A speech by Mark Moody-Stuart, delivered on Sep 11 2000.
Mr. Moody is the Chairman of the Committee of Managing Directors (CMD) of the Royal Dutch/Shell Group of Companies and Chairman of The "Shell" Transport and Trading Company, plc. at the International Hydrogen Energy Forum, Munich, Germany.
If hydrogen is successfully introduced into energy markets we can expect a wide range of benefits - including more cost efficient transportation and a decrease in CO2 emissions in the industrialised world.
Furthermore we may be able to mitigate - in a significant way - the enormous increase in greenhouse gas emissions which development in the newly industrialised countries will otherwise almost inevitably create.
The remaining technical challenges, including refinement of fuel cells and the development of a usable storage technology, are still considerable. Just as important are the economic and commercial considerations. The way in which hydrogen technologies are introduced into markets may be decisive in determining their success or failure. Governments should allow industry the freedom to experiment and innovate and not try to determine the precise technology to be used.
If hydrogen can be introduced into energy markets we can reasonably hope to see a broad variety of benefits - including more cost efficient transportation and a decrease in CO2 emissions in the industrialised world. Furthermore we may be able to mitigate - in a significant way - the enormous increase in greenhouse gas emissions which development in the newly industrialised countries will otherwise almost inevitably create.
On-board fuel cells could be powering cars, trucks and, who knows, even heavier vehicles such as trains and ships within decades. Stationary fuel cells could be efficiently and cleanly powering homes and businesses - transforming the structure of the current power industry.
Many challenges
The prospects are fascinating. But, so are the technical, economic and commercial difficulties.
We are still a long way from the necessary technologies and we haven't even really begun to systematically consider all the problems associated with introducing a new technology rapidly into mass markets.
There is an ongoing discussion about which technological path to take - which I will outline and discuss. There are clear differences of opinion in this field - about which path will deliver the most benefits in the fastest way - but a commonly accepted aim. All of us want, if possible, to quickly introduce hydrogen technologies, and reap their benefits, environmental and financial.
Addressing risks
Unfortunately there has been much less discussion about the very real ways in which the whole process could go wrong. If there is one thing that events of the last decade have taught us, it is that public acceptance can never be taken for granted.
At the moment we are only hearing the positive messages about these technologies. But, I don't think I need to remind anyone that the time when scientists could come out of their labs and say: "I've got a great new technology for you" is long gone.
The popular perceptions of the risks involved in hydrogen technologies will have to be measured and addressed. A dialogue with all interested groups - everyone from national governments, to NGOs and customers themselves - will have to be stimulated and maintained. This is vital part of the process of introducing a new technology and it is an area in which co-operation is essential.
We should not view this as a barrier to be overcome, but as a way of involving more people and gaining valuable input from a cross section of different people and different societies.
Understanding and knowledge builds both acceptance and, very likely, valuable contributions.
The alternative - relatively secret development and a sudden introduction of a poorly understood technology - could lead to long-term problems.
Remember when nuclear fission was going to solve all problems, when it was going to be too cheap to metre? Those involved thought everyone would think the same way they did about the risks involved. We all know the result and I don't think any of us want to see the same sort of mistakes repeated.
I would suggest that we have to start preparing the ground now - even before we are sure about how the technology is going to develop. We have to create a dialogue on all aspects - safety, risk and waste disposal in all parts of the hydrogen energy chain.
This process will have to be broad-based, open and transparent. The costs, in terms of time and effort, are considerable. But the potential costs of market rejection are even higher.
This dialogue will provide valuable input to the continuing discussion about which is the most appropriate technology path to emphasize.
Two key technologies:
There are two technologies that are crucial to the way in which hydrogen could be introduced into energy markets.
One is the fuel cell and the second is hydrogen storage. Fuel cell developments have moved very quickly over the past half decade - to the point where we can expect commercial introduction in the coming five years. Hydrogen storage technologies are however much further behind. If this lag remains, which at the moment appears likely, it could prove to be a significant factor in determining how hydrogen is introduced.
This is because storage and transportation technologies - or the lack of them - will be an important factor in determining where in the energy chain conversion is most appropriate and most economical.
Given the technological 'state of play' at the moment, there are two major transition paths we in Shell now view as arguable alternatives: one path based on completely new, carbon-free energy sources and the other path based on existing, mostly fossil fuel, infrastructure.
