electric power. However, the fuel cell will produce electricity as long as fuel (hydrogen) is supplied.

Fuel cells are a promising technology for use as a source of heat and electricity for buildings, and as an electrical power source for electric motors to propel vehicles. Fuel cells operate best on pure hydrogen. But natural gas, methanol, or even gasoline can be reformed to produce the hydrogen required for fuel cells. Some fuel cells can even be fueled directly with methanol, without using a reformer.

In the future, hydrogen could also join electricity as an important energy carrier. An energy carrier moves and delivers energy in a usable form to consumers. Renewable energy sources, like the sun and wind, can't produce energy all the time. But they can, for example, produce electric energy and hydrogen, which can be stored until it's needed. Hydrogen can also be transported (like electricity) to locations where it is needed.

Fuel cells are a viable option for many uses today and have been adopted by industries that need reliable, clean fuel sources. For example, forklifts operate indoors where combustion engines would require expensive ventilation systems. Instead of building a fleet of battery powered forklifts, which require perhaps two or three extra batteries for every forklift in operation, major companies such as Wal-Mart and Coca-Cola are choosing equipment powered by hydrogen fuel cells, which refuel in minutes and run at full power for eight hours. Similarly, hydrogen fuel cells are already being used in cities around the world to power public transportation buses.

Market for Renewable Hydrogen

Environmental Concerns - CO2 Mitigation

The increasing demand for hydrogen for heavy oil upgrading, desulfurization and upgrading of conventional petroleum, and for production of ammonium, in addition to the projected demand for hydrogen as a transportation fuel and portable power, will require hydrogen production on a massive scale. Increased production of hydrogen by current technologies will consume greater amounts of conventional hydrocarbons (primarily natural gas), which in turn will generate greater greenhouse gas emissions. Production of hydrogen from renewable sources offers the possibility to contribute to the production capacity with lower or no net greenhouse gas emissions (without carbon sequestration technologies), increasing the flexibility and improving the economics of distributed and semi-centralized systems.

Decentralized Production

Renewable hydrogen systems can be adapted to on-site decentralized production of hydrogen, circumventing the need to establish a large and costly distribution infrastructure. Renewable hydrogen production offers the potential for a distributed hydrogen supply network model, which would be based on on-site hydrogen production. On-site production is considered by many to be the most likely pathway during the market development of energy systems. A distributed network of such sites could provide a cost-effective refueling infrastructure, as hydrogen must be used as close as possible to its production site to optimize the overall energy efficiency of a hydrogen-based energy system.

Remote Communities / Islands

There are socio-economic benefits as well as technical reasons for developing renewable hydrogen systems in remote communities. The need for improved energy security, protection against fluctuating and/or high fuel costs and abundant renewable energy resources are key drivers behind these projects. In addition, the need for clean air, reduced noise and community development are also good reasons. Hydrogen systems can offer jobs, tourism and engender community pride. The cost of conventional fuel and the restrictions on conventional uses of renewable resources make hydrogen more attractive.

Distributed generation is becoming an increasingly popular approach to providing local power, and although each individual system is generally small, the number of islands or remote communities that could benefit from renewable hydrogen systems total represents a significant market opportunity. A number of communities are already under way working to create renewable hydrogen systems.