Green Hydrogen Revolution Risks Dying of Thirst

Summary:

Terry Kallis cancelled development of a 6-gigawatt green hydrogen facility in South Australia in May.

Terry Kallis cancelled development of a 6-gigawatt green hydrogen facility in South Australia in May. His Kallis Energy Investments encountered an insurmountable problem: a lack of water.

It's just one of the 680 or so large-scale hydrogen projects under consideration around the world, per the Hydrogen Council, which estimates some $700 billion of investment is needed by 2030 to hit net-zero emissions targets. Plenty of those are likely to die of thirst, too.

Large companies including BP, Fortescue Metals and Reliance Industries are leading the charge into green hydrogen, so called because it's manufactured using renewable energy rather than carbon-emitting fossil fuels. It even helped Fortescue notch up a stock-market premium to rivals. A search for mention of water in prospective producers' statements, though, tends to yield nothing. That raises concerns they're either ignoring the risks, or underestimating how much they'll need, the challenges of securing it, and how much it will cost. Kallis, at least, had taken the rare step of flagging the H20 concern from the start.

Much is riding on green hydrogen's success. From being a niche climate-change solution three or four years ago, it has morphed into something that could power everything from shipping, aviation, and large trucks to industrial processes like making steel and fertiliser. The International Renewable Energy Agency (IRENA) estimates green hydrogen could account for almost a tenth of global final energy use by 2050.

Water is one of the three key inputs for manufacturing it, along with renewable energy and the electrolyser that splits H2O into its constituent parts of hydrogen and oxygen. Trouble is, generating the required power usually means building factories either in areas where industry, agriculture and households are already heavily competing for the resource, or in hot, sun-drenched regions suitable for solar panels. Estimates on how much water is needed to make green hydrogen vary wildly. That's problematic as some 85% of planned facilities are in regions suffering from medium to high water stress, per consultancy Bluefield Research.

Stuck On Stoichiometry

The International Energy Agency, the Australian government's National Hydrogen Roadmap, Goldman Sachs and others state that it takes nine to 10 litres of water to create one kg of hydrogen. That only accounts for the final stage when water's two elements are split, known as the stoichiometric process. Getting to that point requires a larger amount of water. Yet more is needed to keep the electrolyser cool.

All in, Bluefield reckons that could take the total to 24 litres. Engineering consulting firm GHD puts it between 60 litres and 95 litres per kg for freshwater. Yarra Valley Water, a Melbourne utility that unveiled a green hydrogen pilot programme last month, pegs the upper end for the industry as a whole at some 80 litres.

Another source of water is desalination, which involves removing salt from seawater, but it is more water intensive. It also adds extra construction and maintenance costs, including for the vast amounts of brine produced, and approvals for such facilities, if granted, can take years.

Saudi Arabia intends to use it to produce green hydrogen — and drinking water — at its planned NEOM city on the Red Sea. and Norwegian fertiliser maker Yara International confirmed to Breakingviews they are considering using treated seawater in their plants in Western Australia, without disclosing how much they will need. Another option is using wastewater. BP is mulling that for another of its projects Down Under. Yarra Valley Water will tap its treatment plant for its new operation.

Expensive Oversight

Miscalculating water needs will, at worst, leave green hydrogen projects high and dry. For others, it will impact the estimated cost of production. Technological advances in renewables and electrolysers should reduce the outlay from the current average of around $5 per kg. The U.S. Inflation Reduction Act's tax breaks could lop up to $3 off that almost immediately; others, including Reliance Industries boss Mukesh Ambani, reckon it could drop to just $1 by the end of the decade without incentives. Because water is routinely under-priced, IRENA and others estimate it'll account for at most 2% of production expenses, even with desalination.

If such assumptions are based on needing nine litres of water per kg, there's a shock coming. Bump it up to 300 litres — the midpoint of GHD's range for seawater needed — and that's as much as 60 cents per kg for desalination alone, Breakingviews calculates using data cited by University of Delaware researchers. Trouble is, much of this is educated guesswork: prospective producers contacted by Breakingviews would not provide any numbers.

