In 6 charts: De-risking the hydrogen economy

We capture highlights of the 'De-risking the hydrogen economy' publication in 6 charts, showcasing the growing demand for hydrogen for energy transition, its attributes, risks involved in the hydrogen value chain, as well as the role of re/insurers in the development of the hydrogen economy.

Hydrogen is a core component of the global drive to net zero emissions. It is an attractive alternative to fossil fuels and can be produced using renewable energy.

Global demand for hydrogen based on existing government pledges is expected to reach around 250 million tonnes (Mt) per annum by 2050¹. This would make hydrogen a USD 600-800 billion industry in annual revenues.

Based on information from various sources, we anticipate demand for hydrogen from various sectors to come in phases: 

• Short-term (2025-2030): Demand will be driven by industrial hub using hydrogen as feedstock, such as chemicals, fertilizer, oil refining and steel.
• Medium- to long-term (2030 – 2040): Demand will mainly come from new use cases of hydrogen as an energy carrier, such as in the transport and power generation sectors.
• Very long term (2040 onwards): Increased global trade of hydrogen as a result of growth in the medium- to long-term use cases

Hydrogen can be grey, blue or green depending on the type of feedstock and carbon emitted during production.

Grey/brown hydrogen: The majority of hydrogen produced uses fossil fuels as feedstock. This is the cheapest way to produce hydrogen but the process is not environmentally friendly as it emits CO2.

Blue hydrogen – bridging the transition: Production of blue hydrogen is similar to that of the grey variant. However, carbon emitted during production is captured and either used or stored,  representing the main additional expenditure. Blue hydrogen could play a key interim role in the transition to large-scale adoption of green hydrogen.

Green hydrogen – a long-term solution: Green hydrogen is produced by electrolysis using renewable electricity and water². The current cost of green hydrogen is approximately two to four times that of grey hydrogen, due to the high capital expenditure (capex) associated with setting up electrolysis plants and the high cost of renewable energy. The cost of green hydrogen production is expected to decline to correspond with the increase in the size and operating hours of the electrolyser plants.

Hydrogen has unique features that make it complex to de-risk. Although it is widely recognised as a valuable energy carrier, it has not yet been used as a fuel at scale. As hydrogen is highly flammable, blends of hydrogen and natural gas are more prone to fire-risk.

The severity and frequency of damage related to hydrogen is dependent on the extent to which the gas has been blended with other materials. As a consequence of various failure modes, hydrogen usage can amplify associated loss-scenarios mainly represented by leakage as well as fires and explosions.

Beyond production, exposures during transmission, storage and distribution of hydrogen need to be better understood. Risks are augmented on account of different agents/companies having responsibility for different steps in the value chain.

Transporting hydrogen blends raises new risks. Transporting hydrogen blends through existing natural gas networks raises flammability concerns: the ignition range for hydrogen is about seven times wider than for gas (methane), making blends of hydrogen and natural gas more prone to fire-risk.

Hydrogen can be stored in many ways. It can be pressurised into various forms of gas, hyper-cooled into liquid or combined with chemical compounds. Also it can be housed above or below ground. As hydrogen is more mobile than other gases such as methane, nitrogen or CO2, it can penetrate most rocks and filters.

Corrosion, material defects and excavation can also lead to distribution failures. Distribution pipeline incidents typically arise as a result of leaks: the higher the concentration of hydrogen at the point of release, the greater the hazard.

The risks involving hydrogen are not new. But the size and scale of exposures will be larger. And new players are entering the hydrogen economy, some may lack experience in handling hydrogen.

Re/insurers can play a key role in the development of the hydrogen economy by providing risk management knowledge and risk transfer at selected points of the value chain.

^{1 The Announced Pledges Scenario (APS) considers national net zero emissions pledges and assumes they are realised in full and on time. See Announced Pledges Scenario webpage, IEA.
2 Green hydrogen can be produced using fresh water, cleaned wastewater and desalinated sea water. However, irrespective of the source it must be deionised before using in electrolysers. See M. Newborough, G. Cooley, “Green hydrogen: water use implications and opportunities”, Fuel Cells Bulletin, vol 12, 2021.
3 Excessive oxygen production and leaking into the hydrogen stream was the cause of an accident on a high pressure electrolyser in Japan in 2005. See: Minutes of the FCH 2 JU Workshop on Safety of Electrolysis on18 November 2020, Fuel Cells and Hydrogen Joint Undertaking, January 2021.}