Spanish green hydrogen competition: Africa and Latin America accelerate plans to meet European demand

European confidence in the promised energy and industrial revolution generated by hydrogen is facing a new crisis. Not only are projects advancing slowly, with an execution rate of less than 5%, but other regions are seeking to join this race at an accelerated pace. The countries of Africa, Latin America and the Middle East have great potential for the export of this energy vector, which will represent 15% of all energy sources in Europe by 2050, according to estimates by Goldman Sachs bank.

Spain, in addition to aspiring to produce a fifth of European production by 2030, aspires to be one of the central hubs for the entry of hydrogen in the region. In addition to accounting for 20% of the world's renewable hydrogen projects, the Iberian Peninsula has the potential to become an obligatory production route for energy powers such as Morocco, Algeria, Brazil and Chile.

Unlike oil, hydrogen is the most abundant element in the universe, so it can be produced anywhere on the planet. However, its cost and competitiveness varies, influenced by the price of the energy needed to produce it. A report by the Hydrogen Council, a consortium made up of the heavyweights of the energy and oil industry, positions Latin America and Africa as the new golden Mecca.

Javier Brey, president of the Spanish Hydrogen Association (AEH2), is against posing it as a threat to local production and prefers to talk about opportunities. "Although both terms always go hand in hand," he clarifies in conversation with CincoDías. And he recognizes that there is a race with regions at different starting points but that "not everything has been said".

The RepowerEU strategy foresees that in 2050 the European Union will import 10 million tons of green hydrogen, half of the estimated consumption. This percentage represents a sharp drop in European dependence, which in 2021 imported almost 92% of the oil it consumes. At the same time, the EU-27 face the challenge of avoiding making the same mistake again and entrusting almost all their supply to a single supplier, as they did in the past with Russia.

The good news for major consumption poles such as Germany, the Netherlands and France is that the transport costs of this energy carrier are marginal. A joint study carried out by the Port of Rotterdam (the largest European terminal) and Uruguay for the production of hydrogen from South America affirms that transport costs are marginal despite the large distances separating the two countries.

Nearby neighbors

North Africa is already positioned as the main potential supplier of green hydrogen to Europe, with a production forecast of up to 597 million tons per year by 2050. Vast tracts of uninhabited land and the intensity of local radiation, as well as energy connections with Europe that could be reconverted, increase interest in the region.

"Morocco's ambitions to become a green hydrogen exporter would be coupled with Algeria's pressing need to replace its hydrocarbon exports and the existence of gas pipelines," notes a recent study by the Royal ElCano Institute.

This has not gone unnoticed by Brussels. The EU executive chose Morocco in November last year to seal its first green partnership with a country, including the local development of hydrogen production capacities. In October of the same year, a similar agreement was signed with Algeria. At the bilateral level, the Alawite kingdom has signed pacts with Portugal, Germany and also Spain.

The benefits for the country are clear: the high cost of the projects, as well as the lack of local technology and capacity, offer Spanish companies good opportunities. In addition, the interconnections linking the Iberian Peninsula directly with Morocco and Algeria could be used to ship this element.

The risk is that other projects that avoid local geography, such as the southern corridor that would link Algiers directly to Italy and from there to the rest of Europe, will be favored. In January, the two countries signed an initial agreement to begin technical studies prior to the construction of this infrastructure. This initiative competes with the H2MED promoted by Spain, Portugal and France, still involved in the technical debate still open between Madrid and Paris.

Latin America

The real production giant may be on the other side of the Atlantic, in a region where Spanish companies have investments of more than 150 billion euros. Latin American countries could produce up to 913 million tons of hydrogen at low cost by 2050, making it the region with the greatest potential in the world. At the same time, its geographical position connects it to both Asia and Europe.

Chile and Brazil lead the continental race, with almost thirty projects under study each. Argentina, a little further behind, has one of the world's largest initiatives worth 8 billion dollars (7.457 billion euros at current exchange rates). For reference, the largest investment announced in Spain, that of the oil company Cepsa in Andalusia, is less than half that.

"When Latin America looks to Europe, the point of entry is the Iberian Peninsula," says Brey. "What we can't do is sit here in Europe and wait for them to make their investments in renewables, infrastructure, ports and other key components. It's just not going to work," he says with conviction.

Many of these projects, especially in renewable generation, are already underway. In 2019, the latest data available, Brazil, Mexico and Chile formed part of the 20 countries in the world with the highest investment in this sector, and Spanish companies have actively participated in this phenomenon. For example, Iberdrola inaugurated in March a hybrid project in Brazil for more than 630 million.

The potential is not free of doubts. The International Energy Agency points out that, despite the high level of decarbonization of the energy matrix in most Latin American countries, the region needs to rethink the entire value chain to take advantage of the hydrogen opportunity. This implies modernizing its transmission lines, generating new transportation infrastructure and port terminals. At the same time, 17 million people in the region lack access to electricity, which is a social debt that the region must address.