It wouldn't be the first time that big companies suffer from water blindness. It caused delays to Tesla's Berlin factory even though boss Elon Musk laughed off concerns, and forced Barrick Gold to write off $7.5 billion on one South American mine.

The imperative for decarbonisation may yet outweigh concerns over the cost, if not the availability, of water. Stakeholders, financial and otherwise, need to have all the relevant information to make that call, though. A campaign for transparency about green hydrogen's water needs would be an ideal one to be championed by the Valuing Water Finance Initiative launched by 64 money-management firms in August. It could help others like Kallis to avoid pouring money down the drain.

Source: Reuters

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Remarks of Officials

San Francisco Fed President Mary Daly said in a speech on Oct. 4 that interest rates need to continue to be raised, keeping policy unchanged until inflation is actually reduced, after which it will remain at a restrictive level for some time.

Judging by long-term price expectations, inflation has not actually become entrenched in the U.S. public, and to prevent it from becoming entrenched will require the Fed to "follow through on its commitment to lowering inflation, which means raising rates further and keeping this restrictive policy in place until we actually achieve getting inflation back down to the target."

"Our path to a soft landing is narrow, but not impossible, and there is plenty of room to slow labor market growth before we fall into the severe recessionary environment predicted by some people."

The Fed is expected to be able to slow economic growth and the labor market. This will lead to increased unemployment, and a rise in the unemployment rate to 4.5% would be the appropriate range.

"We can not be complacent, there is still a lot of room to use tools to reduce inflation; without price stability, the economy can not reach its full potential."

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Damon

The Asia-Pacific is a ticking time-bomb. Some may even want it to tick faster. And no one seems to be in any hurry to avert likely disaster. Not the United Nations (UN), resolved at birth "to save succeeding generations from the scourge of war". Nor the Asean Regional Forum (ARF), conceived to preserve and enhance the region's peace and prosperity, including through efforts to resolve conflict.

The region is now more fragmented, militarised and polarised than ever as a resurgent China is perceived as a threat by the US and its allies. Contending regional economic blocs have emerged, security groupings consisting of the US and her allies have increased and arms expenditures have spiked.

China's expansive claims and militarisation of the South China Sea have caused apprehensions among the international community. Its assertive behaviour with respect to disputed territories in the South and East China Seas has raised serious concerns among the affected states, including Malaysia.

Sanctions and a perceived common threat from the West have succeeded in driving China and Russia closer together, though China has reservations regarding Russia's invasion of Ukraine.

Frustrated at the lack of meaningful engagement with the US, North Korea passed a law in September that declared its nuclear weapon status "irreversible". The law also prohibits further talks with the US on denuclearisation, though Pyongyang will no doubt respond when it considers conditions appropriate.

The region edged closest towards conflict earlier in August when China conducted intensive military drills around Taiwan as a reaction to what it deemed was a deliberately provocative visit to the island by US House of Representatives Speaker Nancy Pelosi.

The potential for conflict and war between the China and the US and its allies remains as provocations and reactions continue to destabilise the region.

The latest aggravation is the passing of the draft Taiwan Policy Act by the US Senate Foreign Relations Committee. It is set to be tabled soon at the US Senate and House. The Act proposes to designate Taiwan a "major non-Nato ally" and enhances US political, economic and military ties with the island. The proposed Act further compromises US observance of the one-China policy.

War in the Pacific could well be far more disastrous in its consequences than the war in Ukraine. It will directly engage the military forces of several major powers, impact gravely on some of the world's largest economies, unhinge the world's busiest trading routes and supply chains, and wreak extensive environmental damage.

Above all, millions of people could be displaced or perish. The humanitarian cost can be colossal. The entire region and the world, already reeling under the effects of the Covid pandemic and the war in Ukraine, will suffer from the fallout. Restoring order, peace and growth will be a mammoth task.

