China and India are expected to be major green hydrogen producers by mid-century, benefitting from existing demand for refining and fertilisers to provide anchor offtake. But differing concerns around energy security mean the two countries will take diverging paths to the transition.

China and India consume a respective 20mn t/yr and 5mn t/yr of hydrogen, almost entirely produced from fossil fuels. While India has announced a target of 5mn t/yr of green hydrogen production by 2030, China has set a less ambitious goal of up to 200,000t/yr by 2025.

Consultancy Wood Mackenzie forecasts China to be a global leader in green hydrogen by 2050, producing 46mn t/yr, but anticipates near-term development will be more limited. “If we look at our forecast up to 2030, the sector is still very small, producing 1–1.5mn t/yr. It really does not pick up until the 2040s, when the cost of green hydrogen decreases,” says Flor de la Cruz, senior research analyst for hydrogen and emerging technologies at Woodmac.

China produces the vast majority of its hydrogen from coal gasification, which is even more carbon-intensive than grey hydrogen production from natural gas. The IEA estimates that coal gasification results in lifecycle emissions intensity of 22–26kg of CO₂e/kg hydrogen produced, while production from unabated natural gas has an emissions intensity of 10–14kg of CO₂e/kg hydrogen.

China’s hydrogen standard sets a relatively high emissions intensity standard of 14.5kg of CO₂e/kg hydrogen to qualify as ‘low-carbon’ hydrogen—allowing shifts away from coal gasification towards gas feedstock. While the country produces enough gas to cover half of its current consumption, it is also tipped to increase its contracted LNG and pipeline gas imports over the coming year.

“As Russian gas flows have stopped in Europe, they could flow into China,” de la Cruz notes. However, while Russia currently exports natural gas to China via the 38bn m³/yr Power of Siberia pipeline, further expansion depends on Beijing signing a supply contract for the 50bn m³/yr Power of Siberia 2 pipeline—on which some analysts argue the country is holding out in order to seek more favourable terms.

Meanwhile, India is seeking to ramp up green hydrogen production in an effort to reduce imports, which account for half of its natural gas consumption. Almost all of India’s hydrogen production is grey, exposing it to spikes in global natural gas prices.

46mn t/yr – Forecast Chinese green hydrogen production by 2050

A 2022 report by the country’s coal ministry exploring the potential for coal gasification from its large domestic reserves notes that “the high ash content of Indian coal is a crucial in the development of suitable technology”, limiting development to date. However, it argues that the country should explore coal gasification—combined with CCUS to meet climate targets—owing to the volatility of natural gas prices and current high cost of green hydrogen production.

“We expect the cost gap between grey and green to close much faster in India than in other countries,” says de la Cruz, adding that this is because grey hydrogen is already very expensive in the country.

India targets cost parity between grey and green hydrogen for refining and fertiliser production by the latter half of the 2020s, as well as replacing all ammonia-based fertiliser imports with domestic, green alternatives by 2035. However, de la Cruz notes the country’s National Green Hydrogen Mission has rolled back previous demand-side targets for refineries and ammonia producers to use 10pc and 5pc green hydrogen respectively by 2024, ramping up to 25pc and 20pc over the following five years. Instead, the government is set to specify an updated minimum share of consumption by industries by this year.

“In China, hydrogen is mainly used for the production of ammonia and methanol. Those are two very cost-sensitive markets, so there is less willingness from China’s government to push for decarbonisation and increase those prices—and therefore increase the prices of fertilisers and ultimately food,” says de la Cruz.

Export potential

India’s hydrogen strategy includes an ambition to corner 10pc of an internationally traded hydrogen market, with production potentially rising to 10mn t/yr by 2030.

However, while China has not made explicit overtures towards producing hydrogen for export, it has already become a major player in electrolyser manufacturing, with around 60pc of market share. And while Europe and the US are ramping up domestic manufacturing capacity, some Western firms—such as Hydrogenpro and John Cockerill—have based nearly all of their current manufacturing capacity in China.

Nevertheless, a major shift is expected over the coming years. Consultancy Rystad Energy forecasts that China and India will have a combined 37pc market share of global manufacturing capacity by 2030. And de la Cruz anticipates electrolyser manufacturers “will build electrolyser gigafactories closest to where projects will be and where the incentives are”, with a particular focus on the US, Europe and India.

India plans to provide $54.24/kW in incentives to electrolyser manufacturers via an upcoming auction. European and Australian companies are already partnering with local firms on establishing manufacturing capacity, with deals between Greenko and John Cockerill, Thermax and FFI, and Larsen & Toubro and McPhy.

“China does not provide monetary incentives for electrolyser manufacturers; India does—but what the EU and US offer is much more,” says Aashish Mallik, energy transition analyst at Rystad.

The US provides under the Inflation Reduction Act a 30pc investment tax credit towards electrolyser factories. The EU’s recently unveiled Net Zero Industry Act proposes a minimum 40pc of domestic electrolysers deployed—expected to reach 100GW by 2030—must be manufactured within the bloc.

Mallik adds that these policies may be enough to offset China and India’s low labour costs, which in China’s case facilitate electrolyser prices averaging $300/kW—a third of those produced in Europe and the US.

“Chinese manufacturers also require improvement and quality control if they aim to export to foreign market,” he adds. “The certification costs are high enough to raise the prices by 30–50pc. And to lower these costs, Chinese manufacturers are partnering with European players to comply with European standards.”

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Author: Polly Martin