Hydrogen Hype or Hope? KRG Engaged to Find Answer

Engineering consulting firm KBR, Inc. (KBR:  NYSE) has reportedly been tapped by Singapore’s National Climate Change Strategy Group to complete a feasibility study on hydrogen production and applications.  Apparently, the Singapore strategy group wants to find out if hydrogen can play a part in long-term, cost-competitive emissions reduction in Singapore.   A major move by a sizable decision maker like Singapore could present a turning point for hydrogen as part of the renewable energy complex.

In recent months there has been quite a bit of news about hydrogen in the press.  Earlier this month engine maker Cummins, Inc. (CMI: NYSE) hoovered up the shares of hydrogen technology developer Hydrogenics Corp. (previously HYGS:  Nasdaq) for $15.00 per share.  The deal valued the Hydrogenics’ business of fuel cell and hydrogen generation equipment product lines at $290 million. Hydrogenic’s fuel cell power systems will be a perfect fit for Cummins power systems product line.  France’s L’Air Liquide, S.A. (AI:  PA) is retaining its equity stake in Hydrogenics, making the industrial gas supplier Cummin’s new best friend in the hydrogen supply chain.

We even noted recent accomplishments in hydrogen powered trains in the U.K. and Germany in the post ‘Hydrogen on the Rails’ on June 21^st highlighted a private equity investment in hydrogen in the post ‘Super-size with Hydrogen’ on August 20^th. 

Despite all the hype, Singapore strategists apparently think it is well advised to keep a realistic view on the economics of hydrogen as an energy source.  Cummins and others are anxious to incorporate hydrogen in their product lines to reduce greenhouse gas emissions.  When burned hydrogen produces no carbon dioxide.  Substitution of hydrogen for diesel or gas in vehicles or trains is appealing. 

Unfortunately, the most common hydrogen production method involves fossil fuel.  Either natural gas or methane is put through a steam reforming process wherein the gas is super heated in the presence of steam mixed with catalyst such as nickel. About 95% of all hydrogen is produced with this method, leaving hydrogen with a fairly good sized carbon footprint despite its clean burning reputation.

The balance of commercial hydrogen is produced using electrolysis.  It is an energy hungry process wherein electricity is used to split water into hydrogen and oxygen.  The conversion of electricity to hydrogen involves a considerable give-up in heat energy of about 40% precludes using hydrogen made from this method for any heating application.  Given the dire climate situation hydrogen from electrolysis might still be viable as a clean transport fuel.

Of course, this analysis is based on the current state of hydrogen technology.  Intelligent investments made by astute investors like Cummins and L’Air Liquide could be the critical steps needed to improve the economics of hydrogen.  Solid analysis is needed to guide investors.  Some answers may result from the study commissioned by Singapore. 

KBR, which specializes in the hydrocarbon processing supply chain, will get help from the energy and commodity price consulting group, Argus Media.     Investors will probably not know the outcome of KBR’s analysis unless Singapore makes an investment in hydrogen technology or production capacity.  It is instructive in itself that major decisions are pending against this energy source that has been bandied about as both hype and hope.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.