Geopolitical risks pose a threat to a secure supply of hydrogen in Germany. Investment risks in the potential export countries challenge companies and make establishing hydrogen supply chains more expensive or slow.
Global supply chains face a variety of geopolitical risks. These risks are related to potential political, economic and social challenges of exporting and transit countries as well as bilateral relations between trading partners. As the global relevance of hydrogen increases, so does the risk that hydrogen supplies could be used as political leverage. In the study “H2 Geopolitics: Geopolitical Risks in Global Hydrogen Trade”, the Institute of Energy Economics (EWI) at the University of Cologne analysed import risks based on exemplary countries. The analysis was carried out as part of the Hydrogen Research Programme and was funded by the Gesellschaft zur Förderung des Energiewirtschaftlichen Instituts an der Universität zu Köln e. V.
The study discussed four geopolitical risk dimensions of the hydrogen supply chain: political, economic and social factors and bilateral relations. “Policymakers, companies and investors should consider geopolitical risks in their decisions to build hydrogen supply chains,” says Senior Research Consultant Tobias Sprenger, who co-authored the study with Patricia Wild and Lena Pickert.
Political factors in production or transit countries can influence the stability of a country or region and, thus, the reliability of hydrogen supplies. Political instability, conflicts, and wars pose a risk to import security. Numerous economic factors, such as economic freedom, corruption or exchange rate fluctuations, influence the risk of hydrogen supplier. The economic situation in a country has an impact on political and social stability and the development of the hydrogen market.
Social factors are closely linked to other factors, can result from economic factors, and cause political risks. For example, social inequality and tensions, as well as conflicts over resources such as electricity, water or fertile land, can lead to instability and pose a risk to a stable and reliable hydrogen market. Bilateral relations between involved actors also play a key role in the security of supply. Close economic, diplomatic and cultural ties can reduce the risk of disruption or restriction of value chains.
The study analysed the four potential hydrogen suppliers Spain, Algeria, the United Arab Emirates (UAE) and Chile. Spain is characterised by a very low geopolitical risk due to its geographical proximity and the European single market. Algeria has great export potential but faces domestic and geopolitical challenges that could impact hydrogen exports. The UAE’s risk profile is characterised by good economic and political stability. However, hydrogen exports face risks due to the conflicts in the region. Chile offers businesses strong economic freedom that makes investments in hydrogen projects attractive but has had some uncertainties in the political-economic system over the last years.
“Geopolitical risks arise from a variety of political, economic, social and bilateral factors in the exporting and transit countries,” Sprenger summarises. The potential hydrogen exporters Spain, Algeria, the UAE and Chile have different opportunities and risks.