By 2040, increased deployment is narrowing the cost gap between low-carbon gases and natural gas in the SDS

Dollars per Mbtu (2018)

80

60

Interest in low-carbon hydrogen has increased sharply in recent years, reflecting the improvement in its outlook as a low-carbon energy carrier, especially with the declining costs of renewable electricity. Producing low-carbon hydrogen, however, is costly at the moment, and investment in hydrogen and CCUS infrastructure presents significant risks in the absence of assured supply and demand.

Hydrogen is not new to the energy system; supplying hydrogen to industrial users is a major business globally and integrated oil and gas companies typically have extensive experience producing and handling hydrogen. However, only a fraction of this is low-carbon hydrogen. Beyond its existing uses, low-carbon hydrogen could help deliver deep emissions reductions across a wide range of hard-to-abate sectors.

Producing low-carbon hydrogen from natural gas with CCUS costs USD 12/MBtu to USD 20/MBtu, while producing it from renewablebased electricity costs USD 25/MBtu to USD 70/MBtu. Moreover, the development of hydrogen infrastructure is slow and holding back wider adoption of hydrogen.

With these and other barriers in mind, the IEA has identified four major opportunities to scale up hydrogen use over the next decade (IEA, 2019). In all of these areas, co-operation among governments, and between governments and industry, will be essential:

•Make industrial ports the nerve centres for scaling up the use of clean hydrogen. Today, much of the refining and chemicals production that uses hydrogen based on fossil fuels is already concentrated in coastal industrial zones around the world, such as the North Sea in Europe, the Gulf Coast in North America and southeast China. Encouraging these plants to shift to cleaner hydrogen production would drive down overall costs. These large sources of hydrogen supply can also fuel ships and trucks serving

the ports and power other nearby industrial facilities such as steel plants.

•Build on existing infrastructure, such as millions of kilometres of natural gas pipelines. Introducing clean hydrogen to replace just 5% of the volume of countries’ natural gas supplies would significantly boost demand for hydrogen and drive down costs.

•Expand hydrogen in transport through fleets, freight and corridors. Powering high-mileage cars, trucks and buses to carry passengers and goods along popular routes can make fuel-cell vehicles more competitive.

• Launch the hydrogen trade’s first international shipping routes. Lessons from the successful growth of the global LNG market can be leveraged. International hydrogen trade needs to start soon if it is to make an impact on the global energy system.

A key issue for blending hydrogen into gas grids is the tolerance of existing pipelines and equipment for hydrogen, which has different properties from natural gas. There are no such issues with biomethane, which is a ready alternative. Unlike hydrogen, biomethane, a near-pure source of methane, is largely indistinguishable from natural gas and so can be used without the need for any changes in transmission and distribution infrastructure or end-user equipment.

As of today, over 1 billion tonnes of organic by-products and waste are thrown away or abandoned every year. Their decomposition can lead to emissions of methane, which has a significantly higher global warming potential than CO ; the waste, if left unmanaged, can cause land and groundwater contamination. If these waste products were collected and processed in an appropriate way, they could provide a valuable source of renewable energy in the form of biogas.

Biogas is already used as a local source of power and heat, especially for rural communities. If biogas is upgraded to pipeline-quality gas (it is then typically known as biomethane), it could help to reduce the emissions intensity of gas supply in gas-consuming economies.

There are over 700 biomethane plants in operation today producing around 2.5 Mtoe of biomethane globally. Although biomethane represents less than 0.1% of natural gas demand today, its production and use are supported by an increasing number of policies, especially in the transport and electricity sectors.

As with hydrogen, biomethane is also expensive today: meeting 10% of today’s gas demand with biomethane would cost USD 10/MBtu to USD 22/MBtu. Nonetheless, this report estimates that around 730 Mtoe of biomethane could be produced sustainably today, equivalent to over 20% of global natural gas demand. This potential is widely spread

geographically, though some of the lowest-cost options are available in developing economies in Asia.

Industry support for biomethane is coming from a number of areas, including some producers of natural gas. But a key constituency that is increasingly supportive of biomethane is made up of gas infrastructure operators who see that gas infrastructure will ultimately need to deliver truly low-carbon energy sources if it is to secure its role in a lowemissions energy system.

In the SDS, biomethane use rises to over 200 Mtoe in 2040, and more than 25 Mtoe of low-carbon hydrogen is injected into gas networks. Low-carbon gases make up 7% of total gas supply globally in 2040 and they are on a steep upward trajectory at the end of the outlook period. Over 15% of total gas supply in China and the European Union is lowcarbon gas in 2040.

Globally, low-carbon hydrogen and biomethane blended into the gas grid in the SDS avoid around 500 Mt of annual CO2 emissions that would have occurred in 2040 if natural gas had been used instead. In addition, over 80 Mtoe of low-carbon hydrogen is also used directly in end-use sectors in 2040.

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Potential sustainable feedstock

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