Global gas firms target industrial ‘clusters’ for first hydrogen clients

Biomethane and hydrogen "will be particularly necessary for sectors where decarbonisation will be hard to achieve – processes that require high temperature heat or steam, or in the chemical and steel industry,” says Pierre Duvieusart, Deputy CEO of GRTgaz. [muph / Shutterstock]

Gas companies in Europe and America are looking at using the existing gas network to serve industrial “clusters” of hydrogen users in sectors like chemicals, cement and steelmaking, adopting a “phased approach” endorsed by the European Commission.

Embracing the EU’s climate neutrality objective is “a real paradigm shift for the gas industry” that will entail delivering “decreasing quantities of natural gas” of fossil origin, according to Pierre Duvieusart, Deputy CEO of GRTgaz, the French gas infrastructure company.

But as the industry scales down fossil gas, it is simultaneously making way for growing quantities of renewable and decarbonised gases such as biomethane and hydrogen, he told a EURACTIV event last week.

“These will be particularly necessary for sectors where decarbonisation will be hard to achieve – processes that require high temperature heat or steam, or in the chemical and steel industry,” Duvieusart said. “And also for heavy road mobility or rail mobility.”

“At an early stage, we see the development of renewable hydrogen in industrial clusters that would combine local supply and demand,” Duvieusart explained.

And although some infrastructure will need to be built around those industrial clusters, this is not expected to be the main issue at the time of investment, he remarked. “We anticipate that the initial cluster networks and the conversion of the existing grid will facilitate the emergence of this network at a very competitive cost,” Duvieusart said.

“A dedicated hydrogen network will be required” at a later stage, he added – mainly to import hydrogen from abroad and to connect producers and customers – but this is more likely to materialise in the 2030s.

“We’ll tend to see clusters initially. Then we’ll see point-to-point clusters but this will be by 2030,” he explained, saying the industry’s long-term vision is to establish a true market for hydrogen, which can be traded internationally like a commodity.

This vision resonates with the European Commission’s “phased approach,” unveiled last year in its hydrogen strategy.

In the first phase, from 2020 to 2024, the European Commission intends to install at least 6 GW of renewable hydrogen electrolysers to decarbonise existing hydrogen use. This is expected to target mainly the chemical sector, which today represents the bulk of hydrogen consumption in Europe. From then on, hydrogen consumption is expected to branch out to other sectors like steelmaking and heavy transport, like shipping, aviation and heavy-duty road transport where electrification is not feasible at the moment.

In a second phase, from 2025 to 2030, local hydrogen clusters – so-called “Hydrogen Valleys” – are expected to develop, relying on local production of green hydrogen transported over short distances.

“In such cases, a dedicated hydrogen infrastructure can use hydrogen not only for industrial and transport applications, and electricity balancing, but also for the provision of heat for residential and commercial buildings,” the Commission said.

EU Commission charts path towards 100% renewable hydrogen

The European Commission unveiled plans on Wednesday (8 July) to promote hydrogen based entirely on renewable electricity like wind and solar, but said low-carbon hydrogen derived from fossil fuels will also be supported in order to scale up production in the short term.

France has taken the lead in shifting to low-carbon gases. In 2015, the government set out a 10% target for 10% renewable gas consumption by 2030, with an intermediary target of 8 TWh by 2023.

“We hope it will be our path to 100% by 2050,” said Catherine Leboul-Proust, strategy director at French gas distributor GRDF, which was among the supporters of the EURACTIV event.

In France, the early focus was placed on biomethane produced from agricultural waste and by-products, which can be used a drop-in replacement for natural gas. Biomethane can be directly injected into the grid, “without major investments,” Leboul-Proust said, except for grid connection and adaptation costs to make gas flow in both directions.

France is now looking towards the next phase of decarbonisation of its gas system. In September, the government published a hydrogen strategy, with a €7 billion plan to install 6.5 GW of electrolyser capacity by 2030.

