Algeria’s Hydrogen Export Hopes Will Be Crushed By Economics

Algeria is the largest country in Africa, a former French colony and deeply dependent on natural gas exports to Europe. It will be deeply challenged as climate policies inevitably eliminate the 14.39% of its GDP directly dependent on fossil fuels. As such, it’s easy to see why they would believe that there is a world in which they could replace the natural gas in the Mahgreb pipeline with hydrogen. But the economics of energy mean that won’t happen. With luck, they’ll be left with a lot more renewables, storage, transmission, and electrolyzers for their own hydrogen needs, and little money will have been wasted on hydrogen shipping.

As part of my recently published report for Corporate Europe Observatory (CEO) and The Transnational Institute (TNI) on hydrogen in Northern Africa and the European organizations and firms supporting manufacturing it for export to Europe, I looked at Algeria’s plans more closely. I make no claims to be an export on the country or its history, or to have significant depth on other challenges it faces, of course. It’s a huge country in a huge continent with its own rich past and priorities, and with intelligent and informed leaders and influencers who will make their own decisions.

Like Morocco, another country the report focuses on, Algeria is blessed with excellent renewable electricity resources, and like Morocco, they are better in the more sparsely populated interior and southern areas.

Despite the excellent wind and solar resources, Algeria has done virtually nothing to exploit them. Renewables represent under 1% of its electricity supply, and the country is lagging on electrification as well. 

Algeria is an oil and gas producer and has been a member of OPEC for decades. It is a trusted provider of natural gas through pipelines and liquid natural gas shipping to the EU. Its national oil firm, Sonatrach, has strong relationships with fossil fuel organizations in Europe.

Algeria Plans To Ship Hydrogen Instead Of Natural Gas To The EU

Algeria’s plans for hydrogen are much simpler than neighboring Morocco’s. Algeria intends to first add to and then replace the natural gas flowing to Europe through its pipelines and in liquid natural gas ships (LNG) with hydrogen.

Algeria’s positioning to be a supplier of hydrogen to Europe has been under investigation for a considerable period of time. A paper in the International Journal of Hydrogen Energy from 2008 explores the potential for both steam reformation of Algeria’s natural gas and green hydrogen from renewables.

Those early studies are now bearing potentially poisoned fruit. In mid-2020, Algeria’s Chems-Eddine Chitour, an academic and author previously focused on increasing fiscal value from the fossil fuel industry, became the Minister of Energy Transition and Renewable Energies. He drew a group together to create a hydrogen plan and released it in early 2021.

Perhaps unsurprisingly, Chitour’s public comments focused on hydrogen’s use in automobiles — a dead market — and balancing the intermittency of renewables — an unlikely market — as the recent IPCC report on solutions makes clear.

Green Hydrogen

​​Eni, the Italian multinational oil and gas company, has signed several memorandums of understanding with Sonatrach around hydrogen manufacturing already. Eni is shifting away from direct oil and gas and has worked with hydrogen already in Italy, in addition to extensive holdings in Algeria. 

The plan intends to build a GW of solar energy for green hydrogen production. As pointed out in the related article on hydrogen production, solar alone creates a significant problem for electrolyzer utilization, limiting peak manufacturing use to mid-day hours with the tailing off of utilization in the morning and evening. Effectively, powering electrolyzers solely with solar means electrolyzer utilization of 20%-25%. As the Lazard LCOE chart presented in the article shows, that puts hydrogen into deeply expensive categories as the major industrial plant required for a GW of electrolyzers — which are only one of many, many components in the plant — will be sitting idle all night and running at diminished capacity during the morning and afternoon.

This suggests the pure solar play planned for Algeria would have a cost of hydrogen in the range of $4,000 per ton prior to any storage, distribution, or leakage costs.

For context, the European Union Natural Gas Import Price was $32.20 in April 2022, down from $42.39 in March and up from $7.147 a year earlier. This price for hydrogen would be about 11 times more expensive per unit of energy than natural gas prior to the massive price increases from winter shortages and the invasion of the Ukraine, and still three times more expensive than today’s highest prices per unit of energy.

