Norway weighs its options as a future hydrogen supplier

LONDON (ICIS)–Although Norway is expected to be a major supplier in the developing European hydrogen market, concerns about the level of future European hydrogen demand could limit Norwegian hydrogen investments, a report commissioned by the Norwegian Government showed.

According to ICIS Analytics, Germany’s yearly hydrogen demand by 2030 is set to total between 70-100TWh while domestic hydrogen production is estimated between 18-23TWh, meaning Germany will need to primarily rely on imports to meet its internal hydrogen demand.

Norway, currently Germany’s main gas supplier, is expected to take on the role of a key hydrogen supplier to Germany. In January, state-owned energy company Equinor and German utility RWE signed an MoU to work towards exporting blue hydrogen from Norway to Germany via a dedicated hydrogen pipeline. The agreement is not binding but is an important signal for Norway that hydrogen is in demand in Germany, and more broadly in Europe, as an alternative to natural gas.

However, Norway’s role in Europe’s developing hydrogen market is still uncertain. According to a report commissioned by the Norwegian government and published on 30 May “it is unclear whether the EU in a ten-year perspective can afford to phase out Norwegian gas in favour of hydrogen”.

The report also highlights the risk that energy-intensive industry could move out of Europe and shrink the European market for hydrogen. In particular, the Inflation Reduction Act (IRA) in the USA, which came into effect in 2022 and subsidises green industry, could see European industry moving to the USA.

The report additionally questions whether Norway should produce and export hydrogen, or keep exporting natural gas to Europe, which can be converted to blue hydrogen locally, and facilitate for the transport and storage of CO2 back to the Norwegian Continental Shelf. Already, Equinor and Wintershall Dea is looking into building a CO2 pipeline between Norway and Germany to transport 30-40 million tonnes CO2 each year.

However, pressured EU power and gas supply due to the lack of Russian pipeline gas, combined with the fact that there is a 20% energy loss in converting natural gas to hydrogen, could delay plans to produce blue hydrogen as the gas is needed elsewhere. In this situation, replacing gas with coal for power generation will likely have a larger decarbonisation effect than producing hydrogen, and energy losses during conversion is avoided.

Despite these wide-ranging uncertainties, hydrogen remains a key decarbonisation tool for Europe and the Norwegian TSO Gassco is examining the feasibility of a hydrogen pipeline from Norway to Germany with a yearly capacity of 130-150TWh, roughly equal to the entire yearly Norwegian power production. Whether Norway will invest in hydrogen infrastructure on this scale will depend on European demand signals.