Biomethane first, then hydrogen

This two-step approach to gas decarbonisation – biomethane first, then hydrogen – was also adopted across the Atlantic by SoCalGas the southern Californian gas company.

“Biomethane is a known technology, which is already integrated in our gas system now,” said Maryam Brown, President of SoCalGas. California is the largest dairy state in the US, it has one of the largest agricultural sectors in the country and is among the largest landfill states as well, she pointed out, highlighting the “very significant” potential to produce fuel from decomposing waste.

“The key is finding those clusters where it makes economic sense to be drawing those waste resources and feed them into the gas system,” Brown said.

SoCalGas has set a target to bring in 5% of biomethane in its system by 2022, going up to 20% by 2030, Brown said, adding the company was “on track” to meet its 2022 goal.

However, the potential to scale up production from agriculture and waste beyond 2030 is limited, she added, which is why hydrogen becomes a more attractive option in the long run.

“The issue with renewable natural gas over time is cost: there is a limit to how much costs of these projects can come down over time. And I think that’s why there is a lot of excitement around hydrogen because of the scalability opportunity,” she told participants at the EURACTIV event.

“Hydrogen really provides that size and scale that we need to decarbonise over a long period,” she added, saying the vision of SoCalGas is to scale up hydrogen production by the end of the decade and into the 2030s. “But to be folding in hydrogen into our system in a significant way in 2030, we need to be doing that work now,” she stressed.

Here too, the initial objective is to target industrial users of hydrogen, Brown said, citing Californian industries such as steel, cement, and glass manufacturing as potential clients. “There are certain uses where electricity cannot provide enough of the heat that’s needed for those processes. And that absolutely begs for gas solutions,” she said.

A similar pattern has emerged further north in Canada. Énergir, an energy company located in Québec, has 60% of heavy industries among its clients. “We’re trying to target those sectors,” said Éric Lachance President and CEO Énergir who also spoke at the EURACTIV event.

The focus on heavy industries is consistent with projections showing hydrogen will be needed to decarbonise those sectors, which cannot fully electrify their production processes.

“So it does make sense to favour those in the long term because there is a competitive advantage for hydrogen in those horizons,” Lachance said.

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Near-silent buses shift around in a residential neighbourhood in the province of Groningen, home to one of the greenest industrial areas in the world. We’re in 2026 and the Netherlands gives the world a preview of what a “hydrogen economy” could look like.

Targets and certification

The key question for policymakers now is how to incentivise the production and use of low-carbon gases such as biomethane and hydrogen.

On the industry side, gas companies have called on the European Commission to introduce a legally-binding 11% target for the production of gas from renewable sources, with a sub-target of 8% for biomethane and 3% for renewable hydrogen.

The industry needs “unambiguous political support” in order to attract the necessary investments, Duvieusart said, calling on policymakers to “recognise the benefits of renewable gas” for the energy system as a whole.

For now, the European Commission seems sceptical about production targets, citing previous experience with biofuels as reason for caution.

In its hydrogen strategy, the EU executive instead backed targeted support for some industrial users of hydrogen with so-called contracts for difference that bridge the gap between the CO2 price on the carbon market and the cost of green hydrogen.

“It is still too early to say whether we need targets for different gases,” said Catharina Sikow-Magny, director at the Commission’s energy department in charge of the green transition and energy system integration.

What’s clear though, is that overall gas consumption will have to decrease by 66-71% by 2050 compared to 2015 levels in order to reach the EU’s climate neutrality goal, she said. By then, any remaining gas in the energy system will need to come from renewable and low-carbon sources, such as biogas, biomethane, hydrogen and synthetic methane, she stressed.

“This of course brings the question of traceability to the table,” Sikow-Magny said, adding that low-carbon and renewable gases will need to demonstrate real carbon savings compared to fossil gas, using an existing EU certification scheme put in place under the renewable energy directive.

