The First of a Three Part Series

Back in a previous life I was a telecommunications industry trade writer. That was at the end of the last decade when literally trillions of dollars had been invested in the telecommunications sector and when most of that vast sum was on the verge of being lost.

The Internet was supposed to be doubling in size every two months—it wasn’t, but that was what everyone said—and the explosive growth in Internet traffic would supposedly require existing communications networks to be revamped in their entirety. Nothing seemed impossible, and the world itself was being rapidly remade into a new and wondrous realm.

Then it was as if some figurative asteroid had struck the world of high technology. The venture funded startups began to die by the hundreds and then by thousands and then by the tens of thousands. It was the biggest single-industry bubble in all of human history and it was an utter massacre. But I managed to hold my job for exactly two years from the time the market began its inexorable descent, and somehow I had to write about a business climate that had gown so surpassingly inclement that it was nigh impossible to project in print the irrepressible good spirits that is the expected demeanor in the business press.

“No one wants to read postmortems,” my editor enjoined me time and again. “But in truth no one wanted to read anything about telecommunications at all. The trade publications went away, and the reasons for the debacle went largely unexamined. No one wanted to know. All anyone wanted was for the market to re-inflate itself. Which it has over the course of the last year, though ominous disturbances are even now manifesting themselves.

During the dark days of the tech bust and for some time afterwards, another cycle of boom and bust played itself out in another industry, the hydrogen industry, particularly that segment concerned with fuel cells. Globally, over ten thousand companies participated in the largely chimerical hydrogen economy hoping to make their fortunes in the anticipated transition to hydrogen fuel and hydrogen cars. And of course it didn’t happen. The markets never materialized, the investment dollars stopped coming in, and the companies began to go away. The debacle wasn’t anywhere near as big as the telecom crash--investment was only in the billions, not the trillions, and besides a lot of the participants got into hydrogen only as a sideline—but a lot of people got hurt.

It was a story almost completely ignored by the business press. No one so much as acknowledged that the hydrogen phenomenon had receded, and there were certainly no postmortems.

So is hydrogen fuel dead? I would say dormant. It is entirely conceivable that the hydrogen fuel industry could make a comeback and eventually build real products for real markets. But clearly initial expectations went unmet, and many businesses failed as a consequence. The hydrogen business will grow and it is extremely important to the alternative fuels industry generally but that’s largely because hydrogen is used to produce so many types of alternative fuels. It’s an ingredient, so to speak, not the final product.

We need to look at what happened. We need to determine what went wrong so it doesn’t go similarly wrong with respect to other alternative fuels. We need to learn from the past.

Hydrogen Dreams

The use of hydrogen in transportation as a substitute for fossil fuels was the principal application underlying the vision of the hydrogen economy. The expectation was that declining fossil fuel resources, inadequate sources of bio-based fuels, and growing concerns about the climactic effects of green house gases would urge persons and societies to adopt hydrogen powered vehicles.

The validity of this vision and the feasibility of implementing it have both been the subject of widespread discussion, much of it highly speculative in nature and based in many cases upon “back of the envelope” projections. Here we wish to confine ourselves as much as possible to the factual, or at least the highly plausible, and to leave the speculation to others.

I must begin by stating an inconvenient fact. The use of hydrogen in transportation today is fairly insignificant in terms of volumes of gas generated and consumed and is apt to remain so for the indeterminate future. The hydrogen transportation industry, such as it is, consists almost entirely of pilot programs involving subsidized fleet vehicles operated either or both by government agencies in various countries and by private corporations seeking to burnish their reputations for environmental sensitivity.

True, a number of companies are selling internal combustion engines that are modified to use hydrogen, and others are selling complete vehicles incorporating such engines to the public, but sales of these products have been negligible to date, and, not surprisingly since there is no real infrastructure established for distributing or selling hydrogen to the public. A number of large companies including Shell Hydrogen, Linde, and Stuart Energy (now part of Hydrogenics), among others, have set up what are essentially exhibition hydrogen filling stations in various places around the U.S. and Western Europe, some of which are designed to serve the needs of the handful of hydrogen fleets and others of which are open to that tiny body of consumers driving hydrogen cars. But no one pretends that these operations have achieved the status of for profit businesses or that they are in any way pervasive. The only real markets for hydrogen in transportation today are in aerospace where hydrogen has seen some use as rocket fuel, and in naval defense where a number of hydrogen fuel cell powered submarines have been sold, chiefly in Europe.

