Multi-billion-dollar Canadian pension investments in gas infrastructure face significant risks from the industry’s unproven plans to shift to hydrogen delivery, a new report warns.

“Gas companies downplay their exposure to growing transition risk by talking up plans to repurpose their infrastructure to transport hydrogen, but these flimsy claims do not stand up to due diligence,” writes advocacy group Shift Action For Pension Wealth and Planet Health.

The report argues that businesses selling gas are already facing an inevitable “death spiral.” Gas demand will drop as customers switch to electric appliances, consumer gas delivery prices will rise, and in turn, even more utility customers will move away from gas “until the utility model becomes unsustainable,” the group warns. Meanwhile, nine of Canada’s largest pension managers are putting the retirement savings of Canadians at risk by becoming co-owners of gas companies looking to transition to hydrogen.

Some utilities maintain they can remain relevant by replacing some or all of their gas with hydrogen, which can deliver energy without creating emissions. But Shift Action argues hydrogen isn’t the solution it is made out to be, and investors in those companies stand to lose out by taking them at their word.

The Trouble With Hydrogen

Hydrogen is widely acknowledged as an important pathway for difficult-to-decarbonize sectors like steel or aviation. And the U.S. National Renewable Energy Laboratory (NREL) says that “blending hydrogen into natural gas pipelines has been proposed as an approach for achieving near-term emissions reductions and early market access for hydrogen technologies such as electrolyzers.”

But when it comes to decarbonizing gas networks, current hydrogen technology faces “numerous challenges and uncertainties,” NREL adds. The companies pushing hydrogen say these challenges can be overcome, but Shift Action says the available solutions are either impossible or too expensive to justify the modest emissions reductions.

While producing green hydrogen from non-emitting electricity consumes more energy than the hydrogen ultimately provides, it can still be a solution for applications that cannot be electrified. However, for home heating and other uses served by gas networks, critics argue it’s more efficient to use electricity directly.

“Grey hydrogen,” which is made using gas, produces more emissions than just burning gas, so that’s not a feasible option either. “Blue hydrogen,” which is grey hydrogen with its emissions captured, is not yet viable yet, as fossil fuel companies say they can’t afford the inefficient, expensive technology—and the carbon capture industry itself admits it won’t be ready to scale up by 2035. Recent advances could deliver better results, but they aren’t proven nor available.

Some companies are already using gas blended with 20% hydrogen in their networks. And it works—Hawaii Gas has successfully combined hydrogen with synthetic natural gas since 1974. But Shift Action argues that the climate gains are not very impressive. At that level, gas networks can only reduce their emissions by about 6-7%, depending on the process by which they derive the hydrogen.

Greater emissions reductions would require higher ratios of hydrogen to gas—but doing that could create serious network problems. Hydrogen is a much smaller molecule than gas and so is more likely to leak, not just through cracks and joints, also through the pipe material itself. Higher ratios of hydrogen are also more combustible, raising the risk of leaks inside homes, and also cause more cracking in the steel used for most gas pipelines.

“Since the decarbonization potential of hydrogen blends is small, pure hydrogen has to be the feasible destination to make any of this stuff make any sense at all,” chemical engineer Paul Martin, co-founder of the Hydrogen Science Coalition, told The Energy Mix.

And when you look at the pure hydrogen destination, he adds, “you find out that every part of the system is fraught with problems when you even try to transition it to carry pure hydrogen.”

Betting on Technology Advancements

There are methods for making networks safer, which the gas industry says is worthwhile because the already-built pipelines can be an affordable way to deliver low-carbon energy. For instance, the Canadian Gas Association says Canada’s gas infrastructure is an asset that can be leveraged for a national energy transition, “used to transport, store, and distribute a more complex and variable mix of gases in the near- to medium-term future.”

The Energy Mix has reached out to several gas companies about blending gas with hydrogen but did not hear back as this story went to virtual press. We’ll update this page as we hear back.

Hawai’i Gas uses a product called Hydropel to accommodate hydrogen in steel pipelines—though Martin says that product and others like it are yet to be proven over the long term. There are also new pipe materials that can safely transport hydrogen gas. But unless costs for modifying current pipelines or building entirely new ones can be brought down, the approach will negate the main benefit of turning to hydrogen gas: that it would be cheaper to use an existing network.

“It is unclear if these asset owners and managers fully understand the considerable financial risks facing these investments,” writes Shift Action.

Given the state of the technology, gas companies’ plans for hydrogen will only make sense when cheaper solutions become available in the future, Shift Action adds. Companies are optimistic this will happen, but Shift Action argues in the report that the challenges create too much risk for investments, and that pension funds should do their due diligence when considering claims about hydrogen.

“Long-term investments in gas infrastructure are incompatible with protecting pension wealth and ensuring a stable climate,” the report says. “Hydrogen is not capable of changing that fact.”