The Exchanges

Q a challenge that needs to be solved if there's going to be this, these big transcontinental flows of hydrogen, but explain why it's a challenge. Do we have, we get, so let's just say we produce clean hydrogen, uh, At a cost that is, that would make it effective to move it around and use it in a bunch of different contexts. Why is it a challenge to transport it?

A I mean, it's a challenge mostly because of the very low volumetric energy density of hydrogen. So we are talking about the energy which is contained in a volume. It's not about the mass. It's not about, it's really about the volume. So to explain to you, hydrogen has a very, very low energy density, volumetric energy density. So if I compare it with natural gas, and we are talking about hydrogen at normal temperature and pressure. So we have not transformed hydrogen. It's, you know, a normal gas. It's about three times lower than natural gas, but just so that it speaks to you. If I were to compare that with oil, so the ratio between oil and natural gas is about 1000. So between hydrogen and oil, we are talking about a factor which is largely over 3000. So if you want to transport the same energy as in one cubic meter of oil, well, you need more than 3000 cubic meters of hydrogen At normal temperature and pressure. So you see that the boat is going to be quite large if we are transporting that with a boat. And this is usually what you are going to do if you transport energy from one continent to another.

AI assessment note: “mostly because of the very low volumetric energy density of hydrogen.”

Q to natural gas. This is why we have all these LNG terminals getting built up everywhere. We are doing transcontinental trade of, of natural gas, and as you said, natural gas also not nearly as, uh, Energy dense from a volumetric perspective as oil. So we, we've sort of solved that at least to some extent in natural gas with liquefaction. Why is that not just the solution for hydrogen?

A Because of the temperature mostly. I mean, with LNG, liquefied natural gas, the temperature is -160 degrees. With hydrogen, it's -253 degrees. Uh, I don't know whether you have done chemistry or physics in the past, but you know, the absolute zero is minus 273 degrees. So we are just 20 degrees above that. So that's really, really, really super cold, right? I mean, so that's why, you know, in order to liquefy at this kind of temperatures, I mean, first of all, uh, you need a lot of energy. So just in order to do the process, I mean, typically right now it's about, you know, 30% of the energy which is in hydrogen will be, you know, used in order to basically liquefy the hydrogen. Uh, typically for natural gas it's between five to 10%. I mean, now the liquefaction plants are becoming more and more, um, you know, efficient. So that's already a pretty complicated thing. And then, well, you need also, you know, to have a completely different choice of material, which are still being tested. I mean, the liquefaction process, you know, in itself, uh, is known as mature. I mean, we are liquefying hydrogen in order to basically, you know, send that, um, to the space. I mean, this is very much used in the space industry. So the NASA knows very well how to liquefy hydrogen. The problem is to do that at scale, you know, a lot of volume, et cetera, and also to reduce the energy consumption,…

AI assessment note: “Because of the temperature mostly. I mean, with LNG, liquefied natural gas”

Q necessarily, it's a different set of questions though, the same challenge, uh, In a, in a smaller context, if you're talking about transporting hydrogen, 50 miles from the point of production to the point of use, right? This is about, are we going to be putting hydrogen in tanker ships in some form or another and transporting it from one continent to another, which a lot of people have proposed.

A Yes, this is exactly what people have proposed. And I think this is important from maybe not only, you know, a technical point of view, but maybe also from a geopolitical point of view to understand Which countries have said, I am intending to import hydrogen? Because the funny thing is that there are not that many countries which have said, yes, I will import hydrogen. So you have the European Union as a large has said, yes, by 2030, I am saying that I want to import ten million tons of hydrogen. So these are the famous repower EU targets. But by the way, nobody believes in everybody thinks that they are totally aspirational. Among these countries in Europe, there is in particular Germany, who really wants to import hydrogen, and they have already a certain number of projects, etc. But there are also a couple of countries like Japan, like Korea, like Singapore, who have also said, yes, we are going to import hydrogen. For me, a very big question mark. The elephant in the room is China. I mean, some people are saying, yes, China is going to import hydrogen. And other people are saying, well, actually, maybe not. And, you know, it's going to make a huge difference whether China is going to import hydrogen or not. Because, you know.

AI assessment note: “Yes, this is exactly what people have proposed.”

Q hydrogen, you combine it with, with CO₂, Through a process called methanation, you produce CH four, which is natural gas, and then you just use the existing natural gas infrastructure. There's something in some ways very elegant about it. There's something also that I think anyone who's thinking through like the thermodynamics of it sort of hates, but what, what are your thoughts on, uh, what, what people call e-methane?