Unfortunately, this state of affairs appears to be endemic. Pilots of one sort or another have been going on for a decade now, though it must be said that they have been increasing in number over time. Vocal hydrogen advocates—what relatively few remain—find this proliferation of pilots mightily reassuring, but we see scant grounds for optimism. Real industries don’t emerge after endless rounds of subsidized pilot programs. They simply emerge. One has only to observe previous attempts to launch alternative transportation fuels including methanol, propane, and natural gas in the U.S. to appreciate the deficiencies of the pilot approach. It simply doesn’t build markets. Instead it builds more pilots.

I see very little likelihood of a solid business in hydrogen for transportation developing within the ten year time span of this study, and in my background conversations with hydrogen industry insiders—excepting, of course, the major oil companies and auto makers who have their own hidden agendas—I have found that most now acknowledge privately the difficulties attendant upon a hydrogen transition. Plainly put, no manufacturer of hydrogen generating equipment, with the possible exception of hydrogen-on-demand systems, is likely to survive over the course of the next decade by concentrating on the transportation industry. There’s just not enough business there. And the reason there isn’t and won’t be is because hydrogen vehicles using either hydrogen fuel cells or hydrogen burning internal combustion engines are neither practical nor cost effective.

Hydrogen Fuel Cells

First let’s look at fuel cells. No fuel cell powered vehicle, with the exception of non series produced naval submarines, of which about a dozen are now in operation, is available for commercial purchase at present. Approximately 500 wheeled vehicles, including trucks, buses, and passenger cars are on the streets today, having been made available to various individuals and organizations by the auto makers for test purposes. We believe that number will grow and might conceivably double or even triple within five years and could increase by a factor of ten within a decade. But unless firm production plans emerge from the automotive industry, such increases will be of little significance. To date, manufacturers have produced far more alternative fuel vehicles using such combustibles as natural gas, propane, methanol, and ethanol, and many of these vehicles have actually been limited production models offered for commercial sale. In this context fuel cell vehicles are far behind, and the extent of beta testing must be considered unimpressive.

Now it is true that in 2005 Reva Electric Cars, a company located in Bangalore, India, and currently engaged in the manufacture of battery powered electric cars of very advanced design, announced the introduction of a full production fuel cell vehicle in 2007. The vehicle was supposed to run on methanol, presumably reformed to produce hydrogen. Reva intended to obtain the fuel cells from a government owned manufacturing operation which produces fuel cells exclusively for the Indian military today. Few other details and no pricing information were divulged. All reference to the vehicle has since been dropped from the company Website, so presumably the introduction has been delayed, perhaps indefinitely.

Hydrogen Usage in Transportation Today and Tomorrow

Current usage of hydrogen in automotive transportation stands at about 60 tons per year, more than is used in the semiconductor industry, but less than in any other major industrial application. If fleets of pilot fuel cell vehicles continue to grow, which we believe will happen, we see that figure increasing to 330 tons per year in 2010 for a total of 2,000 vehicles.

At two million vehicles, which represents major penetration but still a distinct minority status, that figure rises to 330,000 tons, less than is used in ammonia production. Multiply that by 50 which would establish hydrogen fuel cells as the replacement technology for fossil fuel burning internal combustion engines, and we’re up to 16 million tons, approaching the level used in petroleum refining today.

Thus in order for transportation to exert a truly transformational effect on the hydrogen generation industry it has to become the established fuel for personal vehicles. If it doesn’t, hydrogen fuel becomes just another sizable niche market.

The Why and How of Hydrogen in Transportation

If hydrogen in transportation does not constitute a real market today, will it ever? And, if so, will the market develop to the point where real business opportunities manifest themselves?

To answer that question one has to re-examine the drivers behind the whole hydrogen initiative, drivers, that do not, for the most part, exist in other industrial markets for the gas.

The Why

Rather few advocates of hydrogen in transportation are attempting to advance their cause by asserting that hydrogen vehicles will outperform the existing internal combustion art or provide a better driving experience. And indeed if this were the case one could probably sell hydrogen fuel cell cars profitably today. Volkswagen has recently introduced an update of the classic Bugatti which is priced at $1.2 million, a price substantially higher than most estimates of the low unit volume manufacturing price for a fuel cell vehicle. At the time of this writing, Volkswagen is back ordered on the Bugatti for a full year.