How much green hydrogen could be produced by a GW of solar, you ask? It takes about 50 MWh for process heat to electrolyze a metric ton of hydrogen. The rest of the many components in the process consume electricity as well, so just manufacturing the ton of hydrogen is in the range 60 MWh. A GW of solar will produce about 2,190 GWh of electricity in a year assuming a capacity factor of 25%. That in turn would manufacture about 36,500 metric tons of hydrogen.

The energy density by mass of hydrogen is quite a bit higher than that of methane, the primary component of natural gas. Hydrogen’s 142 megajoules per kilogram is 2.5 times that of natural gas’ 55.5 megajoules per kilogram. That means that the hydrogen is the energy equivalent — at the point of manufacturing — of about 93,000 metric tons of natural gas, or about 110 million cubic meters of natural gas.

That sounds like a lot, but prior to COVID-19 Algeria was exporting an average of 52 billion cubic meters of natural gas annually, mostly to Europe. A GW of solar electrolysis would only create 0.2% of Algeria’s current annual natural gas energy exports. 

Blue Hydrogen

Enter blue hydrogen. When hydrogen is made from natural gas using steam reformation, 8-10 times the mass of CO2 is emitted as the created hydrogen. The premise of blue hydrogen is that the CO2 is captured at that point and injected underground in repositories for sequestration. People with the slightest bit of chemistry in their backgrounds will note a problem. Carbon dioxide (CO2) is almost three times heavier than methane (CH4), and if every bit of carbon is stripped off of the natural gas and turned into CO2 and captured, that means 2.75 times as much gas has to be pumped underground as was extracted in the first place.

So that’s problem one, the process creates vastly more waste CO2 than either the natural gas feedstock or the valuable hydrogen. 

Of course, carbon capture technologies aren’t free, and sequestration of CO2 is not free either. Capture, storage, distribution, and sequestration of CO2 costs from $100 to $140 per metric ton, and that’s after decades of optimization. We’ve been capturing CO2 in industrial processes for 150 years, and using it for enhanced oil recovery for 50. This is very well trodden territory and will not see massive cost reductions. Once again, the price of hydrogen keeps rising. It’s still likely to be cheaper than electrolyzers running at 25% efficiency, but still much more expensive than the hydrogen used today. Further, carbon capture at flue is not 100% efficient. 

While a ton of hydrogen made using steam reformation might have a manufacturing cost of $800 per ton, capturing and sequestering the carbon would add in the range of $800 to $1,400 to the cost, bringing it to a median of $1,900 per ton. This is still five times more expensive than natural gas per unit of energy. As a note, this points out that even hydrogen without CCS is still multiple times more expensive per unit of energy than the natural gas it is made from.

And then there are methane emissions. Methane from fossil fuel sources has a global warming potential 82.5 times that of carbon dioxide over 20 years, and because it degrades faster, only 29.8 times carbon dioxide over 100 years, per IPCC 6 updates. It’s a big climate problem. Outside of very careful sealing and maintenance of all methane extraction, processing and distribution infrastructure, often thousands of kilometers of pipes through rugged terrain, there is no methane capture and sequestration solution. In fact, one odd thing done that reduced global warming from methane was lighting excess methane from oil well production to turn it into CO2 rather than let it escape into the atmosphere. 

Last year there were two lifecycle cost analyses of blue hydrogen published, one peer-reviewed in the US and one awaiting peer review shortly afterward in Europe. I assessed both of the analyses and found the American one more compelling. It uses a baseline of 3.5% of upstream methane emissions and finds that methane emissions are equivalent to the emissions from steam reformation itself. That puts the CO2e emissions from a ton of hydrogen in the range of 16-20 tons of CO2. Assuming 85% efficient CO2 capture, something I consider unlikely to be achieved in regular industrial processes, the actual emissions are still going to be in the range of 9-12 tons of CO2e per ton of hydrogen. Even at 1.5%, another commonly cited number, that’s still in the range of 13-15 tons of CO2e.

Map of larger global CCS installations courtesy of Global CCS Institute

And then there is, sadly, the last problem with blue hydrogen. I’ve assessed every major carbon capture sequestration installation globally, and the vast majority of them are used for enhanced oil recovery. That process puts the CO2 into tapped out oil wells in order to loosen and pressurize previously unextractable crude oil so that it can be pumped out. Every ton of CO2 injected for enhanced oil recovery returns 0.25 to 1.0 tons of crude oil, typically at the higher end of the scale as that’s where it’s economic. This results in 2-3 tons of new CO2 when the crude oil is turned into fuels and burned.