A E-methane, yeah, for electromethane, or some people are calling it also synthetic methane. The Japanese, I think, are using carbon-neutral gas or LNG because they are going to import LNG. I mean, this is a concept which is particularly popular in Japan because they are thinking that, you know, they don't have to change, indeed, their LNG import infrastructure. This is also a concept which is quite interesting for some companies in Europe. And, and indeed, I mean, one of the key problems is, is the cost, um, of that. I mean, uh, you know, the cost of producing, uh, the e-methane would be, I mean, the estimates from the IA right now is something around 80 dollars per mmbtu, which is about 10 times, you know, the normal price of natural gas. So that is quite expensive. And, and you have also to think about the source of CO₂ because eventually you are going to burn that methane. So there are different concepts. Either you are using CO₂, which is coming from direct air capture, or this is biogenic CO₂, so it might have a cost, and you know that direct air capture is not particularly something which exists at, exists at scale right now. Or you are doing something which has been proposed by the Twin Energy Solution project in Germany from Marco Alvera. You are doing a little circle with your CO₂. So you're taking the CO₂, you are indeed mixing that with hydrogen, transforming that int…

AI assessment note: “one of the key problems is, is the cost, um, of that.”

Q Okay, so the bulk of the price crash in twenty-twenty was probably due to the industrial sector demand declining precipitously?

A It was also the fact that supply didn't adjust immediately, and in particular, you know, um, you have to understand that in regions like Europe, uh, you have two main sources of supply. You have on one side Pipeline suppliers, especially Russia, and you have on the other side LNG. And what happened when we suddenly had this, uh, COVID crisis is that, yes, gas demand started to decline, but also LNG supply was increasing. And suddenly, you know, all these LNG cargos were looking for a home. What is really very important to understand about the European market is that this is basically, uh, the supply adjustment for the global gas market. So if you have a very tight market, then the LNG is going to go away from Europe. Think of Fukushima, for example. You know, when Fukushima happened, suddenly Japan needed a lot of natural gas in order to replace nuclear generation. So all the LNG cargoes went to Japan. So we had a very tight market. The LNG went away from Europe. But in 2020, exactly the opposite happened. The LNG cargos were looking for home. The European market is actually a market where it's relatively easy for LNG cargo to, uh, to, to arrive and to basically be imported because we have third-party access to LNG import terminals, so it's relatively flexible, and on top of that you know exactly what kind of price you are going to get. You are going to get the spot prices, the…

AI assessment note: “It was also the fact that supply didn't adjust immediately”

Q of historical norm. What does it look like over the next year then? Do prices spike right back up, assuming that Russia is continuing to throttle supply? Um, are we potentially entering a, a, Low priced environment for an extended period of time? Like what is the outlook? I know, I know predicting is clearly nearly impossible given what's happened recently, but what are the dynamics that will affect it?

A Absolutely. Totally impossible. But let me give you some very important benchmarks. So first of all, we said that gas prices are lower, but they are still about three to four times higher than what they were before the invasion. So I was just checking before, you know, we are at about, uh, 60 euro per megawatt hour, which is roughly 20 dollars per MBTU. So we are high. We are not in a normal environment. Not yet. The second thing is that unfortunately for Europe, this invasion and the whole thing happened just when global LNG markets were tightening. And this is something that we knew was going to happen Years ahead. Because in the LNG market, it takes a lot of time to bring supply online. Usually for a normal onshore LNG liquefaction plant, you will need about five years to build it. Uh, the record has been built, broken, sorry, by, uh, Calcasieux, which has done, uh, his plant in about three years, but this is more an exception than the rule. And in fact, Many LNG liquefaction plants actually tend to be built with a lot of delays. So we know that the period between 22 and 25 is going to see relatively little additional capacity of LNG. And actually where it's getting even more tricky is that the biggest LNG plant which was expected to start is Arctic LNG too, which is in Russia. And this plant is very likely to be hit by sanctions, so we have absolutely no idea whether it's g…

AI assessment note: “the markets are very likely to be tight up until twenty-twenty-five”

Q I can finally understand it. Let's start with a bit of recent history. So I think the time to begin with is early 2020 when COVID hit. That seems like the first moment when sort of the recent weirdness in the natural gas market Emerged. So take me back to March, 20, 20. What was the state of natural gas markets at that point? And then what happened post COVID?

