Examining Hydrogen's Role in Energy Transition to a Low-Carbon Future.

Waqar Syed, MBA

To meet Paris Climate Agreement goals, many countries are increasing hydrogen’s share in the energy mix. In the full report, we study hydrogen and identify investment opportunities within our coverage.

Hydrogen Poised for Substantial Long-Term Growth
Unlike oil/natural gas, hydrogen doesn’t emit carbon when used as an energy source, and also offers superior storage characteristics to electricity. As such, governments have identified hydrogen as an important part of the energy mix to meet 2050 Paris Climate Agreement goals, with the European Union (EU) projecting that hydrogen will meet 13%-14% of its energy needs by 2050 (from under 2% currently), and Canada having a goal of hydrogen comprising 30% of its end use energy by 2050.

The International Energy Agency (IEA) projects hydrogen demand to grow at a modest ~2% CAGR during 2020-2030, but governments are using this decade to lower costs for consumers, and are encouraging significant investments in “green” and “blue” hydrogen, as well as the supporting infrastructure for hydrogen use in many sectors. It is forecast that technical innovations/economies of scale will lead to competitive costs for consumers by 2030, leading to 4% hydrogen demand CAGR in 2030-2040, and 8% in 2040-2050.

Most “pure” hydrogen today is produced from natural gas (76%) with less than 1% coming from green hydrogen, but by 2050, green hydrogen should be meeting ~50% of the hydrogen demand (natural gas with CCUS should still be ~40% of the supply base).

Key Investment Themes and Stock Picks within ATB Coverage
Carbon capture, utilization and storage (CCUS): Upgrading existing “grey” hydrogen plants into “blue” hydrogen plants through CCUS is an estimated $17 billion opportunity. Also, any new natural gas-based hydrogen facilities will likely have CCUS. We highlight FTI-N and KEY-T on the theme.

• Engineering & Construction (E&C): Significant new investment will go into building new electrolysers, benefiting E&C companies such as FTI-N, STN-T, SNC-T, WSP-T, and ARE-T.
• Renewables: Green hydrogen will likely be the highest growth segment through 2050 as renewable electricity will be needed to power the electrolysers; NPI-T and CPX-T are our recommendations in the renewable space.
• Distribution and Transmission: Industry is exploring opportunities to blend hydrogen with natural gas through the transmission and distribution networks, and BKR-N provides the compression systems and hydrogen powered turbines to make it possible.
• Fuel Cell Electric Vehicle (FCEV): Being greenhouse gas emission free, demand for fuel cell electric vehicles is being encouraged by governments, and sales should become very material post 2030, benefiting fuel cell makers.
• Canadian Natural Gas: Canadian natural gas will remain highly competitive in producing hydrogen with CCUS, benefiting a natural gas producer such as TOU-T.

Key Challenges Ahead
Hydrogen growth targets post 2030 are highly dependent on the timing of technological innovations, realization of economies of scale, and how aggressive governments are in meeting the Paris Agreement goals.

Waqar Syed, MBA 720-683-6705