Algeria is an oil-producing country, not just a natural gas-producing country. The likelihood that it will use captured CO2 for enhanced oil recovery approaches certainty. Assuming 85% capture again, the ‘sequestered’ tons of CO2 would turn into 9-17 new tons of CO2 vented to the atmosphere. The likelihood that Algeria will manufacture very expensive blue hydrogen with its high carbon debt instead of even more expensive green hydrogen is high. 

Enhanced oil recovery is a shell game, one the fossil fuel industry is very good at playing, and highly incented to play.

As a side note, electrolysis of water to make hydrogen isn’t perfect either, just much better. There will still be a bit of full-lifecycle CO2e in wind and solar installations until all energy is electricity and the manufacturing, supply, and construction chain has fully decarbonized, but the result right now is at least 200 times less CO2 per ton than blue hydrogen.

Shipping Hydrogen

Algeria already has liquid natural gas export shipping facilities. As the report covers the problems with them in the section on Morocco, it suffices to reiterate that hydrogen must be chilled to 24° Kelvin, that it takes three times the energy as chilling liquid natural gas, that only a 27% of the energy can be carried in an equal volume ship, and that at least 0.2% of the hydrogen would be lost daily due to boil-off.

However, Algeria has natural gas pipelines, and proposes to fill them with hydrogen. Paul Martin is a chemical process engineer who has worked with hydrogen for over three decades as he designed and constructed chemical processing plants, and a founding member of the Hydrogen Science Coalition. He has assessed the ability of existing natural gas transmission pipelines to carry hydrogen, and points out multiple problems.

The first is metallurgical. Natural gas, long-distance pipelines are assembled on site from sections or spiral-coiled steel and welded. As pressure changes in the pipes, something which occurs multiple times per day with pumping regimens, microfractures occur, especially in the welded areas. Hydrogen molecules, being the second smallest in the universe, slip into the fractures and can substantially shorten the service life of pipelines designed for natural gas. This can lead to significant losses due to hydrogen leakage as, once again, hydrogen is a tiny molecule and will leak much more readily than natural gas. The 3.5% upstream methane leakage is likely to be much higher with hydrogen, and remember that hydrogen is much more expensive than methane. Oh, and hydrogen has a global warming potential 7.9 times that of CO2 over 100 years.

The second is energy to push hydrogen through the pipe. Hydrogen, being much more diffuse than natural gas, requires three times the energy to move an equivalent volume through the same distance. This means that the energy costs of an estimated $1.8 billion yearly to transport the 52,000 million cubic meters of natural gas through 1,620 kilometers of pipeline to the EU becomes potentially $5.5 billion, all of which is added to the price of delivered energy.

Of course, in addition to the cost of making the 1,620 kilometers of pipeline fit for hydrogen with sealants so that it doesn’t leak badly, none of the compressors are rated for three times the energy, so all will have to be replaced. Compressor stations for major natural gas pipelines are typically placed every 70 to 110 kilometers, and are starting to be placed undersea, although the Algerian pipelines don’t have that feature. That suggests perhaps 15 compressor stations that fill large buildings with compressors, cooling equipment, scrubbers and filters will all have to be replaced almost completely at significant expense. And hydrogen interacts with electronic components differently than natural gas does, so it’s quite possible sensors in the compressor stations and in the pipeline itself will have to be replaced.

So either hydrogen that costs 5 times what natural gas does today per unit of energy and comes with a very large carbon burden, or hydrogen that costs 11 times what natural gas does without a carbon burden, and in both cases costs billions more to transit through pipelines or ships.

Does anyone really think that Europe is going to pay 5-11 times what it pays now for energy, year in and year out?

What Could Algeria Do With Renewable Electricity Instead Of Making Hydrogen For Export?

Algeria is a country whose economy is heavily dependent on oil and gas, with an oil rent (direct % of GDP) of 14.39%, and hence secondary and tertiary economic factors are likely 2-3 times that. As such, it will have to export something to maintain its economy in anything like its current status. But as the economic analysis of both green and blue hydrogen shows, the cost of their energy is beyond anything that the EU will actually pay. While there is a purported market for hydrogen for energy, there is no hydrogen energy market in Europe today, and at those prices, none will ever develop.

