China’s Hydrogen Value Chain Compared to the World’s Leading Practices

China's Hydrogen Targets

Key Take Away This Week:

  • China is lagging in hydrogen transportation, storage, and fuel cell system R&D
  • China has the largest market size of hydrogen production but looks to build the new sector upon renewable and cleaner sources
  • China lacks key equipment for FCVs development including recirculation system and others

Beijing and Chinese local governments have unfolded ambitious plans to foster the whole hydrogen value chain, as we mentioned in various articles such as this one.

China's Hydrogen Targets 2019- 2050

But how is the status quo of the Chinese industry? How does it compare to the gold leading practice? Where does China lag, and where does it aim to improve? The answers to these questions are the first step to identify a business opportunity in the heated market. And in today’s energy iceberg, we aim to examine the skeleton of the Chinese hydrogen value chain.

In Hydrogen Production

Hydrogen production is one of the few areas China is leading—in terms of production size. In 2018, China produced more than 8 million tons of hydrogen, about double of that in the U.S. (4.3 million).

What China looks to reform, however, is the contributing sources of its hydrogen market. The technical options for making hydrogen encompasses mainly three methods of fossil fuel, industrial process (Chloralkali), and electrolysis of water. China deploys mostly the first two methods, specifically the coal synthesis to hydrogen production and chemical production to hydrogen byproducts (by oil refining, Chloralkali, ethane cracking, and palladium hydride). Currently, China’s hydrogen production cost is at US$2.6/kilogram via the fossil fuel method.

The choices of Europe, US, and Japan are different, where steaming reforming of natural gas, renewable-to-gas, and electrolysis of water are the standard options. 

While fossil fuel production is still the most economical option right now, electrolysis (more adopted by Japan, cost around $5.2/kg) outperforms the other methods in obtaining high-purity gas. And renewable-to-gas  (often seen in the U.S and Canada, cost around $5-5.9/kg) is greener. The latter two areas are the future directions China look to explore.

China is also home to the world’s largest wind and solar capacity. Meanwhile, waste of wind, solar, and hydropower source, or renewable curtailment, has been a rooted problem in the industry, given the country’s specific power market structure. In that sense, hydrogen provides an incremental market for the stranded wind and solar asset.

China Hydrogen Production Share of Fossil Fuel Declining

Renewable curtailment, as a sign of oversupply, also induces to low electricity price (or even negative price) regionally and seasonally in China. That means electrolysis based on renewable sources could be a very economical option for China.

It is not surprising to see the recent hydrogen white paper suggest a target of 70% hydrogen produced by renewable by 2050, compared to just 3% now. 

Read More on which Chinese companies are investing in renewable-to-hydrogen and why?

In Storage and Transportation

China is lagging in hydrogen storage and transportation, especially compared to neighboring Japan and Korea.

Currently, gas storage and trailer transportation is a common methodology deployed in China. Tube tailer transportation is especially well developed, but the tech specs are far from ideal. Right now the domestic industry embarks mostly the steel cylinders/containers (III type) of which the pressure is just at 35MPa. Europe, Northern America, Japan, and Korea have already applied IV-generation containers of 70MPa pressure.

It is worth to mention Japan and Korea’s patents for gas hydrogen container materials accounts for 60% of the global patents, while those of China only takes up about 15%. 

Moreover, China lacks experience and technology in liquid hydrogen storage and transportation, Liquid hydrogen storage technology does exist— but only used in aerospace and defense sectors. Metallic hydrogen storage and organic liquid storage are both in a very nascent stage.

Meanwhile, China is slow in building up gas pipeline infrastructure. In 2016, Sinopec built a hydrogen pipeline in an industrial park in Henan. Air Liquide has built infrastructure in Shanghai, Tianjin, and Liaoning. But overall length of pipelines is still well under 500km.

Global pipeline for hydrogen transportation has been around 4300 km, of which 56% is located in the U.S and a large part of the rest in Europe.

Given that the cost of building hydrogen pipeline is still relatively high—and China is keen on developing natural gas infrastructure (with an independent pipeline operator soon to decoupled and formed from the national oil companies). A key technology focus to consider is blending hydrogen and natural gas transportation through existing gas infrastructure—an area international players and tech providers may be facing a major opportunity in China.

In Hydrogen Charging Station

China ranks fourth globally in the numbers of hydrogen charging stations, with just 23 built. However, China has not yet deployed a liquid gas charging station due to the local legal constraint while globally liquid charging station represents roughly 1/3 of the charging market.

Read More on Chinese Local Government’s Plans in Building Charging Stations

In Fuel Cell Battery System

Performances of Chinese fuel cell systems is dwarfed by the global leading practices on various fronts, as the country’s fuel cell technology development is in the nascent stage.

Firstly, the energy density of Chinese domestic fuel cell is typically around 30KW, a sea difference from that of Totoya’s fuel cell system at 114KW.

Secondly, in terms of the platinum loading rate, the Chinese fuel cell is still much less efficient in utilizing the costly metal catalysts. The platinum loading rate of Chinese products is currently at 0.4 gram/K.W., compared to the leading record of 0.19 gram/K.W. by Korean and Japanese firms. (Notably, some experts argue the pt loading of Chinese technology has lowered to 0.2 gram/KW now. See this report. But such record remained for small-scale ) 

Moreover, the durability of Chinese hydrogen fuel cell stacks in FCVs is typical at 3,000-5,000 hours (for buses) and 2,000 hours (for sedan cars), while van Hool of the U.S. has buses of 18,000 hours lifetime and Hyundai, GM and Toyota have developed sedans of lifetime exceeding 5,000 hours.

Finally, a critical winning feature of FCVs is the capability to start at low temperature. Chinese FCVs’ starting temperature between -20℃ to -10℃, overshadowed by -30℃ of Japanese and Korean peers.

It is natural to see that, thusly, pushing for the R&Ds in fuel cell technology will be on top of Beijing’s agenda.

In Downstream Applications—FCVs and Generators

The number of FCVs in China has been through an explosive growth this year, reaching 3428 by June this year, according to data of China Vehicle Association. China now has bypassed Japan’s FCV numbers of 3000. It still seconds to the U.S, which owns over 6500 FCVs.

Most of the hydrogen FCVs in China are larger vehicles (bus/trucks). This is likely the areas China’s hydrogen push remains to see robust growth for the coming decade.

However, another downstream application for hydrogen—the distributed generators—has so far attracted little attention. There are limited cases in China for using hydrogen as a power generation source, whereas such applications have landed in Europe, the U.S., and Japan.

Given that hydrogen FCVs faces major competition in China’s transportation sector from electric vehicles and LNG vehicles, there are opportunities for technology providers offering hydrogen as distributed power or UPS solution. 

Key Manufacturing Equipment

China still relies on import of the recirculation pump, compressor, while local companies are in the R&D stage, with some small-scale technology application appeared.

Meanwhile, domestic manufacturers have yet to deliver mature products of stack humidification system and other hydrogen recirculation system. Given China’s preference for building domestic manufacturing capacity, Beijing is like to support on the above-mentioned areas.