Germany Sees No Role for Natural Gas in Draft Plan for Hydrogen

(Bloomberg) -- Germany will include only the greenest sources of hydrogen in a package of incentives designed to build up the fuel as a low-carbon source of energy, according to a draft government strategy document.

The move, if endorsed by Chancellor Angela Merkel’s cabinet, would be a blow to natural gas producers, which increasingly see hydrogen as part of the way they can adapt to tightening rules on greenhouse gas emissions.

Hydrogen burns without producing carbon dioxide and has the energy to provide temperatures of 1,000 degrees Celsius or more needed by steel makers and oil refiners. Yet much of the fuel currently is derived from natural gas, throwing off carbon emissions in the process. Germany wants to focus its support on green hydrogen, where the gas is made with electricity from renewables.

“From the federal government’s point of view, only hydrogen that is produced on the basis of renewable energies is sustainable in the long term,” according to the draft government document seen by Bloomberg News. “It is therefore the goal of the federal government to use green hydrogen and to support a rapid market ramp-up and to establish corresponding value chains.”

Germany is the main importer of natural gas in Europe, and the industry is drawing up plans on how to adapt the fuel and its systems to a future hydrogen market. Germany’s main objective is to produce hydrogen on a large scale, and the natural gas industry wants to maximize its involvement in that work.

“It is disturbing that the government wants to slash any ideas of technology openness,” said Timm Kehler, chairman at the gas industry lobby group Zukunft Erdgas. “It will limit Germany’s production capacity of CO2-neutral hydrogen and eliminate the country’s own industry from the game.”

Economy and Energy Ministry spokesperson said the ministry doesn’t comment on drafts that are still in preparation. The document is due to be discussed by Merkel’s Cabinet on March 18.

An earlier draft of the strategy that circulated in January included stimulus for hydrogen produced from fossil fuels -- so long as those are coupled with solutions to eliminate emissions from the production process. An example is so-called blue hydrogen, which is conventionally produced from natural gas coupled with carbon capture and storage. Another is “turquoise” hydrogen, made from natural gas with pyrolysis and permanent storage or binding of carbon.

Natural gas producers from Equinor ASA to Gazprom PJSC are looking to tap into the potential for hydrogen in the German market.

The decision to eliminate natural gas from the stimulus package is the result of an intense debate among different areas of the government. The Economy Ministry saw the use of natural gas as something that could leverage the hydrogen market quickly. The Environment, Development and Research ministries believes that this could only delay the development of a clean hydrogen market.

It’s also a further evidence that the natural gas industry is struggling to find its place in a future low-carbon economy. Demand for fuel in Europe is expected to fall 4% by 2030 and another 6% by 2040 under a scenario set out by the International Energy Agency. The outlook is negative even with countries like Germany eliminating coal and nuclear energy production, which could open up great opportunities for less polluting fossil fuel.

“We would like to see a hydrogen economy being developed in a cooperation between large industrial users, gas transmission operators and gas producers,” Tor Martin Anfinnsen, a senior vice-president at Norway’s Equinor, said in an interview last month. “This also requires governments to regard hydrogen from decarbonized gas as one of the viable solutions.”

Heating sector

Another big change from the government’s first draft to the last one is the withdrawal of heating from the sectors to receive incentives to use hydrogen.

Germany is focusing on sectors that cannot be decarbonized in any other way, namely the steel and chemical industries. Certain areas of maritime, heavy shipping and long-distance transportation might also be ripe for using the fuel, according to the new draft.

Germany already uses blue hydrogen in various chemical and industrial processes as the production of ammonia. But “as far as possible,” these applications also must be converted into green hydrogen-based production to qualify for support, according to the document.

Production Capacity

Germany’s government considers developing a strong production capacity as a first step for the hydrogen market ramp-up.

In the first draft, the target was to raise production of the gas using electrolysis to as much as 5 gigawatts from less than 1 gigawatt at present in order to have a fifth of hydrogen consumption via renewable resources by 2030. Now, Germany is considering to raise that target to up to 15 gigawatts of electrolysis capacity. No final decisions have been made yet.

To contact the reporters on this story: Vanessa Dezem in Frankfurt at vdezem@bloomberg.net;Brian Parkin in Berlin at bparkin@bloomberg.net

To contact the editors responsible for this story: Reed Landberg at landberg@bloomberg.net, Andrew Reierson

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