US-based venture capital and private equity firm, Insight Partners, released its Hydrogen Compressor Market Report. In the report, Insight Partners identifies Neuman & Esser Group (NEA), Atlas Copco, and Burckhardt Compression (Burckhardt) as top leaders that are shaping the future hydrogen compressor market. In Part 1 of “2028’s Hydrogen Dream Team” we discussed the leading role that hydrogen compressor manufacturers have on shaping the hydrogen (H2) economy and some noteworthy compressors on the market by major manufacturers. In Part 2, we’ll discuss political support for hydrogen compression, where the market could be headed, different types of hydrogen compressors and their use cases, hydrogen fuel cells, and which geographic regions hold the most promise for the H2 economy.
Political Support For Hydrogen Development
In June 2020, Germany adopted its “National Hydrogen Strategy,” which seeks to integrate hydrogen into its energy mix. The plan calls up to 5 GW of electrolysis capacity by 2030 and around US$380 million in spending between 2020 and 2023. The funds are expected to be allocated toward hydrogen production, storage, distribution, and various applications. “Hydrogen will be a key commodity for a successful energy transition. This forward-looking source of energy will make an important contribution to meeting climate targets in Germany and across the world,” said Peter Altmaier, federal minister of economic affairs and energy in Germany.
In January 2021, the US Department of Energy (DOE) announced a US$160 million federal funding plan “to help recalibrate the nation’s vast fossil-fuel and power infrastructure for decarbonized energy and commodity production. The funding, for cost-shared cooperative agreements, is aimed to develop technologies for the production, transport, storage, and utilization of fossil-based hydrogen, with progress toward net-zero carbon emissions,” said the DOE.
The DOE and the US Office of Fossil Energy jointly published a report titled “Hydrogen Strategy: Enabling a Low-Carbon Economy.” The report concluded that fossil fuels currently provide the lowest cost pathway for producing hydrogen. It was due to this finding that the DOE decided to fund new technologies aimed at improving the performance, reliability, and flexibility of methods to produce, transport, store, and use hydrogen. “This funding will enable the United States to continue to extract the maximum economic value from fossil fuel energy resources,” said the DOE. “When coupled with carbon capture and storage capabilities, low-cost hydrogen sourced from fossil energy feedstocks and processes will significantly reduce the carbon footprint of these processes and enable progress toward hydrogen production with net-zero carbon emissions.” More specifically, the DOE is funding net-zero or negative carbon hydrogen production from modular gasification and co-gasification of mixed wastes, biomass and traditional feedstocks, solid oxide electrolysis cell technology development, carbon capture, advanced turbines, natural gas-based hydrogen production, hydrogen pipeline infrastructure, and subsurface hydrogen storage.
The Most Reliable Compressors In The Market
The oil-based hydrogen compressor segment made up around two-thirds of the overall hydrogen compressor market in 2020 and is expected to hold roughly the same position in 2028. “The majority of hydrogen compressors used across industries are oil-based, owing to long stroke, and slow-speed types,” said the Insight Partners report. “As per the historical data, these are the most reliable compressors accessible in the market. Other popular hydrogen compressors include vertical and horizontal compressors, moderate speed types, and short stroke compressors. Oil-based hydrogen compressors use lubricating oil, which maintains the piston or rotary element operating smoothly without damaging the mechanism. The oil in the compressor also helps to maintain air compression efficiency and dissipate heat. The oil-based hydrogen compressor demands more routine maintenance and change of oil frequently. It also requires better filtration of hydrogen using separators and coalescing filters to remove the oil and protect downstream equipment and processes from contamination. Well-known market players indulged in providing oil-based hydrogen compressors worldwide include NEA Group, Lenhardt & Wagner, and J.P. Sauer & Sohn Maschinenbau GmbH.”
Similarly, the single-stage hydrogen compressor segment makes up around one-third of the market. “The single-stage hydrogen compressors are ideal for moving large amounts of gas when high inlet pressures are accessible,” said the Insight Partners report. “The capability to work with high inlet pressures permits the small units of the industry to transfer substantial amounts of gas. These single-stage hydrogen compressors are majorly being used for speedily filling vehicle tanks, pushing gas between storage vessels, and emptying high-pressure tube trailers. The combination of two or more than two single-stage units in parallel is being used to move large amounts of gas when pressure differentials are low, and it can be switched to series operation when pressure differentials increase.”
Hydrogen Fuel Cells Remain A Long-Term Goal
Hydrogen fuel cells often capture the spotlight as an option that could pair with electric motors to drive the transition away from the internal combustion engine (ICE) toward lower emission options. After all, the primary use case of oil is in the transportation industry, and hydrogen fuel cells along with electric vehicles (EV) could do wonders to slow down climate change in addition to advancements in power generation and other industries. Hydrogen fuels cells depend more on government support than other subcategories of the hydrogen industry. Competing with both ICE and EVs, hydrogen passenger vehicles are an unproven and incredibly capital-intensive endeavor.