Carbon free:
Let's begin with the completely carbon free path - based on a new renewable infrastructure. Electrolysis using solar or wind-generated power is one of the most commonly cited models. The obvious, very attractive, feature is zero emissions and understandably, it is the NGO favorite.
Solar or wind power - perhaps in remote locations - would be used to create hydrogen, which would then be piped to consumption points. The main obstacle to this model is economic; it costs massive amounts of money. First the solar and wind installations have to be built. Then the energy they create, at relatively high cost, has to be converted into hydrogen - a further cost. Then a massive infrastructure, of pipes, storage and distribution points has to be created - again at significant cost, perhaps hundreds of billions of dollars.
Who would make such major upfront investments in a risky new technology? While wind is approaching competitive per unit cost, solar is still some way off. It is likely to take some decades before these costs come down to the point where use of wind or solar to produce hydrogen would be truly competitive.
It would also take considerable time before the hydrogen market develops sufficiently to justify such investments. Of course, this process would be significantly sped up if the environmental impact of other energy sources was effectively coasted. In the longer term, this is clearly the best possible energy system - completely emission free and environmentally benign. The question is how to get there.
Nuclear electrolysis - using surplus off peak supplies - is another emissions free route and has the advantage that the hydrogen could be generated at, or near, the point of consumption. This would be economically more feasible - currently - than large-scale solar or wind hydrogen. However there are the ever-present safety and waste disposal questions and the consequent decline in political acceptability of such plants. This problem is well understood and unlikely to go away in the short term.
There are, of course, many ways of improving the underlying economics. Transporting some hydrogen mixed with natural gas, piggybacking on the present natural gas infrastructure, could be an interim step, a way of cutting up-front costs.
That is considered to be technically feasible for up to some 8 per cent of the natural gas flow. That could deliver enough hydrogen to make some impact on electricity markets, but would not make a significant impact on transportation markets.
Fossil synthesis:
Given these obstacles, another path - or more accurately set of paths - appears more feasible. Under these models - which we call advanced fossil synthesis - hydrogen technologies piggyback on existing fuel infrastructures in order to build up enough momentum to generate self-sustaining growth.
In the fossil fuel industry we long ago learned that just having a resource is only part of the battle. Refining and delivering the resource, in usable form, to functioning markets is the process that adds much of the value. As I think I have already made clear, in order to become a major part of the energy system, hydrogen technologies will have to attract massive investment - far more than we see at present.
In essence, the introduction path that is most likely to win through in the short term is the one that is the most economic, flexible - and the least risky. That route involves less exposure for the investors and also creates the opportunity to learn, innovate and adapt as the inevitable new advances are made.
We can already convert fossil fuels to usable hydrogen with existing technologies far cheaper than the solar and nuclear models I have described. Furthermore, and critically, a delivery infrastructure is already in place.
Given the difficulties in transporting and storing hydrogen, and present technological trends, this means conversion into hydrogen must take place as close to the point of consumption as possible. This leads us to vehicles with on-board conversion to hydrogen or, alternatively, conversion adjacent to the delivery point - the retail site.
Such a system would maximize use of present infrastructure, minimizing introduction costs and speeding the overall transition. It would be the path most likely to succeed in creating rapid demand growth for hydrogen technologies, in particular fuel cells. Scale economies in the manufacture of fuel cells, conversion units and the vehicles themselves could be achieved more rapidly, driving down costs. This would reduce risk for investors and create a technological momentum - leading to more innovations and rapidly growing efficiencies.
Storage technologies:
Technological advances in storage technologies will be the decisive element in deciding whether on-board, or stationary, conversion becomes the preferred model. On-board storage, particularly in relatively small passenger vehicles, is still a major technical and economic challenge. In Shell we are actively working on new storage technologies and we believe attractive, safe and economical hydrogen vehicles will become a reality in the near future.
However in the intervening period we are confronted with a quandary. How can we deliver energy to a fuel cell vehicle without a hydrogen delivery infrastructure or an efficient on-board storage system? In Shell we believe the way forward is through on-board conversion of gasoline to hydrogen - through a technology we call catalytic partial oxidization, CPO.
We strongly believe that this is, in reality, the fastest and most economical way to achieve widespread introduction of hydrogen technologies. Because of that, we also believe that this is the most environmentally acceptable way of moving forward. However we know that there are some who disagree and we welcome continuing discussion.