War and turmoil on both sides of the Eurasian landmass will bring mankind the closest to yet another horrendous World War three-quarters of a century after the last.

With the World Bank raising the possibility of a global economic recession next year and the worsening environmental and climate conditions around the globe, it looks like a perfect storm is brewing.

The danger is clear and it is present. Concerted action is required to prevent the region from sliding further towards disaster. The two institutions that are perhaps best to shepherd this effort are the UN and Asean. Despite their acknowledged weaknesses, they possess some of the qualities necessary for the role. Working in support of each other, there is much that can be achieved.

The UN has to make its presence felt in the region, as much as it has with respect to the turmoil in Ukraine. Secretary General Antonio Guterres is the voice of the international community. He can bring to bear the tools that are available to the organisation, including the UN General Assembly, to persuade the major powers.

Asean is recognised as a neutral and non-aligned organisation that is dedicated to the promotion of peace and stability through dialogue and cooperation. Importantly, it anchors the ARF, which includes among its participants all the major powers as well as the other countries in the Indo-Asia-Pacific region.

The fundamental challenge before the UN and Asean is to help the region navigate peacefully from a unipolar world centred in the US and the West for the last three hundred years to a more multipolar geo-economic order in which wealth at the top is shared with several Asian and other emerging economies.as well.

This overarching geopolitical issue colours and aggravates virtually every other security problem in the region. They include the three flashpoints of likely conflict, namely the cross-Strait issue, the situation on the Korean Peninsula, and the disputes in the South and East China Seas.

Uppermost is the need to prevail upon the major powers and the immediate countries involved to abide by international law and recognised international norms as they pursue their respective interests. The region will be a much more peaceful place if they do.

The Taiwan issue is the most urgent to address. China and the Taiwan authorities should continue with earnest peaceful negotiations. Third parties should assist both Beijing and Taipei in this matter, instead of stoking sentiment and taking actions that aggravate the situation.

They should abide by the one-China principle and avoid taking sides. They should cease conducting naval patrols in the Taiwan Strait and holding joint military exercises in the vicinity. They should stop making statements attacking either side. This will greatly assist to lower tensions and foster an atmosphere more conducive to peaceful negotiations.

Source: the edge markets

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Remarks of Officials

Federal Reserve Governor Philip Jefferson (Philip Jefferson) said in a speech on October 4: Reducing high inflation is the Fed's top priority, for which it may take some time for economic growth to weaken. Monetary policy takes time to fully impact, and in my brief time on the Federal Open Market Committee, the Fed has acted boldly to address rising inflation, and we are committed to taking further necessary steps.

Jefferson said high inflation in the U.S. is his biggest concern, and he worries that while oil and gasoline prices have come down in recent months, fluctuations in prices of the goods to which people pay the most attention, like food and housing, will affect expectations of future inflation.

With still-strong labor demand and sluggish labor supply, the job market remains very tight. Workers are moving between jobs more rapidly than in the past, putting upward pressure on wages. In a market with more job openings than workers, the competition to fill vacancies is leading to rapid wage gains now, and the resulting salary compression may lead to further upward wage pressures in the future.

This is Jefferson's first public speech since he became a Fed governor (with permanent voting rights during his term) in May this year. The day before Jefferson's speech (October 3), the Fed's third in command, New York Fed President Williams likewise said that it would take time to reduce high inflation, arguing that the Fed's fight against hyperinflation has not been a great success, monetary policy has not yet had a limiting impact on the economy.

Jefferson's Speech

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Devin

EU ambassadors reached an outline agreement on new sanctions to hit Vladimir Putin's war with Ukraine, including a price cap on Russian oil sales, according to seven European diplomats.

The package, which is the 8th round against Moscow, was proposed by European Commission President Ursula von der Leyen last week, after the Russian president threatened to use nuclear weapons and mobilised hundreds of thousands of reservists.

A range of EU countries had raised concerns over the new measures, especially on the oil price cap, and details still need to be signed off in writing.