If a fuel cell vehicle offered comparable or better performance than the Bugatti, that coupled with its high tech cachet would seem sufficient to snare an early adopter clientele. But clearly no high performance fuel cell vehicle exists even in prototype form, and the fact is that almost no one in the hydrogen fuel cell camp is making claims of increased power output over internal combustion engines.

Claims are indeed still being made for the superior fuel economy of fuel cell vehicles (fuel cells themselves achieve typical conversion efficiencies in excess of 50% except in the case of the direct methanol variety which is only around 20% efficient), but given the extraordinarily high cost of the fuel cells themselves, they scarcely recommend themselves on such grounds. And such efficiency advantages are further undercut by the much higher cost of hydrogen as compared to fossil fuel, especially if it is derived from renewable energy sources.

No, the real rationale for embracing hydrogen is otherwise, and two justifications are generally put forward by the prophets of the hydrogen transition: a.) hydrogen fuels, in and of themselves produce little or no green house emissions and thus do not drive climate change; and b.) renewable energy sources-based hydrogen constitutes an essentially inexhaustible substitute for our dwindling supply of fossil fuels.

The Climate Change Argument and Its Implications

The weight of scientific evidence supporting the role of green house emissions in promoting rapid climate change is well nigh irrefutable today; dissent is almost entirely politically and ideologically motivated, and credible scientific research supporting the contrary position is almost nonexistent. Furthermore, the scientific consensus is swinging toward the position that catastrophic rather than incremental climate changes are in the offing.

Nevertheless, it is far from certain that such findings will persuade a plurality of users to forsake fossil fuels so long as they are readily available and affordable, particularly in developing countries where personal transportation is in increasing demand. Historically, nations seeking to industrialize and to modernize their economies have been willing to endure severe air pollution and environmental damage to achieve their goals and we would expect this propensity to persist. To be sure, some governments seem serious about mitigating global warming by reducing their own share of greenhouse emissions. But whether they will be willing to impose what are certain to be unpopular mandates obliging their citizens to switch to costly renewable energy sources-based hydrogen, to pay more for motor vehicles, and to endure greatly reduced intervals between refueling remains to be seen.

Nearly every thinking person has some kind of public policy perspective on global warming, but our purpose here is not to argue the validity of any particular public policy position but to attempt to forecast the likeliest outcome. Our forecast is that concerns over climate change will not dictate any meaningful changes in energy policies any time soon.

Fossil Fuel Scarcity

As anyone may discern from the briefest perusal of this Website, we believe that the peak of conventional oil production is likely within a few years, and that production from conventional natural gas resources may peak soon after. In as much as most hydrogen is produced from natural gas, and because production from renewables is very costly, fossil fuel scarcities will not prompt a widespread switch to hydrogen fuel in the near or mid term.

In the farther future hydrogen may be widely used in transportation, but that is not the only possible scenario, and in our estimation perhaps not the most likely. Production of hydrogen from renewable energy sources-derived electricity is, as we point out elsewhere, a remarkably energy inefficient process. Renewable sources, with the singular exception of nuclear fusion which many do not even consider a renewable energy source, do not scale well, and thus providing a renewable infrastructure that can supply a vastly energy inefficient transportation system is a daunting task. In any case, the prospects for fusion or for any nuclear electrical generation technology, for that matter, remain less than brilliant within the foreseeable future due to the very high cost of new plant construction and the determined opposition of citizen groups throughout the world.

If electrical generation is constrained in the decades to come, a not unlikely occurrence in our opinion, one would not want to put in place a personal transportation system dependent upon the availability of cheap energy, which is precisely what a hydrogen transportation system would be. We believe that those with public policy setting responsibilities should seriously entertain the notion that either plug-in hybrids or purely electrical vehicles based on advanced batteries, both of which use energy more efficiently than either internal combustion engines or fuel cell vehicles, may come to the fore out of sheer necessity, regardless of the clamor for hydrogen They should also confront the possibility that advanced forms of public transportation of high electrical efficiency could compete with automobiles by offering similar benefits combined with much higher transit speeds and at much lower cost to the public. These topics are discussed in some detail later in this section.