The debate is really about how technological change is most efficiently introduced into markets. It used to be thought that top-down imposition of technologies was the most efficient way. Put it in place and the market will develop - appear out of nowhere. That sort of thinking has much appeal - especially to engineers and scientists.
However, it isn't how markets in the real world work. Back in the late 70s most engineers would have dismissed personal computers as insignificant toys. They were focused on building multi-million dollar supercomputers and main frames - massively expensive infrastructure. They were wrong because they didn't realize that PCs would meet market needs and unleash enormous demand. That has led to rapid innovation, which is transforming the world.
Something similar could happen with hydrogen - as long as we make the path forward affordable and attractive to consumers.
That would then lead to innovation, including the development of viable storage solutions. The expanding market would demand the construction of a hydrogen infrastructure based on distributed generation at retail forecourts.
Opponents of this approach - which has been dubbed fossil infrastructure piggybacking - argue that the environmental benefits they envisage from an emissions free system will be watered down. Their focus is particularly on the shorter-term CO2 emission reduction benefits. Compared to the ultimate benefits to be expected from a renewable hydrogen vehicle that is true. One cannot argue with that.
Fastest, most effective:
I can only repeat that I believe the transition process I have outlined today is the fastest and most effective way of reaching the common ultimate goal - and doing so in an economic way, using the power of the market.
The transition does not have to be slow. Indeed, if the right market drivers are identified, it could be a very rapid one - over just a few decades. For the energy system this would be remarkably fast.
During this transition it is likely that the transformation to hydrogen would be progressively driven back up the hydrocarbon chain toward the original source - becoming increasingly cleaner in terms of CO2 emissions. This process would provide growing incentives for renewable projects.
However we should not forget that there is another way of solving that particular problem: CO2 emissions from fossil fuels can be extracted and sequestered.
Economic, Market:
The key point to remember here is that, in considering which path hydrogen will take into energy markets, economic and commercial considerations are at least as important as technical.
Many customers will pay a premium for environmentally clean products. But they also demand high standards in all other areas. They are not going to put up with anything that doesn't work or is inconvenient. It is in no-one’s interest to produce inferior products – which could slow or even halt the process. Having said that, it is clear that a number of technologies are moving along very quickly and these could alter the outlook suddenly and dramatically.
Some companies have suggested the use of other transition fuels such as onboard methanol to hydrogen conversion. Such fuels would require significant infrastructure investments, which would be difficult to justify for what could be short-lived solutions. Health, safety and environmental impacts of such fuels would also need to be considered. As mentioned, at the moment we think that, for the transition period, gasoline to hydrogen is the way to go.
However, we don't take this as a given. We are open on this as on other issues. If a better solution is proposed we will certainly consider it. We regard this as a learning process and we are more than willing to throw out our mental maps if new developments come along.
At the moment, the storage and infrastructure issues are still the major technological and economic barriers. The famous carbon nanotubes would be a wonderful solution - if the science could ever be proved. Then we could move toward the fuel in a box model - produced right back up the chain near the original energy source. If light enough, it could then be transported as a cartridge, which could be easily inserted into any type of vehicle. Alternatively it could be used in a home or business power system.
Open approach:
We are keeping an open mind on all of these issues and closely monitoring all innovations and new developments.
The process is exciting and we are very pleased to be able to play a role in it. People from industry, from governments, from universities and NGOs are all working together with a common aim. As I have described there are differences as to how to proceed but these are mostly creative disagreements rather than confrontations.
We earnestly hope that we can continue to work together in this way. It is wonderful to be part of this: the development of more sustainable energy and mobility solutions.
However there are ways in which this process can go badly wrong. First of all, politically driven technology choices may be made. Technology choice by politicians has a very sorry history. Tens of billions of dollars have been poured into projects - such as, Minitel, HDTV and Super Phoenix - which have not created meaningful economic technologies.
We would not like to see such mistakes repeated. There is a legitimate political interest in cleaning up the environment and limiting CO2 emissions - which we share.
Targets should be set and then industry should be allowed to get on with experimenting and developing different technologies. Provided the freedom to experiment is maintained, and conditions favourable to the introduction of more environmentally friendly products are created, customers will make the right choice.
That is the way to make rapid progress and to introduce hydrogen technologies - through a broad market focus, guided, but not controlled, by benign government regulation.
Source: SHELL.
© 2000 Mena Report (www.menareport.com)
