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The Hydrogen Economy:
Opportunities and risks in the
energy transition

Risk bulletin | April 2021

 

Hydrogen is predicted to play a leading role in the energy transition with the “green oil of the 21st century” increasingly promoted by governments worldwide. As an alternative to fossil fuels, it could be a valuable tool for tackling climate change in future, helping many industries to reduce their CO2 emissions.

This risk bulletin from Allianz Global Corporate & Specialty (AGCS) highlights some of the opportunities and challenges of a trend at the forefront of the energy industry and also assesses the risk environment of technologies associated with the production, storage and transportation of green hydrogen.

Hydrogen (produced from low-carbon or even renewable energies) is of growing importance for the substitution of fossil fuels in the fields of energy, supply, mobility and industry. It is widely available with its main advantage being that it only emits water when burned and it can be produced without releasing CO2. Hydrogen can be stored, liquified and transported via pipelines, trucks or ships. Ultimately, it could help several hard-to-abate sectors such as the steel petrochemical and cement industries to decarbonize and reduce CO2 emissions while even buses, ships and trucks could also run on hydrogen in the future.
There are various methods by which to produce hydrogen (and these can be divided into two groups regarding the fuel to do so – fossil fuels and renewable sources. The vast majority of hydrogen today is currently made from fossil fuels. Currently, global hydrogen production is about 120 million tons per year,1 of which two-thirds is pure hydrogen and one-third is mixed with other gases. About 95% of all hydrogen is produced from natural gas and coal while 5% is a by-product of chlorine production through electrolysis.
Driven by climate change, the possibilities of energy storage, use as a fuel and the long-term intention to replace reliance on coal and oil, many countries around the world have already launched significant hydrogen funding programs. As of the beginning of 2021, over 30 countries have produced hydrogen roadmaps and governments worldwide have committed more than $70bn in public funding according to consulting firm McKinsey.
Such government initiatives mean that project activity is picking up speed around the world. According to an analysis by consulting firm McKinsey,3 there are more than 200 large-scale production projects in the pipeline and, if all projects come to fruition, total investments will exceed $300bn in hydrogen spending through 2030 – the equivalent of 1.4% of global energy funding.
Hydrogen offers several options for the transition to a renewable economy: as an energy carrier and storage medium for conversion back to electricity, as fuel for all means of transport and mobility and as a substitute for fossil hydrocarbons in different industries, such as, steel production, petrochemicals and refineries.
Work is underway worldwide to further develop technologies in the fields of hydrogen electrolysis, storage and transport. Many of the technologies used for the generation of hydrogen and energy from hydrogen are well known in principal.The vast majority of hydrogen today is produced and used on-site in industry. The production of ammonia and oil refining are the prime purposes, accounting for two-thirds of hydrogen use.
Fire and explosion protection can be considered on three different levels:
 
  • Primary explosion protection – Avoidance of explosive mixtures
  • Secondary explosion protection – Avoidance of ignition sources
  • Tertiary explosion protection – by design measures
Given the numerous projects planned around the world, insurers can expect to see a significant increase in demand for insurance in future to construct and operate electrolysis plants and pipelines for green hydrogen production and transportation.
with Anthony Vassallo, Senior Underwriter Onshore for AGCS Regional Unit London & Nordics highlighting some of the opportunities and challenges
Photos: Adobe Stock
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