Hydrogen markets need transparency; a price reporting agency looks to give it some

When looking out over alternative low-carbon energy sources for the future of trucking and other forms of transportation, hydrogen plays an increasingly central role in the discussion. But what does hydrogen cost and what does it need to cost to be competitive with diesel?

S&P Global Platts, already the leading producer of petroleum and other benchmark price data, has launched what is believed to be the first daily price assessment for the value of hydrogen, with assessments in multiple locations and for hydrogen produced through different types of processes.

Platts earlier this year released a report that painted an optimistic scenario for hydrogen use in trucks. 

Zane McDonald, a senior researcher with the Platts Analytics segment who studies alternative transportation fuels, laid out the price challenges hydrogen faces. In an interview with FreightWaves, McDonald said that using the current performance parameters of the Toyota Miria, a hydrogen car, hydrogen would need to be $3.50/kilogram to break even against a diesel price of $3/gallon. That figure, he said, assumes differences in maintenance costs, weight and other aerodynamics that would come with a truck powered by hydrogen rather than diesel. 

The current retail price of hydrogen at a distribution station in California? About $16/kg.

But while that bridge may seem insurmountable, Platts officials said they believe transparency can work to bring prices down. Simon Thorne, the global director of generating fuels at Platts, noted that about a dozen years ago the price of LNG was opaque. 

“LNG was not transparent and LNG is not dissimilar to hydrogen,” Thorne said. “It’s a combustible gas, it is a liquid when it is super cold and it can move on boats.” LNG prices are now highly transparent through a Platts assessment known as the Japan Korea Marker (JKM), published daily, and they have been trending downward for that decade.

The Platts assessments will actually be an indicator of the cost of production rather than an estimate of where hydrogen is trading in the free market, where, Thorne noted, it doesn’t actively trade anyway.

Platts will use its daily assessments for the price of electricity and natural gas to estimate the cost of producing hydrogen from the steam methane reforming process as well as the proton exchange membrane electrolysis process. There will be assessments for California, where the state’s low-carbon fuel standard (LCFS) provides a huge incentive to use hydrogen in transportation, and the Netherlands. A set of the assessments will factor in the value of the carbon allowances that are generated by the production of hydrogen, a revenue stream that can often be the difference between profitability and red ink. 

The assessments will be in dollars/kg for California and euros/kg for The Netherlands.

Platts does have a history of a cost-based approach to producing assessments for non-liquid markets. After World War II, it began producing the Channel Index, derived by taking the open market price of gasoline and diesel in the Gulf of Mexico and netting it back to Europe using freight costs. This seemingly simple formula actually provided enormous transparency into the highly opaque and controlled European fuels market, a major step in Platts current dominant position in the markets. (Full disclosure: I am a former Platts editor).

Thorne said the current hydrogen market has some similarities. He said most hydrogen transactions are based on long-term deals at a price negotiated by buyer and seller. “There are substantial questions whether the mechanism used to value those long-term deals are as relevant today as they were a few years ago and whether the industry can benefit from increased transparency and increased awareness about the cost of production,” Thorne said. 

He added that he sees hydrogen markets as being “not at a dissimilar moment” to what was occuring in LNG more than 10 years ago. 

But Thorne also noted that he thinks hydrogen transparency will come sooner than it did in LNG. For example, he cited the Tokyo Olympics’ plan to run the Olympic Village on hydrogen  as being a boost to transparency. 

Roman Kramarchuck, the head of  energy scenarios, policy and technology, cited the California LCFS and the Tokyo Olympics initiative as “niche policies” that can have an outsized influence on moving the market. “What Japan is doing and what we’re doing is going to drive down the costs, which could mean that in 2030 we’re at a much more level playing field,” he said. 

While they are not heavily part of the Platts base of sources and subscribers, the fact is that oil refiners and petrochemical plants also produce hydrogen as part of their operations, and they very much are in the Platts network. 

“A lot of the hydrogen industry doesn’t have a lot of experience in the hydrocarbon trade,” Thorne said. “We want to partner with them to provide transparency and show what is possible.”

Additionally, energy company investments that go out years need some sort of financing signal; bankers all but demand it. What is the cost of hydrogen versus the cost of petroleum going forward? It’s that sort of question that Platts thinks it can provide data input for.