This is an extract from a recent report “Global Hydrogen Review 2024” by IEA. This extract specifically focuses on hydrogen in the LAC region.
Deployment is still nascent. Based on announced projects, Latin America and the Caribbean (LAC) could produce over 7 Mtpa of low-emissions hydrogen by 2030, but only about 0.1% of these projects is in operation, under construction or has reached a final investment decision (FID). The high cost of capital in the region remains a barrier, and could undermine the competitive production costs from its strong renewable resources. In addition, a massive expansion of renewable capacity would be needed – if all hydrogen projects in the pipeline come to fruition, wind and solar PV generation would need to increase by 140% within this decade for hydrogen production alone. Action is required in the short term to unlock LAC’s potential, balancing domestic demand with export ambitions. Demand creation measures can help close the cost gap, improve energy security by reducing imports of natural gas and ammonia, and create higher value-added export opportunities. Hydrogen hubs can drive economies of scale and integrate supply chains while accelerating learning.
With abundant fossil fuels, renewable energy resources and critical minerals, LAC is well positioned to thrive in the global clean energy transition. This edition of the Global Hydrogen Review updates and expands the discussion on the potential role of low-emissions hydrogen production and demand, as well as export opportunities as LAC advances towards its energy and climate goals. Low-emissions hydrogen represents a significant opportunity for LAC to meet its climate targets while generating economic growth for the region. Fully realising this potential will hinge on the timely implementation of supportive policies and strategies. Several governments in the region have already laid out their hydrogen strategies, and some have even begun the implementation process. However, many of these plans were developed at a time when there were high expectations for rapid deployment and cost reductions, despite the uncertainties surrounding hydrogen. It was anticipated that low-emissions hydrogen would scale up quickly, catalysing the development of a global hydrogen market, and the plans are therefore strongly focused on exports
LAC generates about 6% of the world’s electricity, more than 60% of which comes from renewable sources, double the global average of 30%. While the region’s share of wind, solar PV and geothermal energy is similar to the global average, its share of hydropower is far higher, accounting for more than 40% of electricity generation, compared to about 15% globally. Over the past 15 years, hydropower generation in LAC has remained stable, but its contribution to the overall electricity mix has fallen from over 50% in 2010 due to the overall increase in electricity generation. Despite this, the total share of renewables has increased, driven by significant growth in solar PV and wind generation, particularly in the last 5 years.
Hydrogen production and demand
In LAC, demand for hydrogen reached about 4 Mt in 2023, approximately 4% of the global total of 97 Mt. The majority of demand occurs in the five largest economies: Argentina, Brazil, Chile, Colombia and Mexico, as well as Trinidad and Tobago. The latter is the leading hydrogen consumer in LAC due to its chemical industry, which uses hydrogen to produce large volumes of ammonia and methanol for export. In most other LAC countries, oil refineries are the primary consumers of hydrogen. Over the past decade, a decline in oil refining has reduced total demand for hydrogen across the region, as have recent difficulties in securing natural gas at competitive prices for ammonia production, which in 2019 led to the complete shutdown of ammonia production in Mexico and the closure of the only remaining plant in Brazil.
Today, hydrogen production in LAC consumes approximately 1.5% of the region’s total energy supply and accounts for 2% of the total final energy consumption. Almost 90% of this hydrogen is produced by steam reforming of natural gas, resulting in annual emissions of more than 30 million tonnes of CO2 equivalent (Mt CO2-eq). In Trinidad and Tobago, more than 40% of natural gas consumption is used to produce hydrogen. In the rest of LAC, this share ranges from 3% to 14% of domestic demand. However, if only natural gas imports were considered, the share used for hydrogen production would be higher for most countries. In Brazil, for example, hydrogen production was equivalent to 22% of the country’s natural gas imports in 2022, as the country imported nearly 30% of its natural gas demand.
With its abundant and cost-competitive renewable energy resources, LAC is well positioned to produce low-emissions hydrogen, which could even be cheaper than domestic natural gas-based production, as it is a net natural gas importer and has higher natural gas prices than regions that are major exporters, meaning that the cost gap would be smaller. With ambitious policies and decisive action, the region could reap the benefits of this renewable energy potential, using low emissions hydrogen production as a catalyst for job creation, more productive industry, and ultimately, greater development. To achieve competitive low emissions hydrogen production costs, the cost of capital in the region must be comparable to other parts of the world. Without appropriate risk mitigation measures, a higher cost of capital could undermine the benefits of the region’s good renewable resources.
Outlook for low-emissions hydrogen in the Announced Pledges Scenario in LAC
In the case of LAC, the APS reflects the net zero emissions pledges made by 16 countries in the region – Antigua and Barbuda, Argentina, Barbados, Brazil, Chile, Colombia, Costa Rica, Dominica, Dominican Republic, Grenada, Guyana, Jamaica, Panama, Peru, Suriname and Uruguay – which together cover 60% of energy-related CO2 emissions and almost two-thirds of GDP in the region. It also reflects LAC’s low emissions hydrogen deployment goals as defined in their national strategies. In the APS, global hydrogen demand increases by almost 70% by 2035 and more than triples by 2050 compared to 2023 levels. In LAC, hydrogen demand, excluding demand for exports, increases by about 90% by 2035 and nearly quadruples by 2050. The share of hydrogen demand for use in new applications in LAC accounts for close to 20% in 2035 and 60% in 2050, which would be lower than the world average of 40% and 70%, respectively. In the APS, hydrogen production in LAC is driven by relatively ambitious policy goals for low-emissions hydrogen deployment. However, while some production may be intended for domestic use, LAC’s demand policy goals remain somewhat modest and production would be more likely to be directed towards exports to meet overseas demand, mainly in the form of hydrogen based fuels.