A Well, I think in March, 2020, we had not yet fully grasped, you know, how serious the situation would be, but it started to emerge in mid-March when everybody realized, and it was, you know, the beginning of the lockdown in Europe, that the situation was extremely serious. And step by step, this is when we started to see gas prices coming down to really low levels. I mean, we have seen prices in Europe at, you know, almost one dollars per mmbtu, which is not something that we have ever seen. I mean, Prices in Europe over, you know, the past few years had been around six to eight dollars per MBTU. So seeing prices at that level was extremely surprising. And then suddenly, uh, you know, we had, of course, a decline in natural gas demand in some parts of the market. But what was really interesting was what happened subsequently in twenty-twenty-one.

AI assessment note: “we started to see gas prices coming down to really low levels”

Q Okay. So, COVID hits, natural gas prices crash to levels that we've, we've never seen before. Then, Fast forward to 20, 21 and things, and this is, this is prior to Russia invading Ukraine. Things had already started to turn in the opposite direction. So what, what started happening then?

A Well, actually, it started as soon as January, twenty-twenty-one. I remember because at that time, I was still working for BP, I was in the office of the chief economist, and we saw the prices in Asia skyrocketing to levels that we had never seen before. And the reason for that is that it became extremely cold in Asia. Very, very cold. To, I mean, levels that we had not seen in China in 15 years. So, People have taken the fact that LNG cargos will be available For granted. So they had prepared for the winter, but they were not particularly worried about, you know, the possibility of getting an LNG cargo because we were just, you know, emerging from a big crisis, a big supply crisis. You know, there was a lot of LNG available. It was actually, you know, too much supply available, so no problem to face the winter. And then suddenly people realized, oh, wow, the market has been tightening. I need to get LNG as soon as possible because my stocks are really declining, and you have to understand that in Japan, Korea, but also China, they do not have as much storage as we do have in Europe and the US. China is a relatively big market, but, you know, the level of storage that they have, you know, compared to Europe is relatively small because they have not been able to build up as fast as, you know, they could or as fast as the market was growing, and as far as Japan is concerned. I me…

AI assessment note: “And the reason for that is that it became extremely cold in Asia.”

Q as Putin might've thought. But I guess the question that seems more salient to me is if it was really a function of Russia throttling supply rather than Europe successfully shifting its demand, um, then could Russia just turn the spigot right back on and everything goes back to how it was beforehand? Or has anything changed fundamentally that is gonna reorient how Europe gets its energy in the future?

A Well, a certain number of things have changed. The first one is that the trust which kind of existed between Europe and Russia is dead. I mean, this is never going to be restored again. I could think of, you know, uh, European countries accepting to import again a little bit more Russian gas. There are still some countries importing, uh, Russian gas, by the way. I mean, uh, I told you in 2021, we were importing one hundred forty billion cubic meters of Russian Pipeline gas. Now we are importing the equivalent of, of 25. So you can see that the reduction is pretty steep. But there are still countries, such as Hungary, for example, which are very happy to import Russian pipeline gas. So the first problem is indeed the trust. The second problem is that, you know, there are a certain number of countries which would never want to be depending on Russia again, and which we are actually preparing to be Independent of Russian pipeline gas. That's the case for Poland, which has inaugurated a new pipeline coming from Norway a few months ago, and which was also increasing its dependency on LNG. And then the third problem is that, well, we have a small infrastructure problem. You remember this Nord Stream One and Nord Stream Two pipelines? Well, they are gone. So, you know, if you want to import as much Russian gas as you can, Did before. That means only one thing. You need to import a lot…

AI assessment note: “Well, a certain number of things have changed. The first one is that the trust”

Q will all become more frequent. So is the, is the, Presumption that the volatility in gas markets will increase over time just purely as a function of increasing volatility in weather? Oh, and I should say also dependence on renewables, right? Same thing, right? Like the, all these things are affected by the weather, and so if the weather becomes more volatile, do these markets just inherently become more volatile?

