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The Future in Focus

Podcast 7: Risks Expanding in a Hydrogen Supply Chain

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Risks expanding in a hydrogen supply chain
24 JULY 2022 09:00 ◦10 MINUTES

In this episode, we’ll be speaking with hydrogen expert, Leanne Halliday, Corporate Account Manager at LRQA. Leanne will cover the expanding risks in a hydrogen supply chain but we began by asking if she could give us an overview of hydrogen in the current landscape.

Hello everyone and welcome to the LRQA Future in Focus podcast series. In this episode, we’ll be speaking with hydrogen expert, Leanne Halliday, Corporate Account Manager at LRQA. Leanne will cover the expanding risks in a hydrogen supply chain but we began by asking if she could give us an overview of hydrogen in the current landscape.

So hydrogen has been around for many years and the technology around the production of hydrogen is nothing new. We see it currently used today in the refining, fertilising and steel industry just to name a few. The largest producer of hydrogen is currently China and that’s not going to stop, however what we are seeing is an unprecedented increase in the amount of new hydrogen projects coming into the fold and a real buzz around hydrogen projects, particularly as people start to use hydrogen towards their decarbonisation journey. We saw a big increase in the number of hydrogen projects being announced after COP26 earlier this year and even more so in Europe with the current conflict as people start to also use hydrogen in a way to secure their energy supply. Some of the figures you see banded around are massive and to quote just one 500 billion dollars’ worth of projects are expected to be announced between now and 2030. I mean it could be 500 billion, it could 600 billion but that number is just mind boggling and that means that there’s going to be a massive increase in suppliers, in new operators and people entering the industry and particularly as we work towards that decarbonisation, and a lot of these projects are in green hydrogen and blue hydrogen with the added complexities of renewable energy being at the front end to supply the energy for the electrolysers and also carbon and capture and storage technology on the back end of blue hydrogen projects.

What are the current risks we’re experiencing in the hydrogen supply chain?

Well first of all I think we should just put some context around supply chain. So we see a supply chain as two different ways, so we talk about the supply chain in terms of the equipment, the material you’ll need for these projects in order to produce the hydrogen. And when we’re talking around 500 billion dollars’ worth of new projects that’s a lot of new equipment, that’s a lot of new material. But then secondly you also have the supply chain of the produced hydrogen and the produced hydrogen will be for a number of different end users as well and for power and transportation, and one of the key advantages of hydrogen is its ability to transport energy and therefore one of the key things that we’re looking at using hydrogen for decarbonisation is the transport of hydrogen around the globe. So I think we need to put that in context first when we talk about supply chains that there’s two different supply chains.

How could we overcome the risks mentioned and are there any solutions?
The feedback that I get from speaking to a lot of different people and stakeholders in this industry, so right from regulators, large producers, large operators, manufacturers, the real risks really fall into three main categories and they are technology, regulations and social licence to operate. So let’s look at technology first and this is a really interesting one because like I said right at the start of this conversation, the technology isn’t new but what we are seeing is a massive, unprecedented demand in the amount of technology and the amount of equipment that’s needed and therefore that will put a constraint on the supply chain. When ever you have a constraint on a supply chain it comes with quality issues and cost issues and especially as we’re really to make these large projects a success we need to reduce the cost of hydrogen, and when we’re looking at around two dollars per kilogramme, the equipment needs to be produced at a scale, at a size and at a cost that will allow us to meet that cost point of these projects. To give you an idea of the size of the supply chain that we’re looking at if we just look at electrolysers alone the current estimated market value of the electrolyser market is around 250 million US dollars. Its estimated that we’ll see between now and 2030 a thirty percent year on year increase in the amount of electrolysers being needed. Therefore we’re going also have new people entering the market and people buying the market from vendors and suppliers that they wouldn’t usually buy from. If we then look at regulations, again it’s a similar story, hydrogen isn’t new and there’s standards and regulations around for hydrogen but the standards and regulations don’t necessarily go into the depth of all of the end users that we’re seeing hydrogen being used for. There’s also very few holistic regulations that cover the full supply chain and therefore when we’re talking of a supply chain of this size we will need to export and import hydrogen equipment around the world and in fact hydrogen itself. And that’s one of the biggest risks that we’re seeing from operators and regulators, the lack of regulations around identifying how green the hydrogen is and therefore giving it the full availability to export and trade this hydrogen globally. The third and final issue is around the social licence to operate and I think this spans everything. We talked about the number of end users of hydrogen. One of the places that we’re seeing hydrogen being used is for fuel for buses, for essentially cars in the future and therefore Hydrogen will be seen on everybody’s doorstep at some point. Hydrogen is a risky gas if its not treated with respect and not have the right safety and risk studies and quality around it. Therefore we have to make sure that that risk perception is dealt with correctly, we have the right governance in place to make sure that we don’t have pushback and we have that social licence to operate around the industry. The other thing that falls into all of these categories is new people entering the industry. We’re seeing a lot of people coming into the hydrogen sector from the oil and gas sector, from the power sector and therefore they themselves need to build trust with the regulations, they need to understand what’s best practice. They need to build trust with the supply chain and that’s something that we’re seeing as a risk across the industry at this time where people need to have that additional training and just get their own self-confidence to be able to work in this industry the same as working in traditional industries.

The main way that we can counteract these risks is by building trust and you build trust by sharing best practice. You build trust by having transparency. You build trust by having further governance around safety, around quality and its also about I believe moving the quality upfront. A lot of these projects are really at the initial stages, prefeed concept select and rather than spending time on quality at the back end if we spend time to build that quality at the front end for example doing things like vendor assessments, gap analysis of designs, making sure that a base of equipment you buy in one location can be used under the standards and regulations of another location. That’s where we need to spend the time now to make sure that we don’t fall into the pitfalls of these risks and these projects and these mega amounts of money that we’re talking about actually become a reality.

How can LRQA help?

LRQA is a third party independent assurance provider across the whole of the supply chains. So I spoke about earlier about how bringing that quality upfront in these projects could really help with building the trust and also getting the social licence to operate, so really vendor assessments, gap analysis of design even if its not needed from a regulation point of view, but so that you understand that your equipment providers can produce the equipment to the standards that are needed. We also through the work we do across the globe have deep knowledge and understanding of current standards and regulations. So we can help you to understand what best practice regulations are globally and bring that knowledge to your project so that you have a roadmap or a pathway to producing a safe and quality project. Some of the more detailed services that we can offer for example is approval in principle, so we see a lot of the equipment providers entering the market that have worked in other industries but don’t necessarily have case studies for hydrogen or in fact new people entering the market. We can help to give some assurance by looking at their risk profile, looking at their designs at a high level and looking at the standards they are applying to say that yes that is suitable for use in hydrogen and in a particular standards and regulation context. So overall come to us if you have any assurance needs or you want to help build trust through the supply chain.