Interview with Alexander Roose, head of equity funds and co-lead PM of the DECALIA strategy focused on innovative sectors and disruptive companies.
In this first series on ecology, the focus is on the great untapped potential of hydrogen. More than five decades ago, hydrogen made headlines as the essential fuel source that got Apollo crew members to the moon. Given the urgency for the EU to reduce its dependence on Russian gas supplies and the generational challenge of decarbonising our planet, catalytic factors are finally in place to drive adoption of the hydrogen in various (new) end markets.
How does hydrogen have interesting properties from an energy point of view?
The properties of hydrogen as an energy carrier are astounding. For the same mass, it concentrates twice as much energy as natural gas and three times as much as oil.
Another essential characteristic is that it does not emit carbon dioxide when burned, unlike hydrocarbons. This is why it is called upon to play a key role in the energy transition that is taking shape at the moment.
In your opinion, what factors are currently favoring this rise of hydrogen in the energy sector?
Hydrogen today is catalyzed by multiple opportunities. It can be used as a fuel to decarbonize several heavy industries, the transport industry, as a mode of residential heating or even as a solution for storing surplus renewable electricity produced by solar or wind power.
Between the Green Deal, the post-Covid recovery plan focused on the climate emergency and the recent REPower, voted to get out of the Russian yoke, the European Union is resolutely committed to the path of clean and renewable energy. .
For example, the recently announced REPowerEU policy plans to increase the use of hydrogen by more than 30 million tonnes. The urgency for Europe is to reduce its energy dependence on Russia as soon as possible. Some countries supply Russian gas up to 40%.
Source: “Clean Hydrogen Monitor 2020”, Hydrogen Europe
What is the share of hydrogen in the global energy market today?
To date, hydrogen only occupies a fairly marginal place. According to data compiled by the International Energy Agency, the demand for hydrogen on a global scale in 2020 only amounted to around 90 million tonnes. This mass represents barely 2% of all the energy that the planet consumes in a year. Its main end-market users are the ammonia and petroleum refining industries.
How do you see the hydrogen market evolving by 2050?
According to a recent report by McKinsey, hydrogen could meet a fifth of the world’s energy needs by 2050.
This would contribute 20% of the reduction needed to limit global warming to 2° Celsius.
What are the brakes that still limit the massive adoption of hydrogen today?
Hydrogen has undeniable qualities, but it also has many disadvantages. The production has a high energy intensity, its distribution is complex to say the least and its cost of adoption is therefore quite dissuasive.
As far as its production is concerned, the complications lie in the fact that hydrogen does not exist in its natural state and that it must therefore be extracted from its atomic formation. To date, 96% of hydrogen is produced from fossil fuels.
This is called gray hydrogen. Its price is rather competitive but it has the defect of rejecting a lot of carbon dioxide during the production process.
Ideally, it is better to favor the production of green hydrogen by resorting to the electrolysis of water or the thermolysis of biomass, with renewable energy as the power source.
It obviously costs more to produce, but with the surge in gas prices, it is starting to become competitive.
The other major drawback of hydrogen concerns its distribution. To transport it, it must first be liquefied at very low temperatures, around 250°, close to absolute zero.
From an investor’s perspective, where do you see the most attractive opportunities appearing?
There are clearly very good opportunities that arise, but you have to know where to set foot, because the pitfalls are not lacking.
When we approach the subject of hydrogen, we necessarily think of the fields of transport, the construction of electrolysis and heating capacities or even industrial fuels.
In my opinion, the smartest way to capitalize on hydrogen today is to position yourself on ammonia producers and industrial gas producers who control the supply chain.
Why does ammonia seem so interesting to you?
The first advantage of ammonia (NH3) is to contain a large amount of hydrogen. For one molecule of nitrogen, ammonia contains three molecules of hydrogen. Therefore, ammonia is an excellent means of transporting hydrogen over very long distances, because, once liquefied, it suffices to maintain it at a temperature of -33° Celsius, far from the -250° Celsius required by hydrogen.
Then, ammonia turns out to be an excellent fuel, widely used, which also has the advantage of not emitting carbon dioxide when it is used. It is called for an increasingly important use as marine fuel, replacing diesel. This market is four times larger than that of agricultural ammonia.
There is one final point to mention regarding ammonia. Its producers have facilities that can be converted into blue (with carbon capture) or green ammonia. In addition, the hydrogen and ammonia production processes share the same technological configuration, whether it is gray production (steam methane reforming process) or green production (based on electrolysis ).
Companies that can manage the supply chain can be considered a good investment opportunity. Can you explain?
Hydrogen, you have to know how to store and transport it. This is a fundamental point. There is enormous value to be created in this logistical control.
Companies such as Air Products, Linde, Air Liquide, OCI and CF Industries have positioned themselves very well in this niche and they are therefore called upon to play a decisive role in the energy transition. In Europe, for example, Air Liquide controls 50% of the hydrogen supply chain.
In Europe, for example, Air Liquide controls more than 50% of the hydrogen supply chain (pipeline).
About the DECALIA Sustainable Society fund
• a multi-thematic global equity fund, investing in innovative sectors and disruptive companies that will shape our society of tomorrow
• invests in the 7 themes (Security, O2 & Ecology, Cloud & Digitalisation, Industrial 5.0, Elder & Well being, Tech Med, Young Generation) grouped under the acronym Society
• managed by an experienced team: Alexander Roose (ex-CIO of Fundamental Equity at Degroof Petercam AM) & Quirien Lemey (ex-Lead PM of a multi-thematic fund at Degroof Petercam AM).
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