In 1875, science fiction writer Jules Verne posited an idea that was considered rather preposterous at the time.

“Water will one day be employed as fuel, that hydrogen and oxygen which constitute it, used singly or together, will furnish an inexhaustible source of heat and light, of an intensity of which coal is not capable,” he wrote in his book ‘The Mysterious Island’.

Today, Verne’s prophecy is well on its way to becoming a reality. Touted as the ‘green oil of the 21^st century’, hydrogen is increasingly being promoted as an alternative to fossil fuels.

Being a ‘clean’ burner, hydrogen promises to be a valuable weapon in the fight against climate change. Allianz Corporate Global & Specialty (AGCS), the corporate insurer of the Allianz Group, illustrates the opportunities and the risks that the molecule presents. 

From childhood, we have all been told the value of hydrogen as the building block of water, the elixir of life.

Companies as well as governments are now waking up to its potential in the decarbonization of the economy. Unlike fossil fuels, hydrogen emits water instead of carbon dioxide when it burns. As such, the opportunities are abundant in the fields of energy, mobility and industry.

Some big-ticket projects in the area include the $20-billion ‘North H2’ project in the North Sea near Groningen in the Netherlands and the $5-billion Neom Mega-City development in Saudi Arabia.

According to McKinsey, the annual global sales market for hydrogen technology is estimated at $2.5 trillion in the next three decades.

So what’s so special about hydrogen? Plenty.

It can carry and store energy, provide fuel for all means of transport, and substitute for fossil hydrocarbons in industries such as steel production, petrochemicals and refineries, often the most difficult sectors to decarbonize.

It stores more energy per unit of weight than most other fuels. A kilo of hydrogen can power an SUV up to 100 kilometers.

Possible to make from low-carbon sources, it can be stored, liquified and transported through pipelines, trucks and ships. Hydrogen in fuel cells can be used for heavy transport in trains, airplanes or ships. It not only makes it possible to drive without carbon emissions, but also helps to cover longer distances and refuel faster than battery-powered vehicles.

What’s more, it is a single product with applications in multiple sectors such as electricity, heat supply and mobility.

Several projects are already highlighting the possibilities.

Korean automaker Hyundai has delivered its first series of trucks with hydrogen tanks to Switzerland while German industrial conglomerate Thyssenkrupp plans to use hydrogen to replace coking coal in steel production by 2030. In Austria, a hydrogen train of the French railway company, Alstom, has started regular operation.

Although the market is huge, some wrinkles must be ironed out before we can harness the full potential of hydrogen for our energy needs. Currently, it is produced mainly from high-carbon sources. With efficiencies of scale yet to be reached, its production, storage and transport are expensive.

Further, the supply and value chains for its use are complex and need coordination. In addition, new safety standards are yet to be developed and it will take time for hydrogen to gain societal acceptance.

The risks associated with hydrogen pertain mainly to fire and explosion hazard and business interruptions associated with inadequate use and handling of related technologies as well as transportation of the product.

When mixed with air, hydrogen can cause explosions. Being colorless and odorless, it is hard to identify leaks without specialized detectors. Ensuring the integrity of the systems in use is necessary to minimize the risk of business interruption.

The transport of liquefied or compressed gaseous hydrogen in containers is also a known risk.

At the moment, hydrogen accounts for less than 2 percent of Europe’s energy consumption. This could change going forward. Last year, the European Commission announced its hydrogen strategy for a climate-neutral Europe. The strategy includes an ambitious target of 40 gigawatts of European electrolyzer capacity to produce ‘green’ hydrogen by 2030.

Given the focus, insurers are likely to see a significant increase in demand for insurance in the future to construct and operate electrolysis plants and pipelines for green hydrogen production and transportation.

Besides providing industrial insurance through AGCS, Allianz participates in the hydrogen economy though asset ownership. Allianz Capital Partners (ACP), which is a part of Allianz Global Investors, is one of the world’s largest infrastructure investors. ACP is already engaged in several hydrogen projects through its portfolio companies. Especially ACP’s direct investments in the power and gas grid sector are working on ways to replace or blend hydrogen with natural gas leveraging the existing networks.

Be it the first blending projects of hydrogen with natural gas in the UK, Spain and Portugal or, in the transport sector, the first hydrogen-powered train in the UK and hydrogen fueling stations at Germany’s motorway stations – Allianz is part of it.

For an in-depth look into the opportunities and risks associated with hydrogen, click here  for the AGCS report.