The EU has been working to make Putin "pay" for his escalation of his invasion, which included holding sham referendums in order to annex four regions of Ukraine.

Since the invasion began in February, the Kremlin's war chest has swelled from tens of billions of euros of fossil fuel sales to Europe, though EU governments have stepped up efforts to move away from Russian energy.

A ban on most crude oil imports from Russia will come into force in December, and the latest sanctions plan builds on those measures. Coal imports have already been phased out and gas supplies from Russia to Europe have been severely disrupted — first by Putin's power games and then by the sabotage of two undersea Nord Stream pipelines.

For European leaders, the task has been to find new ways to target Moscow's income from energy while avoiding the risk of shortages, soaring prices, and potential blackouts at home this winter.

Tuesday's outline deal was agreed in the room at a meeting of ambassadors, who are expected to approve the final version of the text on Wednesday, the diplomats said, speaking on condition of anonymity because the discussions were private.

The draft measures provide for the legal basis of the price cap, which was previously agreed by G7 countries. There is no decision yet on the actual price, or the price range, of the future cap, though the U.S. has suggested this will come within weeks.

Malta, Greece and Cyprus, whose tanker fleets transport most Russian oil, were worried about the impact of the cap on oil prices on their shipping industries. This led to some concessions toward those countries, according to a draft of the text dated Monday and seen by POLITICO.

For example, the draft mentions a monitoring system by the Commission, which would asses circumvention practices such as the reflagging of vessels. If the Commission finds "significant loss of business" due to these evasive practices, it would "propose measures to mitigate" the impact of these techniques to evade the price cap measure.

The package also aims to hit the Russian steel industry and deprive the Kremlin's military of key technologies. It includes more measures against individuals assisting Russian President Vladimir Putin's war effort. It also bans EU nationals from sitting on governing boards of Russian state-owned enterprises.

The history of EU sanctions packages has been fraught. Hungary, for example, led opposition to plans for a complete ban on Russian oil imports, holding up the process for weeks until it secured exemptions for its own supply needs.

Given the tensions and difficulties in the past, some diplomats remained cautious even after Tuesday's verbal agreement had been reached in the room. One said there remained a "limited" chance that the deal could still unravel, while another said that the preliminary deal "should be" finalized on Wednesday morning.

EU ambassadors were keen to have deal on the sanctions package by Wednesday at the latest. They did not want internal discussions on the discussion to overshadow the meetings of European leaders taking place in Prague on Thursday and Friday.

Source: POLITICO

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Alex

South Korea and the U.S. military conducted missile drills in response to North Korea's launch of a ballistic missile over Japan, as the United Nations Security Council prepares to meet over what was Pyongyang's longest-range test.

Nuclear-armed North Korea test-fired an intermediate-range ballistic missile (IRBM) farther than ever before on Tuesday, sending it soaring over Japan for the first time in five years and prompting a warning for residents there to take cover.

South Korean and American troops fired a volley of missiles into the sea in response, South Korea's Joint Chiefs of Staff said on Wednesday, and the allies earlier staged a bombing drill with fighter jets in the Yellow Sea.

The military separately confirmed that a South Korean Hyunmoo-2 missile failed shortly after launch and crashed during the drill, but that no one was hurt.

South Korea's military said that the missile carried a warhead but that it did not explode, and apologised for causing residents to worry.

The U.S. military and its allies have stepped up displays of force and the White House National Security Council called the latest test "dangerous and reckless."

U.S. President Joe Biden and Japanese Prime Minister Fumio Kishida condemned North Korea's test in the "strongest terms," the European Union called it a "reckless and deliberately provocative action", and U.N. Secretary-General Antonio Guterres condemned the launch and said it was a violation of Security Council resolutions.

The U.N. Security Council will meet on Wednesday to discuss North Korea at the request of the United States, despite China and Russia telling council counterparts they were opposed to an open meeting of 15-member body. They argued that the council's reaction should be conducive to easing the situation on the Korean Peninsula, diplomats said.

