Figure 1: near-, medium- and long-term hydrogen players
Industrial gas companies and hydrogen
Figure 2: snapshot of company cash from operations, 2019-2021
Utilities and hydrogen
- It is cheaper and faster to retrofit existing gas pipes versus building new hydrogen-ready pipes – two to three years rather than five
- Not much modification or investment is required to carry up to 10% of volumes in hydrogen blends
- A large part of Europe’s gas distribution pipeline is considered hydrogen ready, with Ireland, Portugal and Denmark at 100%, France, Spain and Italy at 98%, and Germany at 96%
- The REPowerEU plan is focused on using renewable gas to support security of supply and is ready to subsidise the production of renewable hydrogen
- The European Commission’s Third Gas Package plans to introduce hydrogen regulation from 2031. It is crucial from an investment perspective that hydrogen investments count towards the regulatory asset base and therefore earn a regulatory return on investment.
- Green hydrogen production remains low and uncompetitive relative to natural gas and will require subsidies in the early stages
- Depends on direction of heating for households – at present, demand is likely to be driven by industrial rather than domestic users
- Fast development of expensive and energy-intensive electrolysis capacity is needed to justify significant hydrogen-related investments in gas networks.
- Unbundling risks under EU current laws. These will require separate asset bases and accounting for gas, electricity or hydrogen with service revenues only used to recover capex and opex in relation to the underlying assets of the asset base
- A lot of industrial sites in Europe have only just switched from high to low calorific gas due to the switch from Dutch to Russian gas (Groningen gas field shut in 2022 due to earthquakes)
- Existing industrial consumers and power plants need to become hydrogen compatible
- New storage systems will be required, different pipe degradation processes are yet to be discovered and the impact of different energy density to be tested
- Hydrogen import targets under REePowerEU assume other countries will also fund large-scale electrolyser capacity
- The impact of chemical interactions with other organic molecules are still being tested on storage sites
- Possible higher demand for biomethane over hydrogen at the distribution level
Energy transition engagement: Green hydrogen
Company: Linde Plc
Sector and country: Industrial Gas, US
Why we engaged ?
We wanted to get better insight on Linde’s views on the current power market situation and its strategy and plans towards green hydrogen.
How we engaged ?
A call with the CFO was organised by a Senior Fixed Income Analyst, and attended by a Responsible Investment Analyst, Fundamental Analysts and Portfolio Managers.
What we learnt ?
The company is committed to capital discipline and applies this approach to a selection of hydrogen projects where they expect double digit premiums over the weighted average cost of capital. In the near term the company is focused on blue hydrogen projects in the US where it sees strong interest from industrials. Linde believes there will be regional and sectoral differences in the adoption of green hydrogen.
The call provided valuable insight on how the company views the broad development of the hydrogen market globally and the challenges to overcome