Methane Hydrates

We must also consider the possibility that a major new fossil fuel resource apart from unconventional oil will come into production over the course of the next two to three decades. Methane hydrates, discovered only in the 1980s, promise to provide a source of methane at least an order of magnitude greater than known natural gas reserves and that methane could easily be converted into liquid fuels by the Fischer-Tropsch. process.

By the most generous estimates, the amount of methane trapped in methane hydrates is some 200,000 trillion standard cubic feet, over forty times the estimated amount of conventional natural gas. This much methane is equivalent in heating value to well over 100 trillion barrels of crude oil.

Such methane could give the fossil fueled internal combustion engine another century of life. Currently, however, grave concerns exist as to safety issues involved in the exploitation of methane hydrates due to the possibility that large volumes of methane will be released into the atmosphere, thereby greatly exacerbating global warming (methane is several times more potent than carbon dioxide by volume as a greenhouse gas). In addition, no standard, proven extraction technique yet exists.

Presently, Japan, Russia, and India are sponsoring extensive research toward commercial exploitation of methane hydrates, and Precision Combustion, Inc., mentioned elsewhere in this text, has devised a technique for extracting methane from the hydrates in situ while providing for CO2 sequestration, a must in our view. I believe that practical extraction techniques will in fact be developed, possibly within the time span of this study, but that the high cost of extraction from deep waters and Arctic deposits will limit the importance of this fossil fuel resource for some time to come.

Other unconventional methane sources such as “tight gas”, shale gas, deep gas, and coal bed methane may also considerably augment the overall supply of natural gas. To date, however, the exploitation of these resources has been rather limited due to the high cost of extraction. I see nothing on the horizon suggesting that breakthrough techniques will arrive quickly.

Industry Initiatives and the Hydrogen Hype

Almost any survey of the popular literature on the subject reveals a near consensus as to the inevitability of a hydrogen transition in transportation. Optimistic views of hydrogen’s future have been expressed not just by environmentalists and political progressives but also by many on the political right, including most prominently, U.S. President, George W. Bush, and California governor, Arnold Schwarzenegger. Most interestingly, the constituents of the auto industry itself as well as the petroleum industry, in other words, those facing the most wrenching changes should the hydrogen economy come to pass, have generally taken extremely positive public positions on the widespread use of hydrogen in transportation, and have funded hydrogen initiatives of one sort or another to the tune of billions of dollars. Thus it is not inaccurate to speak of a hydrogen lobby, and, in the light of who are members of this lobby, it has the appearance of being a juggernaut.

Is then a hydrogen economy inevitable, notwithstanding the technical and economic problems of bringing it about? In an attempt to answer this question, let us first look at the auto makers, by all odds the most vociferous advocates.

The Automotive Industry and the Hydrogen Economy

With the exception of BMW, all major auto manufacturers have active fuel cell programs, and BMW itself has announced plans to introduce internal combustion engine vehicles capable of running on either liquid hydrogen or gasoline. While auto manufacturers have certainly funded research into replacement power plants in the past, including battery powered electric motors, Stirling cycle engines, Wankels, gas turbines, and internal combustion engine hybrids, such research projects have tended to be confined to one or two manufacturers at any one time. Never has the industry united behind a replacement to the reciprocating piston internal combustion engine.

This appearance of industry unanimity is initially very persuasive, but the alert analyst struggles to discern the motivations of the major player fuel cell supporters from a business perspective. What real advantages does a hydrogen economy hold for any or all of them, and do they really believe that it is feasible? Is it possible that they are being disingenuous in advocating it?

Before we examine their respective economic motivations we would point out the following.

The Fuel Cell Hoopla

Currently the hydrogen fuel cell hoopla is almost entirely confined to the automotive sector of the transportation industry. Manufacturers of aircraft, ships, boats, locomotives, heavy trucks, motorcycles, and construction equipment have shown no parallel interest in or commitment to a hydrogen transition. Nobody is prototyping hydrogen powered bulldozers, for instance. Nor are manufacturers of tools powered by internal combustion engines evincing much interest in hydrogen—no hydrogen chainsaws in the offing. Only the most visible portion of the transportation industry has publicly embraced hydrogen and hydrogen fuel cells.

If a hydrogen transition were indeed inevitable, one would expect other vehicle manufacturers to be moving forward to future proof their own industries. That this is not happening suggests either that these manufacturers are entirely oblivious of the implications of declining fossil fuel supplies, or that they have little faith that their own industries can make a hydrogen transition.