However, the Insight Partners report argues that the “rise in government investments globally for the development of hydrogen fuel infrastructure and incentives offered to the buyers are allowing the original equipment manufacturers (OEMs) to further expand their revenue stream as well as geographical presence. Increasing demand for low-emission and cost-efficient vehicles, owing to the government initiatives, and growing high-performance commercial vehicle across the world. Numerous government policies have been deployed to reduce emissions by vehicles. For instance, in the United States, the state of California dedicated funds for the development of 100 hydrogen refueling stations and is aiming to reach around 1.5 million zero-emission vehicles by 2025, which is driving the demand for hydrogen fuel cell vehicles. Due to soaring concerns of depletion of natural resources and environment degradation, several technologies are developed and announced in the market that favor the eco-friendly concept to sustain the environment. Likewise, surge in awareness related to the effects of air pollution and boosting levels of traffic and greenhouse gas emissions is driving the implementation of hydrogen fuel cell vehicles. Also, the mounting development of fuel cell electric vehicles [FCEVs] provides improved fuel economy when compared to ICE vehicles. The FCEV has a fuel economy of around 63 miles per gallon gasoline equivalent [26.8 km per liter], while that of an ICE vehicle is 29 miles per gallon gasoline [12.3 km per liter] on roads. Moreover, the FCEVs can travel almost 300 miles [483 km] without refueling. Honda Clarity has the highest Environmental Protection Agency [EPA]- driving rating for any zero-emissions vehicle in the United States. It has a driving range of up to 366 miles [589 km]. Hence, better fuel efficiency and increased driving range will boost the demand for FCEVs, which will, in turn, drive the automotive fuel cell market.”
Similar to EVs, FCEV supporters argue that more investment and sophistication of hydrogen fuel cells will lead them to become safer, cheaper, and offer better performance than their ICE equivalents.
Insight Partners forecasts that the hydrogen compressor market will grow in value from US$1894.15 million in 2020 to US$2813.27 million in 2028, representing a compound annual growth rate (CAGR) of 5.2%.
It may be surprising to learn that the Asia Pacific (APAC) market is expected to have the highest growth of any geographic region because it is transitioning to Industry 4.0 faster than the rest of the world. Investing in hydrogen infrastructure in countries that are transitioning from developing to developed nations is, in some ways, easier than gutting existing infrastructure in developed nations and repurposing it with hydrogen. What’s more, APAC is home to several industries that support hydrogen compression — namely the advanced manufacturing, electronics, machinery tools, and the automotive industries. North America is expected to be the second-fastest growing region followed by Europe. Both regions are supported by political policy, investment in FCEVs, and the chemical, oil and gas, manufacturing, and automotive industries that are all looking for ways to grow their economic output and reduce their environmental footprints.
Why North American Oil And Gas Is A Great Market For Hydrogen Compressors
The shale revolution pole-vaulted North America to the most successful onshore unconventional oil and gas region in the world, and 2021 was a banner year for oil and gas companies, which were the best performing sector in the S&P 500. According to Insight Partners, there were around 130 operable petroleum refineries in the United States and at least six petroleum refineries in Mexico as of January 2019. There were also 14 full refineries and two asphalt refineries in Canada as of 2018. The United States has a strong existing energy industry. Demand for increased energy transportation and storage should continue to grow as the United States ramps its liquefied natural gas (LNG) export volumes over the next several decades.
“The mounting oil and gas industry demands efficient storage of energy whenever required,” said the Insight Partners report. “North America, specifically the United States, has always been the largest market for the oil and gas sector and is also expecting to witness growth in drilling activities in the coming years. The government’s growing investment for the oil and gas projects in the region is likely to increase the demand for hydrogen compressors, which are integrated with the system for energy storage. Various ongoing oil and gas projects in North America are anticipated to positively impact the market’s growth. For instance, the Alaska LNG Mega-project, located in Nikiski’s industrial town on Alaska’s Kenai Peninsula, comprises a full LNG liquefaction plant, storage and shipping terminal, and 800-mile [1287-km] pipeline running from the North Slope to the oil and gas facility. Such initiatives across the region are estimated to boost the hydrogen compressor market.”
“The region is also witnessing growth in the energy and power industry owing to growing power transmission projects, where hydrogen compressors are deployed to compress and store the energy efficiently,” continued the report. “For instance, Ivanpah–Control Project (I-C Project), US is a project to fulfill transmission line safety and reliability requirements described by the State Public Utility Commission (PUC) and the North American Electric Reliability Corporation (NERC). Further, Empire State Line Project, US – The Board of Directors of New York Independent System Operator’s (NYISO), has chosen the Empire State Line Proposal 1 presented by NextEra Energy to provide access to hydroelectricity and Canadian imports as well as cater the needs for new transmission in the western New York.”