Natural gas prices are high around the world. In the UK, recent prices of above 114 pence per therm (about 3.9 pence/5.4 US cents per kilowatt hour) exceed any figures since the wholesale market became established in the 1990s. Similar records are seen across Europe and around the world. Forward contracts predict that these high prices will remain for many months.

Part of the reason is geopolitics. Russia is ‘encouraging’ Europe to move ahead with the Nord Stream 2 pipeline by restricting exports on existing routes, forcing prices higher. Another reason is climate change. Gas demand is higher than usual because soaring summer temperatures are prompting high electricity use for air-conditioning. And in places like Brazil long-term drought has sharply reduced hydro-electric generation, forcing the country to ship in more gas from the US.

The price rise ought to make us even more eager to move away from fossil fuels such as natural gas. The effects of the cost inflation will be felt predominantly by the poorest groups. In the UK, the least well off decile of households devote 8% of their spending to paying for gas and electricity, almost three times as much as the richest decile.

At current gas prices in many parts of the world it will soon be cheaper to use hydrogen as a fuel for heating or for making electricity. (Many existing types of gas turbines can use some portion of hydrogen instead and the main suppliers say that 100% hydrogen will be possible soon).

Earlier this year, the large electrolyser supplier Nel published a formal target for the cost of green hydrogen in 2025, just four years away.[1] It looks for a figure of $1.50 per kilogramme, based on expectations for its own electrolyser costs and, most importantly, a figure of $20 per megawatt hour for electricity supply. Translate $1.50 into a cost per kilowatt hour and we arrive at a figure of 4.5 cents. Compare that to the price of wholesale gas in the UK today, which costs around 5.4 cents per kilowatt hour, making hydrogen prospectively almost 17% cheaper.

The continuing belief that green hydrogen is always ‘too expensive’ to be useful needs to be challenged. We need a robust international supply chain for low carbon hydrogen, probably coming from the lowest cost locations such as Australia and Chile, to help keep heating and electricity prices down. And as reports this week have made clear, it has to be ‘green’ hydrogen because the alternative ‘blue’ product, made from natural gas with CCS almost certainly involves emissions that rule out its widespread use.[2]

[1] https://nelhydrogen.com/wp-content/uploads/2021/05/Nel-ASA-Q1-2021-presentation.pdf

[2] https://www.theguardian.com/environment/2021/aug/12/uk-replace-fossil-gas-blue-hydrogen-backfire-emissions