In an effort to examine this issue more incisively, I interviewed a number of eminent naval architects at length on the subject, all of whom, as it happened, had studied the hydrogen fuel cell option quite seriously. Interestingly, none believed that fuel cells would play any role in maritime propulsion except in submarines for the foreseeable future. I have also spoken at some length with designers of general aviation power plants in an effort to determine the receptivity toward hydrogen in that industry. Again I found that interest was minimal and belief in any imminent changeover to hydrogen fuel was even less.

So why is the automotive industry seemingly so committed to hydrogen?

Automotive as well as oil executives profess to be animated primarily by environmental concerns. Perhaps some are on an individual level, but clearly these corporations have benefited enormously in the past from activities that are richly productive of greenhouse gases and environmental degradation, and they have consistently resisted regulation toward curbing emissions. That an environmental agenda will be pursued by these companies absent very strong financial incentives is to be doubted.

If environmental issues are unlikely to be foremost in the minds of auto industry and oil company executives, might concern over diminishing supplies of fossil fuels be preoccupying these same individuals? This motivation seems more plausible among both groups, but, if it were truly operant among the auto makers, one would expect them to be striving mightily to reduce the fuel consumption of existing power plants, something that could certainly be done now with proven technologies, albeit not without incurring considerable expense. The fact that most are not seems to indicate that among them peak oil concerns are far from paramount at present. And, in any case, the supplementation of petroleum fuels with biofuels and various unconventional fossil fuels should be sufficient to ensure decades more of life for the internal combustion engine, albeit with sharply elevated fuel prices. Given the limited time horizons of almost all corporate leadership, one would assume that a span of decades in which to continue business as usual would seem an eternity and would lend little urgency to schemes for fundamental changes in the basic product.

And the fact is that auto makers are not especially good at marketing new technology nor are they inclined to do so. Rather the industry today is dominated by style and superficial industrial design. Basic power plants evolve very slowly—the Chevrolet small block V8 of the early 1950s is still widely used in GM cars today—and tooling for automotive fabrication and assembly may be utilized for decades. For auto manufacturers to get out of the internal combustion engine business and into fuel cells and electric motors would entail a massive recapitalization of their operations and one that would have to be undertaken with no realistic anticipation of increased revenues, at least not in the short run. Introduction of hydrogen fuel cell power plants is not going to open up any fundamentally new markets as did the internal combustion engine a century ago when it made possible the development of practical automobiles, airplanes, and the power hand tool. Instead the auto makers would be attempting to sell what are essentially variants of an existing product, and, moreover, a variant for which there is little proven demand.

The last point is crucial. There may in fact be a ready acceptance of hydrogen fuel cell vehicles among a minority of environmentally conscious consumers, providing that pricing were not exorbitant. But there is no evidence of a pent up demand for such vehicles priced at multiples of current price points and using a fuel offering one quarter the energy of the same volume of gasoline and costing more than twice as much. Either fuel cell vehicles would have to be subsidized for a number of years by the auto makers, the government, or both, or strong financial disincentives would have to be put in place with respect to internal combustion engine vehicles, a course that would be politically hazardous to say the least. Thus we believe that it would be entirely rational on the part of the auto makers to continue to harvest from the incumbent technology indefinitely rather than to deal with the manifold uncertainties involved in manufacturing and marketing a radically new type of vehicle.

Nor are the auto makers driven by competitive pressures to undertake such a course. Such are the enormous barriers to entry facing anyone attempting to penetrate the auto industry that no insurgent can possibly succeed except in some very narrow niche market. The well known failures of John DeLorean and Henry Kaiser in the past are highly instructive in this regard. In this light, Amory Lovins’ much publicized hydrogen powered HyperCar simply cannot be taken seriously. The chances of such a new entry succeeding in the automotive marketplace are infinitesimally small.

Some automotive journalists of my acquaintance profess utter cynicism as to the motives of the auto makers in promoting fuel cells, and believe that their activities are an elaborate ruse to disguise the blatant opposition of the latter to further regulation of either fuel economy or emissions. While we too are inclined to doubt the authenticity of some environmentalist positioning statements emanating from automotive corporate public relations departments, we believe that the hydrogen fuel cell research sponsored by the auto industry is taking place pursuant to eventual product development.

