Economic Report 2020

Hydrogen Hydrogen, similar to CCUS, has the potential to be integrated into current operations and, in time, reduce the reliance on unabated fossil fuels in some power generation, heating and transportation. There are two key avenues for hydrogen production which will be vital in the transition to net-zero - green and blue hydrogen - with the oil and gas sector having the largest part to play in blue hydrogen production. By 2050, it is anticipated that 200 TWh of blue hydrogen couldbe generated fromnatural gas, replacing a significant proportion of future UK gas consumption with a low- carbon alternative. The scale of development required to drive critical mass of hydrogen deployment will require both significant levels of investment and collaboration across the basin and with emerging industries. The integration between blue hydrogen and the development of CCUS at scale, such as the Acorn Project, will be vital in providing an efficient and economic blue hydrogen supply in the UK. The forecast levelised costs anticipate that blue hydrogen production combined with CCS operations will initially provide the most cost-effective solution to decarbonising natural gas at scale, with this also being the most technically feasible initial method of production. This will require significant new investment, however there are major commercial challenges to overcome. The North Sea TransitionDeal proposals outline potential steps

towards creating the business framework and regulatory models which would encourage companies to begin to progress investment decisions with greater confidence. Similar approaches have been taken internationally. The Australian Clean Energy Finance Corporation has committed AUD210 million in debt or equity financing to accelerate net zero, while Germany has also outlined its National Hydrogen Strategy, which includes €7 billion of support for the development of hydrogen technologies. Securing support from the UK government is critical to drive net-zero operations and achieve the UK’s ambition to be a global leader in green finance. If the UK does not keep pace it also risks losing out on the further development of supply chain expertise to other countries. Rystad Energy estimates that $400 billion worth of investments need to be deployed in the hydrogen market worldwide between 2020–35, with collaboration across theenergy sectors andbetween investors and supply chain offering opportunities to unlock efficiencies. In central Europe, collaboration over net-zero projects is already being executed at pace with 11 infrastructure companies integrating to develop EU Hydrogen Infrastructure. To reduce capital costs, existing gas networks will support 75 per cent of the project infrastructure needs. Similar integration within the sector and with external stakeholders will also be required in the UK.

41