It was the first North Korean missile to follow a trajectory over Japan since 2017, and its estimated 4,600 km (2,850 mile) flight was the longest for a North Korean test, which are usually "lofted" into space to avoid flying over neighbouring countries.

Analysts and security officials said it may have been a variant of the Hwasong-12 IRBM, which North Korea unveiled in 2017 as part of what it said was a plan to strike U.S. military bases in Guam.

Neither North Korea's government nor its state media have reported on the launch or disclosed what type of missile was used.

The flight has increased concerns that North Korea may soon conduct an expected nuclear test, which would be the first since 2017.

South Korea's defence minister, Lee Jong-sup, told parliament North Korea had completed preparations for a test and might use a smaller weapon meant for operational use, or a big device with a higher yield than in previous tests.

South Korean President Yoon Suk-yeol called the test "reckless" and said it would bring a decisive response from his country, its allies and the international community.

The launch was a "reckless and deliberately provocative action" that violated U.N. security council resolutions, a European Union spokesperson said.

Source: Reuters

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Devin

Europe is entering winter with a near-record volume of gas in storage after buying large volumes at almost any price over the summer to prepare for an interruption of supplies from Russia.

Gas inventories in the European Union and the United Kingdom (EU28) had climbed to 996 terawatt-hours (TWh) by Sept. 30, according to data from Gas Infrastructure Europe (GIE).

For the time of year, inventories were at the third highest on record, with higher volumes only in 2020 (1,074 TWh) and 2021 (1,067 TWh) (“Aggregated gas storage inventory”, GIE, Oct. 4).

Storage had risen by around 700 TWh from its post-winter low, the second-fastest increase on record, as suppliers purchased as much gas as possible despite exceptionally high prices.

As a result, stocks ended the summer refill season +98 TWh (+11% or +0.83 standard deviations) above the prior ten-year average.

This is a huge turnaround from the end of January, when they were -134 TWh (-23% or -1.34 standard deviations) below. Mission Accomplished? Europe Fills Gas Storage Ahead of Schedule_1

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Inventories are likely to continue increasing for at least another three weeks until late October, but the build could persist into early November, depending on temperatures and how far high prices restrain consumption.

Since 2011, the median date on which storage peaked was Oct. 26, but in two cases inventories continued rising into the first half of November.

Late-season storage builds are doubly beneficial for supply security: late builds increase pre-winter inventory and postpone the start of depletion.

Exceptionally high prices should prolong storage builds this year later than normal unless temperatures become exceptionally cold by late October.

Based on previous seasonal movements, storage is expected to peak around 1,025 TWh, with a likely range from 1,009 TWh to 1,053 TWh.

But the volume of gas in store is still increasing at an average rate of more than 2.3 TWh per day, implying it is likely to climb towards the top of the range.

Is it enough?

EU storage is more than 89% full and UK storage is more than 94% full, with extra stocks likely to be added over the next 3-6 weeks.

Storage is well ahead of the formal target of 80% this year (preferably 85%) by Nov. 1 agreed by the EU in June (“Council adopts regulation on gas storage”, European Council, June 27).

European governments have fulfilled their stated objective of maximising the volume of gas in storage ahead of winter 2022/23 to reduce the impact of a disruption of pipeline supplies from Russia.

But storage is intended to deal with seasonal variations in consumption, not provide a strategic reserve in case of an embargo or blockade.

Maximising the volume of stored gas will alleviate the impact of any supply disruptions but it is not enough to guarantee supply security.

In the event of a complete cessation of imports from Russia, a colder than normal winter, or both, gas would become scarce before the end of March 2023.

Even if Europe scrapes through this winter, inventories are likely to end at very low levels, requiring another, perhaps even bigger, restocking next year ahead of winter 2023/24.

Inventory accumulation has put Europe in a stronger position than at this time last year but regional supplies are still at risk which will require further action from the market and policymakers.

Supply security depends critically on the ability to reduce consumption well below prior year levels - irrespective of temperatures and the level of heating demand.