Low-emissions hydrogen production
In LAC countries, the only low-emissions hydrogen projects announced so far are based on water electrolysis, although other technologies are being considered. For example, a demonstration project in Brazil is exploring bioethanol reforming to hydrogen. If all announced projects are realised, annual electrolytic hydrogen production could reach more than 7 Mt H2 by 2030. This would represent around 20% of the world’s total announced electrolytic hydrogen production and 15% of all low-emissions hydrogen projects, including those planning to use fossil fuels with carbon capture, utilisation and storage (CCUS), in the rest of the world. However, the status of these projects varies considerably, with only 0.2% in operation, under construction or having reached FID, compared to 8% globally. Around 45% of projects are at a very early stage, which is similar to the global average, while the remainder are undergoing feasibility studies.
If all announced projects in LAC were to materialise, they would require an installed electrolyser capacity of close to 90 GW (45 GW if excluding projects at very early stages of development) by 2030. 85% of these projects would be gigawatt scale, above the global average of almost 80%. Currently, most projects in operation or at FID in LAC are relatively small (<5 MW of electrolysis capacity), with only a few larger initiatives. Notably, a 25 MW electrolyser at Industrias Cachimayo in Peru has been producing hydrogen for ammonium nitrate, used in mining explosives, for nearly six decades. The largest project under construction is Unigel’s 60 MW electrolysis project in Brazil for the production of ammonia.
Chile accounts for half the potential production of all project announcements in the region: low-emissions hydrogen production could reach close to 3.5 Mtpa H2 by 2030 if all projects come to fruition (close to 2 Mtpa H2 if excluding projects at very early stages of development). Brazil follows with an announced potential production of more than 2 Mtpa H2 by 2030 (more than 1 Mtpa H2 if excluding projects at very early stages). Together, Brazil and Chile account for 80% of the potential production from project announcements. Panama and Colombia account for the third and fourth largest potential production, with around 0.4 Mtpa H2 by 2030 each (0.2 Mtpa H2 if excluding projects at very early stages), with the rest of the countries in the region having announcements for 200 ktpa of low-emissions hydrogen or less.
Producing more than 7 Mtpa H2 by electrolysis by 2030 would require a significant increase in electricity generation capacity, equivalent to almost 20% of the region’s current electricity generation. If these projects were to rely solely on dedicated electricity from wind and solar PV, generation from these sources would need to increase by 1.4 times today’s levels just for the purpose of hydrogen production. In Brazil and Uruguay, this would mean nearly doubling current wind and solar power generation within this decade. In Chile, a close to eightfold increase in solar and wind generation would be needed, while Colombia would need to rapidly scale up from its current low levels of variable renewable generation.
Aviation is the fastest-growing transport mode in LAC. In 2023, the energy demand for aviation exceeded 800 PJ, equivalent to over 3% of the region’s total final energy demand. LAC accounts for almost 6% of global energy demand for aviation. Virtually all demand is satisfied with fossil fuels (jet fuel) leading to the emission of around 60 Mtpa CO2. Demand is concentrated in a few key countries, with Brazil, Mexico and Colombia together accounting for more than 60% of regional aviation energy consumption, and being home to 13 of the 15 busiest domestic routes in the region. Within these countries, demand is equally concentrated, and the top five airports in each country represent more than 50% of the national fuel demand. There is a large variation in the type of journey across countries: in Brazil, almost two-thirds of aviation energy demand comes from domestic flights, while the share in other large countries like Mexico or Argentina is much smaller, and the regional average is 29%. Many ports and airports in LAC have access to low-cost renewable energy and abundant feedstocks of sustainable CO2, meaning that demand in shipping and aviation is located in places with strong potential to produce low-emissions jet fuel, methanol and ammonia for the decarbonisation of these activities. In Mexico, plans have been announced to offer hydrogen-based fuel for bunkering at the port of Salinas Cruz, Oaxaca. This initiative is linked to the Interoceanic Corridor of the Isthmus of Tehuantepec, which aims to link the Atlantic and Pacific coasts, increasing the role of their ports. In addition, the nearby refinery could become a major user of hydrogen in the future, further enhancing the strategic importance of the port.
Some examples of regions in LAC, which have the potential to become hydrogen industrial demand hubs:
Brazil: The southeastern and southern regions of Brazil, particularly around Rio de Janeiro, São Paulo and Minas Gerais, which are all major industrial centers. These areas are home to extensive refining and steelmaking activities. São Paulo and Mato Grosso do Sul have significant CO2 resources, and the port of Tubarão in Espírito Santo, which is one of the world’s largest iron ore export terminals, offers potential for the export of HBI.
Colombia: The areas around Cartagena and Barranquilla have relevant industrial activity, particularly oil refining, ammonia production and fertiliser manufacturing. Barranquilla also has an ammonia receiving terminal at its port. The region has strong potential for renewable energy.
Mexico: The northeast region, particularly around Nuevo León, which is the country’s leading region in terms of industrial production. Nuevo León has significant industrial activity relevant to hydrogen production and use, including oil refining and steel production. The region benefits from good renewable energy potential in neighboring Tamaulipas, and has the potential to develop a corridor to adjacent states such as San Luis Potosí and Guanajuato, which also have steelmaking and refining activities.
Chile: The Antofagasta region, located in the Atacama Desert, offers high solar irradiation potential, i.e. low-cost solar PV electricity. The region’s proximity to domestic demand areas, including the mining sector, and already existing infrastructure, including port terminals, desalination plants and railway access, facilitate the potential for hydrogen production and export.
Argentina: Bahía Blanca has potential as a hydrogen hub due to its industrial port with an ammonia plant using natural gas. It is located in an area with strong wind conditions and carbon sources from existing industries that could be used for hydrogen-based fuels.
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