As the costs of distribution for both shipping and pipelines show, hydrogen is expensive to distribute, which is a very big reason why the large majority of it is manufactured at the point of consumption today.

But Algeria does have value propositions for both green energy and green hydrogen.

Electricity generation by energy source courtesy of IEA

Electricity generation by energy source courtesy of IEA

As mentioned earlier, Algeria hasn’t taken advantage of its renewable resources. It has taken advantage of its abundant natural gas to generate all of the electricity it consumes, however. The 80,000 GWh of natural gas generation represents in the range of 40 megatons of CO2 just from burning the natural gas for energy, and of course more from upstream methane leakage. Achieving its climate targets requires cutting natural gas generation radically.

Algeria has an energy transition plan which calls for 25 GW of generation from green and blue hydrogen by 2030. As the analysis shows, regardless of how you make hydrogen, using it for energy would cause energy prices to skyrocket, and using blue hydrogen would also have large carbon emissions making meeting climate targets impossible. This part of the plan isn’t viable.

The plan calls for 27% of power generation from renewables by 2030. Assuming an equal mix of wind and solar, that would require about six GW of solar capacity and 3.5 GW of wind energy capacity along with transmission and storage in eight years, and costing perhaps $8 billion. Given their track record and focus on hydrogen, this is unlikely. 

Build Lots Of Renewables With The Current High Fossil Fuel Price Windfall

What might be the saving grace in this regard is the silver lining for Algeria of the Russian invasion of Ukraine. As natural gas prices have shot up, so have Algeria’s profits. Like all oil and gas majors, especially those supplying Europe, the winter 2021-2022 energy crunch followed by the energy disruption due to the invasion has led to significant black ink on balance sheets. Smart energy majors such as BP and Shell are investing billions in renewable assets, while foolish ones are doing stock buybacks to bolster their sagging share prices, to give context for Algeria’s options. Algeria’s GDP was around $145 billion in 2021, and is going to be substantially higher with high gas prices in 2022.

If Algeria and Sonatrach are serious, they have the billions in hand in hard cash to pay for the wind and solar deployment and related infrastructure. But, of course, there are many competing priorities for this money.

Make Their Own Fertilizer

Similar to Morocco, Algeria used to be a net exporter of fertilizer, but now imports 85% of its needs, including some grey ammonia. Algeria used about 15.5 MT of fertilizer per year, as of 2018. That fertilizer represents in the range of 90 MT of CO2e, although much of the manufacturing and methane leakage is currently externalized to the exporting country.

Algeria already manufactures 3.63 MT of fertilizer annually at a single major complex. Ammonia is about 80% nitrogen by mass so the plant consumes perhaps 0.5 to 0.7 MT of gray hydrogen with its 16-20 times CO2e emissions annually. Obviously a mix of in-country 9.5 GW of wind and solar firmed by storage would give high utilization to electrolyzers which could feed that plant, and others, at more reasonable costs for green hydrogen.

Cleaning up its own fertilizer manufacturing and building more green fertilizer manufacturing fueled by more wind and solar would be a strong win for Algeria’s climate goals, and reduce its foreign currency expenditures on gray ammonia imports.

Share Electricity With The EU In An Intercontinental Supergrid

Morocco already connects to Spain with two connectors. Another crosses the Bosphorus from Turkey into Europe. Routing high-capacity, low-resistance, high-efficiency HVDC cables through Sardinia and Sicily would likely cost less than upgrading natural gas pipelines and compressors, and deliver a vastly larger percentage of energy from renewables to Europe at a vastly lower price, hence one which would find a market.

Further, the two-way connections would mean that Algeria would be able to tap into Nordic hydro and North Seas offshore wind electricity as well. Their total cost of building renewables and storage would drop significantly as they shared electricity across a much broader transmission grid.

At 3.5% transmission losses per 1000 km with HVDC, they would deliver 97% to 98% of the energy to Italy through those two routes. Electricity is the future of all energy, so investing in electrical transmission infrastructure makes more sense than investing in moving molecules. Among other things, renewable electricity from Algeria could be used much more efficiently in Germany or Italy to manufacture hydrogen at point of consumption for industrial processes such as fertilizer manufacturing than making it in Algeria and shipping it.

Algerian wind and solar resource maps courtesy Wind and Solar Atlas


 


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