Can we use the geopolitics of oil and gas as a framework for hydrogen?
Commentators have traditionally argued that the transition away from fossil fuels will reduce geopolitical risk in our energy system. However, the commoditisation of hydrogen offers a challenge to this view.
This is the first installment of Baringa's two-part report on the geopolitics of hydrogen. Our experts draw parallels between the market dynamics of hydrogen and existing hydrocarbons. They also outline the resulting new forms of geopolitical risk posed by hydrogen's roles in the energy transition.
6 key trends in the global hydrogen geopolitics:
- The nascent hydrogen market will display low geopolitical risk due to localised demand being met by local supply.
- As demand for volume increases, supply chains will elongate and the propensity for geopolitical risk will increase.
- The degree of import dependence, means of supply, and the demand elasticity of the resource can inform the level and nature of geopolitical risk.
- New hydrogen exporters and increased market fragmentation have the potential to reshape energy geopolitics and make the market less susceptible to coordinated supplier behaviour and oligopolies, relative to hydrocarbons.
- Global hydrogen exporters may have lower economy-wide political leverage compared to gas due to lower final energy consumption from hydrogen. However, critical systems could still be affected.
- The hydrogen supply chain requires technical know-how, critical material and manufacturing capacity, enabling some countries to exercise their geopolitical leverage upstream.
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