Manufacturing Trends: Hydrogen as an alternative fuel

As conversations around decarbonization strategies intensify, alternative fuels – especially hydrogen – are gaining unprecedented momentum according to the International Energy Agency (IEA). Since burning hydrogen does not emit any carbon dioxide, in contrast to fossil fuels, hydrogen applications are increasingly finding support in political spheres. There is a growing consensus that ‘green’ hydrogen produced using renewable energy will play a crucial role in the decarbonization of many industries.

Swiss Re Institute released its comprehensive report on the hydrogen economy De-risking the hydrogen economy in April 2022. The report highlights the risk landscape associated with the use of hydrogen and provides insights into adoption timelines. In the short term (2025–2030), it is expected that the manufacturing sector will spearhead the direct usage of hydrogen as a fuel. Industry segments such as chemical, fertilizer, oil refining and steel are likely to deploy hydrogen as a feedstock, with hydrogen replacing coal and gas in high temperature processes. In the power generation sector, hydrogen-powered turbines could end up replacing natural gas.

In the medium to long term (2030–2040), an increased interest in hydrogen as an energy carrier is projected, with applications such as hydrogen power stations, hydrogen boilers in buildings and alternative fuel transportation gaining wider traction. The latter either via fuel cell electric vehicles (e.g. rail, commercial and passenger vehicles) or through vehicles fueled with ammonia or methanol (e.g. shipping and aviation). Beyond 2040, hydrogen could potentially be used to generate power when other renewable energy sources are not viable.

The World Economic Forum forecasts hydrogen accounting for up to 12% of global energy use by 2050 ¹. Governments around the world have begun committing significant resources towards this cause. In 2021, Germany pledged EUR 8 billion to fund 62 hydrogen projects focused on the steel, chemical and transport segments ². China has dedicated USD 20 billion of public funds for over 50 hydrogen projects ³, while France has earmarked EUR 7 billion till 2030 for hydrogen research ⁴. All in all, investment proposals totaling around USD 240 billion have been announced globally until 2030 in the form of 680 large-scale hydrogen projects. Experts estimate that hydrogen investments upwards of USD 700 billion will be required until 2030 to attain the global 2050 net zero carbon emissions target ⁵.

The current emphasis of hydrogen investment plans is mainly on production facilities and less on the transmission, storage and distribution infrastructure needed to transport hydrogen. It is expected that more hydrogen production facilities, production equipment and associated manufacturing plants will be established in the near future, with the related transportation systems presumably following at a later stage. Further challenges associated with hydrogen relate to its safe and efficient storage as well as the environmental impact of producing non-green hydrogen, with current production methods heavily reliant on natural gas.

With respect to liability risks, fires and explosions with consequent bodily injuries and third-party property damage are a concern. Hydrogen has a wide flammable range and can combust with low ignition when mixed with small amounts of air. If escaping hydrogen catches fire immediately, it results in a jet fire with a high velocity flame, which may cause thermal radiation. If the leaked gas is ignited with a delay after accumulating in an enclosed facility, the result can be a large explosion.

These issues are exacerbated when metal components turn brittle upon exposure to hydrogen, allowing its small molecules to escape through thin cracks. Leaks can also occur due to loose-fitting or defective valves. Since hydrogen is colorless and odorless, it is difficult to identify leaks without proper detectors. Fires and explosions may also result during production of green hydrogen via electrolysis due to errors such as an accidental mix of gases or short circuits in the system.

While the risks involving hydrogen are not entirely new and the insurance market has long been underwriting a suite of associated risks, the sheer size and scale of exposures will be larger than ever. New types of equipment and machines, often with prototypical characteristics, are going to be produced and brought into manufacturing plants for the storage and use of hydrogen. In addition, new players are entering the hydrogen economy and may lack experience in handling hydrogen, adding to the product liability and manufacturing E&O risks.

The upgrade of hydrogen logistics networks such as pipelines, storage vessels and ship carriers will invoke similar uncertainties. Repurposed existing infrastructure to transmit, store and distribute hydrogen is still being tested, giving rise to potential unknowns. Engineers and contractors involved in designing, building and maintaining these assets will likely face a variety of liability challenges.

Furthermore, environmental liability can be triggered due to a reversal of stored carbon during blue hydrogen production. In this process, the carbon that is released during production is captured and stored. Large quantities of carbon could, therefore, potentially leak from storage reservoirs via insufficiently plugged wells. Finally, employers’ liability cases may increase because of safety reference protocols and procedures not yet being well established as well as due to a lack of sufficient training and experience in handling novel equipment such as electrolyzers. In a closed environment, a hydrogen leak can even cause asphyxiation.

References

¹ World Economic Forum, Which countries could become the world’s hydrogen superpowers?

² Nasdaq, Germany to invest around USD 10 bln in hydrogen projects

³ McKinsey & Company, Hydrogen Council, Hydrogen Insights

⁴ US International Trade Administration, France Renewable Hydrogen Technologies

⁵ S&P Global, Commodity Insights, Forecasting how today’s energy mix evolves into the energy mix of tomorrow

This article is an excerpt from the Manufacturing Industry Trends – Casualty Risk Landscape report.