A I personally think so. I mean, you know, we are completely unable to predict, you know, what the weather is going to be. If I look at Europe, over the past month, we have had extremely cold weather during the first two weeks of December, and now we have completely abnormal weather. I mean, it's 15 degrees outside, and I am in Paris. It's very, very strange. I mean, people were, you know, in the south of France, eating ice cream during Christmas, outside, because, and they were, you know, even going swimming in the sea. Ok, they have to be courageous, because it was a little bit cold. But this is not the type of That you see during the Christmas break. So it's extremely strange, and indeed, because gas power generation is usually the flexible thing which is helping in the power sector, in my opinion, there is no doubt that we are going to see more and more of that. And also, natural gas is used for heating, so it's becoming extremely difficult to predict, you know, how much natural gas you will need For the residential sector from one year to another. I have to say that right now we are pleased in Europe that, you know, uh, the weather is so mild because this is reducing our natural gas demand. But part of me is thinking, okay, but this is going to have implications for later because for example, if we don't have in enough snow, we might have lower hydro levels down the line, lo…

AI assessment note: “I personally think so. I mean, you know, we are completely unable to predict”

Q goes through this sort of frenzied process of trying to figure out how to reduce its reliance on Russian fossil fuels in general, both, I guess, in the immediate term and also ideally for the longer term to avoid this sort of geopolitical exposure. That Europe had. Um, how successful has Europe been in reducing its reliance on Russian fossil fuels? Has that been a success? Do we know yet?

A Well, I mean, uh, first of all, there was a ban on coal imports, which actually started in August. Then we have been, you know, putting in place this embargo on oil, which started in December. Then we are going to have the embargo on refined products, which is going to start in February. And we have been also reducing our imports of natural gas from Russia. But this is where, actually, I disagree with the European Commission, because the European Commission is always very prompt at saying, uh-oh, We have been very successful at reducing our imports of Russian gas. I mean, look, you know, they have been really down. And I'm saying, well, I am very sorry, but actually you have not Mr. Putin cut the gas, because this is exactly what happened. And when you were saying that, you know, the gas prices were increasing, actually the gas prices were going up and down. I mean, the gas prices have never been so volatile. So, for example, I remember I was, um, at a conference speaking. There was somebody from the IA who was presenting just before me, and he was talking about how the gas price, the oil prices were volatile, and, you know, how they were increasing, etc. And I was looking at my phone, thinking, oh my God, what is happening? The gas prices have just doubled during the morning. And this is because Mr. Novak was saying that maybe they would be considering cutting the pipeline Nor…

AI assessment note: “I am very sorry, but actually you have not Mr. Putin cut the gas”

Q natural gas or you need power, you need land. Um, those are things that Japan and Singapore and places like that don't have and Germany may not have enough of. So I get why that would make sense. China has an abundance of land at a, at a minimum and the ability to build stuff like transmission lines. Like what, what is the argument for why China would import hydrogen?

A Well, you would have to ask, you know, the people who have done their studies, because they are not particularly explicit about, you know, that. I think, you know, they are probably comparing the fact that the demand in China is particularly large right now. China is the largest producer and consumer of hydrogen. The numbers vary a little bit, but roughly around a third of total hydrogen demand is consumed in China. And if you want to decarbonize that, then, you know, you would need a lot of low-carbon Hydrogen or clean hydrogen. So I think this is, you know, why some people are seeing China as a potential big market for clean hydrogen. But I think this is actually one of the number one questions that everybody needs to ask himself. Is China going to import hydrogen? And that's probably also what people need to pay attention to. We have not really seen, you know, the Chinese being particularly active in all this Uh, geopolitics of hydrogen, you know, the, um, energy or the hydrogen diplomacy. There have been a lot of deals being signed by a certain number of European countries, Japan, Korea, with potential exporters of hydrogen, but China has been relatively absent of all those deals. So I think, you know, that is a very important question. People are focusing too much on, you know, the usual suspects, and probably not enough on the, on the elephant in the room.

AI assessment note: “demand in China is particularly large right now. China is the largest producer and consumer”

Q ammonia transport ecosystem with all the dangers that that poses? On the other hand, you have people say, well, we already do it, right? We produce a lot of ammonia. All of that ammonia production is centralized. It results in then a You know, fairly large intercontinental transport, existing intercontinental transport of ammonia today for the purpose of fertilizer. So what's so crazy about just expanding what we're already doing?

A Well, I mean, when you are transporting that, you know, you are transporting that, um, in relatively smaller quantities than it would be transported if indeed it becomes a primary carrier of hydrogen. So the quantities would be completely different. You will also be talking about not only, you know, uh, delivering that to ports, but potentially transporting that, you know, forward within countries. I mean, there are a lot of countries' legislations which are not even ready for that. You know, I know that in some countries we have ammonia pipelines, which exist. Uh, ammonia is also transported by different ways, like bike trucks, et cetera, but there are also a certain number of countries for which it is a dangerous product, and indeed people are a little bit skeptical about using that, well, in different, uh, things, in particular in power generation.

