Bloomberg Law
Free Newsletter Sign Up
Bloomberg Law
Advanced Search Go
Free Newsletter Sign Up

Takeaways for Liquid Hydrogen From the Global Liquefied Natural Gas Trade

Dec. 2, 2020, 9:01 AM

This year has been full of buzzwords: Covid, the new normal, energy transition, hydrogen. This isn’t the first time there has been hype around hydrogen, but several key trends suggest this time could be different—with declining renewables costs, technology improvements, and mounting societal and political will to decarbonize propelling hydrogen forward.

Some countries are blessed with a mix of resources and infrastructure to meet their forecast hydrogen demand through local production, but others are not as lucky. For those countries, securing enough imports will be critical if they are to establish their own domestic hydrogen markets. Japan and Korea, for example, already have initiated plans to import hydrogen from Australia.

The International Energy Agency and the World Energy Council have both identified Australia as a potential hydrogen production powerhouse. The commercial opportunities associated with this status have been picked up by the Australian government, and hydrogen export is included as a key component of Australia’s national strategy. In addition to favorable hydrogen-production conditions, Australia can leverage the experience, infrastructure, and trade relationships that have been developed by its long-standing liquefied natural gas (LNG) and coal export industries.

Although other methods for transporting hydrogen exist or are under development (for example, as a gas or as ammonia), this article focuses on the transport of bulk liquid hydrogen (LH2). A number of hydrogen projects (such as the Arrowsmith Hydrogen Plant in Western Australia and the Hydrogen Energy Supply Chain Pilot Project in Victoria) are already actively considering international bulk LH2 pathways.

Transactions for the bulk purchase and sale of LH2 are likely to have much in common with LNG contracts. This is driven in part by their physical similarities (for example, both have very low boiling points, low volumetric density and are prone to boil-off). Proponents, however, will need to be mindful of the differences, which may change some of the assumptions or commercial solutions developed for LNG.

Lessons Learned Might Translate for Liquid Hydrogen

Following are some lessons and key takeaways from the LNG industry, and how they might translate to LH2.

Form of contract, to be determined. While the LNG industry has attempted to develop industry forms, the sector is still dominated by contract forms developed by the larger market participants. Much like LNG, we anticipate that LH2 contracting is unlikely to lead to a standard form of contract in the near term and that early market participants will have a strong hand in setting initial contracting norms.

Supply chain and project financing considerations. The infrastructure to produce, store, and transport bulk LH2 requires massive capital investments across the supply chain, much like that required in the not-so-distant past for LNG. These capital requirements, at least initially, are likely to drive the type of long-term offtake contracts that the LNG sector required in its early stages.

Process technology and safety principles. The process technology and safety principles applicable to LNG also are generally applicable to LH2. Mechanisms to address these issues in LNG contracts will therefore likely act as useful precedents for LH2 offtake arrangements.

Further hazard research is still required for bulk transport. Unlike the numerous LNG carriers currently traversing the globe, the first LH2 transport vessel (Kawasaki’s Suiso Frontier) is a relatively small vessel by LNG standards and is still under construction. The wide range of hydrogen’s flammability limit in air has led to calls for liquid pool and gas leak flammability testing under working and emergency conditions, as was done for LNG, before any large LH2 tankers are commissioned. This, and other unique safety issues, may impact the availability of large-scale LH2 carriers in the near term.

Impacts of increased boil-off. Hydrogen’s low boiling-point may slow development of long-distance transportation. Boil-off losses for a typical LNG tank are around 0.2% per day. Using the same kind of tank for LH2 would result in losses closer to 5% per day. In the early years, such losses may deter sales to more distant destinations, limiting connectivity between supply and demand, and reducing contracting parties’ flexibility to solve non-performance issues. However, as technological improvements are made, longer routes may become more economic, enhancing supply and cover optionality.

Scheduling constraints, need for larger vessels. Scheduling is a critical component of efficient LNG supply chains. Key considerations include maximizing plant load factors, minimizing storage and vessel boil-off losses, and avoiding plant shutdowns caused by ‘tank top’ storage issues.

These factors are even more critical and challenging for LH2. In addition to increased boil-off concerns, hydrogen has a much lower energy density by volume; approximately 40% compared to LNG. Simply put, this means that 2.5 LH2 vessels are needed to carry the same energy that would be transported in 1 LNG vessel. Scheduling matters that are already complicated for LNG (like berth constraints, inventory management, and planning horizons), will take on an even greater level of importance with LH2.

Pricing and the impact of the liquefaction energy price. The energy required to liquefy hydrogen is multiples of the energy required to liquefy LNG. As a result, contracts for hydrogen supply will be more sensitive to energy price changes. Solutions from the LNG sector, such as alternative indexation measures and price review mechanisms, will likely be borrowed and adapted for LH2.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Write for Us: Author Guidelines

Author Information

Steven C. Sparling is a partner in the Washington, D.C., office of K&L Gates LLP, and serves as a leader of the firm’s global energy, infrastructure, and resources practice area. Lian Yok Tan is a partner in the Singapore office, Clive Cachia is a partner in the Sydney office, and Joshua Spry is a senior associate in the Perth, Australia office, all in K&L Gates’ energy, infrastructure, and resources practice.

All are among the authors contributing to K&L Gates’ The H2 Handbook, an extensive review of the legal, regulatory, policy, and commercial issues affecting the future of hydrogen.