Argus Media Limited

06/17/2022 | News release | Distributed by Public on 06/17/2022 12:11

Low-cost hydrogen could tempt manufacturers to relocate

The emergence of lower-cost renewable hydrogen could lure manufacturers to relocate plants away from traditional industrial hubs in an effort to sidestep transportation, panellists at the FT Hydrogen Summit said this week.

"Steel was in Germany because of coal but where will the next ones be," asked Saudi Arabian ACWA Power's chief executive Paddy Padmanathan. "Where hydrogen is produced the cheapest. That's what's going to happen."

Hydrogen made from renewable energy offers a route to decarbonise production of fertilisers, synthetic fuels, steel, cement and glass among other maunfacturing sectors. It may be more economical to build production plants closer to the source and transport the finished products rather than attempt to move the hydrogen itself.

Argus calculates prevailing costs for hydrogen produced in northwest Europe using a 100MW polymer electrolyte membrane (PEM) electrolyser and drawing on integrated wind and solar electricity supply at $8.07/kg, including capital expenditure. This compares with $5.28/kg in Oman, $5.83/kg in Chile and $4.89/kg in Australia, using the same technology, illustrating the price discount available in locations with favourable conditions for renewables.

Europe's largest steelmaker, Luxembourg-based ArcelorMittal, and Mauritanian state-owned iron ore mining company Snim last month said they plan to jointly study a direct-reduced iron (DRI) plant in the northwest African country.

But manufacturers also value proximity to customers, which could result in only partial relocation.

"With steel DRI, there is no reason why the [intermediary stage] sponge iron creation has to be next to steel production in rich, developed countries," think tank Energy Transitions Commission chair Adair Turner said. "But there is some sense in putting the [final stage] steel production next to automakers. We could see the break up of the value chain with steelmakers buying sponge iron from DRI plants in locations which are good at producing cheap hydrogen."

Turner said this is already happening with renewable hydrogen and ammonia in the Middle East.

"[It could also] change arrangements for where you bunker ships, next to cheap production plants rather than in ports," he said. "We have to open our eyes… it's difficult to predict precisely but I think the changes will be profound."

Similar arguments were raised at Reuters' Hydrogen 2022 conference last week.

While the biggest steel market right now is China, "in the next five years it will be India and soon after that it will be Africa", Spain's HyDeal president Thierry Leperq said there. "The same goes for fertiliser."

But others offered more conservative views, noting plants need to remain close to raw materials and the desire to keep hold of production for supply-chain security.

"Today with geopolitical uncertainties, I think we will be very much reconsidering whether we want to outsource these industries," Port of Amsterdam director of strategy and innovation Eduard de Vissier said. "There is a renewed appreciation for the industrial clusters that we have."

By Aidan Lea