The US low-carbon hydrogen market expects market forces and policy updates will advance hydrogen's role in decarbonizing established and hard-to-abate industries in 2025, despite ongoing logistics, policy and cost challenges.

Industries such as fertilizers, refineries, and hydrocracking, which already use hydrogen and have limited alternatives for emission reductions, are considered as low-hanging fruit for adopting low-carbon hydrogen.

For hard-to-abate sectors like maritime shipping, chemical feedstock, steel, and heavy-duty mobility, low-carbon hydrogen is often the only viable option for reducing carbon emissions, alongside electrification and low-carbon gas.

Both emerging and incumbent sectors face challenges typical of emerging markets, including high substitution costs, meeting existing volume and specification requirements, project and offtake risks, passing on costs to consumers, and the need for new operational methods. Emission savings are central to discussions over willingness to pay.

The market awaits the final draft of the Inflation Reduction Act's hydrogen production tax credit, or Section 45V, hoping it will decrease low-carbon hydrogen costs and boost supply and demand for hydrogen fuel. This draft coincides with a new administration offering an unclear hydrogen policy.

Despite the US DOE efforts to incentivize supply and demand, the US lacks "sticks," or mandates to drive adoption of low-carbon fuels, a low-carbon ammonia developer said.

Decarbonizing incumbent, heavy industry

The fertilizer sector is an incumbent sector receiving the greatest interest in the US Gulf Coast, leveraging the carbon capture and storage and hydrogen infrastructure to decarbonize ammonia production while assessing emerging sectors and markets like Japan and South Korea.

The USGC market expects the first production and sale of low-carbon "blue" CCS-based ammonia and renewable-derived "green" ammonia in 2025.

Pricing for steam methane reformed hydrogen for the ammonia market has been quoted below $1/kg, delivered by pipeline under a 20-year contract for 200 million standard cubic feet/d (472,800 kg/d), according to a USGC ammonia producer.

Platts assessed Carbon Neutral hydrogen in the USGC at $1.32/kg Dec. 30.

"We are still evaluating whether to purchase CCS-based 'blue' hydrogen from an industrial gas producer via their pipeline for our [blue ammonia] project, versus investing in our own blue hydrogen plant to receive the production tax credits," the ammonia producer said. "It's a challenging decision that is done on a case-by-case scenario."

Platts, part of S&P Global Commodity Insights, assessed the outright blue ammonia price at $496.70/mt Dec. 30, while renewable-derived green ammonia in the USGC was assessed on an FOB basis at below $900/mt.

"Given the necessity to pass on the cost to consumers, or in some cases avoid carbon penalties, like the ones in the EU, the fertilizer sector is seeing minimal demand for low-carbon ammonia, with it being all voluntary and not as willing to pay a premium," a low-carbon ammonia producer said. Food companies, however, care about their public image and are open to negotiating for low-carbon fertilizers.

"The price target for low carbon H2 depends on the benefits derived from it," a refinery spokesperson said.

Fossil-based, SMR-derived hydrogen in the USGC for the refinery sector has been reported ranging at 70-90 cents/kg.

Due to the substantial hydrogen volume needed to replace current usage in the refinery sector and the difficulty of passing added costs to consumers, USGC refineries are exploring markets with appetite for carbon differentiated products. However, they face challenges with high substitution costs and a lack of mandatory requirements, unlike their European counterparts.

Low-carbon hydrogen adoption across new applications

The mobility sector has embraced hydrogen as a low-carbon fuel, shifting focus from light-duty vehicles to heavy-duty applications such as rail, marine transport, aviation, and medium to heavy-duty trucking.

"S&P's modeling suggests that hydrogen has a significant role to play in medium- and heavy-duty transportation," said Brian Murphy, Lead, Americas Low Carbon Gas Research at Commodity Insights. "Fuel cell-electric vehicles have advantages over alternative low-carbon technologies in M/HDVs that are not present in the light-duty vehicle sector."

Hydrogen in power generation is also underway in the US, with the competitiveness of hydrogen-fired power plants compared to natural gas-fired plants relying on hydrogen fuel and carbon prices, according to Commodity Insights data.

The maritime sector is exploring low-carbon fuels, guided by decarbonization standards from the International Maritime Organization and EU FuelEU Maritime emissions surcharges. Meanwhile, US developers of low-carbon ammonia are attracting fuel operators seeking alternative marine fuels.

Challenges in securing buyers are expected to improve with clear frameworks, mandatory requirements, finalized energy tax guidelines, and consideration of cost pass-through abilities and companies' risk appetite.