Plug In Hybrids

As we explain in a subsequent section, we do not believe that fuel cells are likely to advance sufficiently within the next decade to prompt any massive adoption of the devices in automobiles. Billions of dollars of investment and over fifteen years of intensive research and development have not resulted in a product that could be successfully mass marketed in automotive applications today, and that bespeaks fairly intractable engineering problems inherent in the technology. We believe that not one but several breakthroughs must take place before fuel cells can be truly commercialized.

We do believe, however, that all of the major auto manufacturers will introduce hybrid electric vehicles within our ten-year timeframe, and that some of these will be so-called plug-in hybrids where battery storage capacity is such as to permit charging the vehicle from a stationary source of electricity and the utilization of battery power alone to provide some significant portion of the motive power. Internal combustion engines would still be present, but the electrical power plant would assume much more importance than in the case of today’s conventional hybrids.

Our thinking here is that much of the research toward developing fuel cell vehicles could be utilized directly in building plug-in hybrids. Both require high output, high efficiency, low mass electric motors of advanced design as well as sophisticated electrical management systems. Both would also employ regenerative braking systems.

Many auto industry analysts who are supportive of a hydrogen transition assume that hybrids represent a bridge technology on the way to a fuel cell future. We believe precisely the opposite: we think that fuel cell prototypes are a bridge technology toward plug-in hybrids.

We use the term “bridge technology” rather loosely here in as much as we believe that the whole notion of bridge technologies is ill conceived. There are almost no instances in the history of technology of industries introducing intermediate technologies for the purpose of gradually accustoming the public to something fundamentally new. If the automotive industry invests seriously in hybrids and puts in place a massive infrastructure for producing them, they will have already made their choice and it won’t be a bridge to anything else. There is no way that they would abandon the new manufacturing infrastructure to transition to fuel cells a few years later.

Advanced Battery Technology

Many supporters of the fuel cell industry assume that battery technology is neither adequate for the introduction of such hybrids now nor possessed of sufficient potential to permit their introduction in the future. I disagree based upon extensive and intensive analysis of the current battery art.

Large format lithium ion batteries capable of powering an automobile are already being manufactured by a number of firms, though costs are still too high for use in mass produced automobiles. That will come down. Zinc Matrix’s low cost silver zinc battery also seems very promising in this regard, offering equal energy density per mass unit to lithium ion types and greatly superior energy density by volume. Rechargeable zinc air batteries, currently in limited production by ZOXY Energy Systems AG of Switzerland and others, offer even higher energy densities per unit of mass, while the still experimental rechargeable lithium air type offers energy density on a par with PEM fuel cells. Vanadium salt redox flow type batteries, currently used for large scale energy storage by electrical utilities, offer energy densities equivalent to lithium in commercial products, while far superior densities have been achieved in the laboratory. Furthermore, redox flow types have virtually unlimited operating lives and can be recharged almost instantaneously.

So why aren’t auto executives endorsing plug-in hybrids in lieu of fuel cell vehicles? Here we enter into the realm of speculation. Lacking hard information on the internal deliberations of automotive executive councils, we can only assume that top management in the major auto firms has access to the same data as ourselves as to the stubborn design limitations of PEM fuel cells and of the countervailing progress that has occurred in battery technology, and that, furthermore, they are prepared to act rationally on the basis of such information. Having said that I will further state that I believe that auto industry decision makers are reluctant to make any major changes to the power plant and have little enthusiasm for either hybrids or fuel cells. By endorsing fuel cells publicly and continuing to run pilot programs for fuel cell prototypes they can quite accurately claim that they are delaying market entry due to the immaturity of the fuel cell technology and thus continue to reap the profits from the fully amortized technology of the internal combustion engine. At such time as the market or governments demand change, they can undertake crash programs toward producing plug-in hybrids which use technologies which are essentially ready to go.

I do not believe that all of these aforementioned new battery technologies will ultimately succeed in the market place, but I do see ultra high output battery technologies as being closer to market readiness in transportation applications than are PEM fuel cells, and, perhaps more importantly, they do not require the construction of an entirely new fueling infrastructure.

The Oil Companies and Hydrogen

Oil industry executives might be presumed to have somewhat different expectations regarding a hydrogen transition in transportation than their counterparts in the auto companies since petroleum is the very basis of their corporate identities. To abandon oil in favor of hydrogen is to embark on an entirely new business venture, and again one where demand is uncertain.

