Global Hydrogen Flows

Toward a cross-border, global hydrogen commodity market

For the hydrogen traded market to develop, key market mechanisms and structures will be required. These may evolve in line with other commodities, but with key differences. In parallel with the development and expansion of the “hardware” of the global hydrogen market infrastructure (ships, terminals, pipelines, and refueling stations), market “software” will also need to evolve.

Specifically, this category includes market design, pricing methodologies, price indices, regional benchmark prices, contractual structures, and trading hubs for hydrogen and its derivatives. Hydrogen has a long journey to becoming a mature commodity. In the short-tomedium term, cross-border trade in hydrogen is likely to start with bilateral longterm contracts and cost-plus pricing models. Standard contracts for hydrogen are expected to be a helpful tool to support cross-border trade in hydrogen and to help kick-start over-the-counter trading. The development of price discovery will in turn enable exchange-based trading and the emergence of regional spot markets for hydrogen and its derivatives. In the longer term, standardized exchange-based products such as hydrogen futures could be used by market participants for hedging purposes, similarly to the way futures are used today in mature gas markets.

Furthermore, standardized products may also include certification to bring transparency into the carbon footprint of hydrogen. There are already several mechanisms and exchanges emerging that could ultimately evolve to play these roles either locally, regionally, or globally. The evolution of the global gas and liquefied-natural-gas market may have parallels with the prospective global market for hydrogen. However, the key differentiator is that the value of hydrogen is contained in both the value of the physical product and in the value of the environmental attribute—in other words, the certification.

As such, hydrogen certification will play a crucial role in building customer trust and enabling customer choice. Consequently, if this certification is realized, it will stimulate demand and enable a market-based approach to hydrogen sourcing. In turn, this will facilitate global, cross-border trade in hydrogen, enabling supply and demand to meet in an efficient manner across geographies.