“Only gasses that comply with a minimum threshold of emission savings related to their production can be sustainably used and account towards our climate targets,” Sikow-Magny said, adding that the certification scheme will be extended to cover heating and cooling as well as power production.

The Commission is also “currently working on an Union-wide database for liquid and gaseous fuels in the transport sector,” she added.

Green fuels and gases will be subject to sustainability certification, EU says

The EU’s energy commissioner, Kadri Simson, has revealed details of upcoming fuel legislation, saying a certification scheme for renewable and low-carbon fuels and gases is on the horizon.

Gas and methane laws to be tabled “by the end of the year”

The EU’s new certification scheme will be incorporated in a proposal to revise the renewable energy directive – itself part of a broader package of legislative proposals in June aimed at putting the EU on track to reach its updated 2030 climate goals.

It will be complemented by more transparent information for consumers, which Sikow-Magny said can be provided through a system of Guarantees of Origin (GOs) that would include “information on the associated carbon footprint of the gases that we’re talking about”.

“This will be followed up by the end of the year with proposals on how to make the current gas market apt and up to speed for the new gases,” Sikow-Magny indicated, saying this package of gas laws will be presented “together with methane legislation as well.”

But at this stage, she said the Commission was careful not to overregulate, citing a recent paper from EU energy regulators (ACER and CEER), which called for a “dynamic regulatory approach” to hydrogen networks inspired from what has been done before in the telecoms sector.

“I would certainly agree that we should consider a gradual approach with built-in flexibility because there are still quite some uncertainties about how the market will develop, how it will evolve from industrial clusters to a European market,” Sikow-Magny said.

The official added that the Commission was still reflecting on the way forward, and exploring questions, such as: “what criteria should apply to decide where and when regulatory intervention should be sought? Or which regulatory interventions should apply in which circumstances? Or what relevant markets may need consideration?”

“We need to have clarity on these questions before jumping on what ACER and CEER have proposed.”

EU wary about one-size-fits-all target for ‘clean gas’

Setting a target for low-carbon gases such as hydrogen or biomethane is going to be tricky even though the idea is supported by industry, a senior EU official has said, warning against a one-size-fits-all approach.

Greens: focus green hydrogen on existing demand

Environmentalists, for their part, have been openly sceptical about setting a target for renewable and low-carbon gases.

“Do we need targets? To be frank, I don’t think blending targets of any sort are a targeted policy intervention that would be suitable to bring hydrogen demand to the sectors that need it most,” said Stijn Carton, from the European Climate Foundation, a philanthropy group.

“I don’t think putting 2, 3 or 4% of hydrogen in residential buildings is going to achieve anything in terms of heating decarbonisation because that is not a sector where hydrogen is ultimately going to be playing a major role,” he said.

According to Stijn, the key objective for regulators is to implement targeted policies that phase in green hydrogen use in industrial sectors which are expected to be the biggest consumers of hydrogen in 2050.

“And the most logical place to start is where existing hydrogen demand is,” he said, referring to the chemical sector. Today, Europe produces about 8 million tonnes of fossil hydrogen, which are mainly being used as a feedstock in the chemical industry, he said. By way of comparison, the EU’s hydrogen strategy expects 10m tonnes of renewable hydrogen will be produced by 2030 – a little more than enough to meet existing demand.

“It’s only then that we can start thinking about what to do with the additional green hydrogen that will be produced,” he said, citing steelmaking as the next best candidate after chemicals.

Renewable and low-carbon gases are “a premium fuel, it’s going to be scarce, and it’s going to be expensive,” Carton stressed. “It’s going to have to be reserved for sectors where it can really provide the greatest added value,” he added, citing heavy industry, shipping, and the electricity sector, to cover peak demand in the late 2040s.

“This is where the bulk of the demand for renewable gas is going to be situated, or rather where it makes more sense to use that.”

> Watch the full recording of the EURACTIV event below:

[Edited by Benjamin Fox]

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