In fact, most of the major oil companies are investing not only in hydrogen technology but in other areas of renewable energy—Shell and Chevron-Texaco are particularly active in this regard.

Shell and Chevron-Texaco appear to be following somewhat different strategies in respect to renewable energy sources generally and hydrogen in particular.

Shell Hydrogen appears to be functioning primarily as a technology incubator. The company isn’t actually making any products relating to hydrogen energy though it is providing venture capital to other companies. Shell as a single corporate entity is much more active in solar power where it is a major player. Shell does manufacture large reformers for use in its own refineries, and has been known to sell excess gas as merchant hydrogen but clearly Shell does not aspire to be an industrial gases company.

Chevron-Texaco’s primary renewable venture is its investment in Energy Conversion Devices which make solar panels, high output batteries, and hydride storage systems. Chevron-Texaco is not directly involved in hydrogen generation.

So what’s really going on here, and why do the oil companies appear to be undercutting their core business?

Oil companies are in better position than anyone to understand the full implications of peak oil. They’re also acutely aware that opposing the spread of renewable energy sources isn’t going to make petroleum any more abundant and isn’t going to forestall an eventual energy crisis if the expected energy shortfall is not made good with renewable sources or unconventional fossil fuels. Getting into the renewable sector makes just as much sense as IBM’s eventual decision to embrace personal computing while at the same time attempting to shore up its mainframe business for as long as possible. Besides, the wind and solar energy industries, the two leading renewable sources if we except hydroelectric power, have both experienced very strong growth through the eighties, nineties, and into the current decade, so why not have a stake in them? And, moreover, such diversification is not at all unprecedented. In the past many petroleum companies acquired coal mining operations, properties they still possess. Thus, should the energy balance in transportation begin to shift away from petroleum, the oil companies will have many options in place.

I would also point out that those petroleum firms developing prototype hydrogen filling stations are utilizing steam reforming or partial oxygenation exclusively, and thus are entirely reliant on fossil fuel sources for hydrogen. So while they are developing their hydrogen capabilities, they are certainly not committing to renewable energy sources-based hydrogen.

For these reasons I do not see the oil companies cannibalizing their core business in any sense by supporting hydrogen, at least not now. I would add that another reason to invest in hydrogen while adhering to established business plans is because established business plans for petroleum refining call for increasing amounts of hydrogen to be used in the refining process. If the petroleum business is going to require more hydrogen, why not optimize the process for producing it, especially out of fossil fuel resources which the industry already commands?

I believe that the oil industry will continue to pursue advances in the production of hydrogen from fossil fuel and will look increasingly to coal, stranded natural gas, tight gas, coal bed methane, and methane hydrates as the cost of natural gas from the developed fields ascends in price.

And as for hydrogen filling stations and relationships with fuel cell manufacturers, such endeavors cost the oil companies little and achieve valuable corporate image building at a time when rumors of oil profiteering are beginning to circulate among the electorate here in the U.S. Oil companies are part of the solution is the implicit message of every hydrogen filling station sponsored by them.

So are oil company executives being disingenuous here? Do they lack any deep and abiding faith in a hydrogen future, specifically one based upon renewable hydrogen?

Oil executives and their boards know that within a single human lifetime energy regimes will change profoundly. The world toward the close of this new century will be as different from the present as the present is from the late Victorian age. By then most of the conventional petroleum will be gone, and unconventional fossil resources may be stressed as well. And in that world, hydrogen production for transportation, for all its inefficiencies, may play a major role simply because hydrogen is so abundant. Increasing the efficiency of fossil fuel power plants can only forestall the day of reckoning for so long. Eventually a complete transition to renewable sources becomes a necessity.

Business leaders do not plan seventy-five years in advance, however. Nor do national political leaders for the most part. No one is going to sacrifice fossil fuel profits in the mid-term in order to attempt to reap hydrogen profits in the long, long term. The hydrogen vision in transportation will be advanced for what it is, a vision, a stimulus to expansive thought and fond hopes, but it will not produce anything that looks like a roadmap, at least not yet.

Why not yet?

We will attempt to answer that question in detail in the following installment.

Some of the material in this article is drawn from a book length report on hydrogen fuel entitled "Hydrogen Markets 2006, Existing and Emerging Applications". If you wish more information regarding the hydrogen fuel industry, new production techniques, or overall projections, you may read a summary of the report at the Visant Strategies Website and you may purchase the entire document there.