AI assessment note: “So the quantities would be completely different. You will also be talking about”

Q over all the other options. Do you see us getting past that? Are there going to be winners for this transcontinental hydrogen trade? And like, what would have to happen for, for winners to emerge? Or are we just going to end up with a bunch of different options? All being proposed, but none of them really taking flight fast enough because they have to compete with all the others.

A So I'm going to give you two-step answers. I think right now what we are seeing is that a certain number of projects based on ammonia seem to be moving forward. One very big example of that is a NEOM project in Saudi Arabia, which is going to export about a quarter of million tons of hydrogen based on ammonia, has basically decided to move ahead and is being built Right now. But more broadly, because I mentioned several times that, you know, if you want to use hydrogen as hydrogen, and we are not talking about using ammonia or using methanol as a final product, which I think, you know, in that condition, this is okay to transport them as such. But if you want to transport hydrogen or to use hydrogen as a final product, then there is a key question about whether it makes sense for Industries. So I'm talking about, you know, steel, et cetera, to import the hydrogen. Or whether it's actually better for countries which have low-cost hydrogen to produce steel, to produce hot briquette iron, and to export these products towards developed economies. And this is a major issue from an industrial point of view. But this is an issue which has to be discussed because this is also a question of, you know, um, The value of hydrogen for the developing countries which are going to be blessed with a lot of renewable potential. I mean, you know, are they just going to get the money from these hy…

AI assessment note: “a certain number of projects based on ammonia seem to be moving forward.”

Q distance in between. Do you have any sense of amongst these five, what, what looks to be the cheapest? Or is it totally dependent on, for example, the future cost of LOHCs or, you know, how cheap it's going to be to get the hydrogen back into gaseous form from a liquefied form? Like, what are the big factors that determine, you know, what wins just on a cost basis?

A Well, I think given that, you know, um, you need for each of these processes to basically scale up or do some improvement on the efficiency, I think, you know, one of the critical factors is probably moving towards one direction and not the five at the same time. Because, you know, it's the same thing as, you know, with the electrolyzers. I mean, you really want to focus and you really want to be able to capture as much as possible. And this is mostly my preoccupation when I'm seeing so many different options Uh, to transport hydrogen. And we have not even talked about actually the best one, which is transporting hydrogen by pipeline, which can also be an option between, you know, different continents and will be definitely an option and the cheapest option for Europe. Uh, I think right now, um, it's, it's a battle between LOHC and ammonia in terms of costs for the kind of next 10 years. But there are people who are saying, yeah, by twenty-fifty, you know, they can all converge To roughly one dollar per kilogram, eventually, or even maybe by 2040. I mean, the question is whether we can actually achieve this kind of cost reduction, because you need to scale up this process, you need to improve these processes, um, if we are moving forward with all of them.

AI assessment note: “it's a battle between LOHC and ammonia in terms of costs”

Q already spiking. They're up in the 30 dollar per megawatt hour. I'm sorry, 30 euro per megawatt hour range. Uh, prior to Russia invading Ukraine, then Russia actually invades Ukraine. So what happened? It sort of supercharged this trend line that was already occurring. What did it look like in natural gas markets, you know, from the point at which Russia invaded Ukraine until, I guess, August of last year,

A I think I should add that we had a lot of drama also during the fall, 20, 21 and the beginning of the winter. I mean, you know, there were all these stories about we have not skimmed to or not. You know, it was the pipeline from Russia to Germany, which was about to be commissioned. And we had a change in the German government. People were thinking, I mean, do we want this pipeline to be commissioned? Of course, the Russians were Adamant that this pipeline should be commissioned, the new government was not so sure. We had a lot of regulatory issues around this pipeline, and this was happening on the back of, ok, Russia is really doing some very strange things with the supply, because, ok, they are fulfilling their long-term contracts, but usually on top of that, they are selling more gas, and they are no longer selling more gas, and suddenly there is no reason for them to sell that little gas, and Russia was owning and operating some Storage facilities in Europe, in continental Europe, and these storage facilities were empty. So, there were people in Europe who were suddenly thinking, ok, this doesn't look good at all. And then, then the war started. The invasion of Ukraine by Russia started in February, 20, 20. And people realized, ah, ok, well, we need to do something. And it's very interesting because the European Commission, you know, was actually preparing, um, Some sort o…

AI assessment note: “I think I should add that we had a lot of drama also during the fall”