The Lex Newsletter: Humanity’s $20tn hydrogen challenge

Dear reader,

It is all very frustrating. The sun converts 600mn tonnes of naturally occurring hydrogen into energy every second. But here on earth you have to faff about with an electrolysis plant to produce modest amounts of green hydrogen to burn in your experimental home boiler*.

A Lex in depth Big Read analysed the challenges this week. We believe hydrogen will play an important auxiliary role in carbon transition for applications such as iron processing and electricity storage.

Lex’s Camilla Palladino calculated that a net-zero world might need 500mn tons of hydrogen annually. This would require $20tn of investment by 2050. So far, we have invested 0.15 per cent of that sum.

To comment on our coverage — which tilted towards energy this week — please email me at Lexfeedback@ft.com.

Reader Peter Nicholas has already pointed out that $20tn looks less daunting when covered at a rate of under $1tn per year. That is less than fossil fuel subsidies in 2022 as calculated by the International Energy Agency.

Nibble away at a liability in small chunks and it is surprising how soon you can cut it down to size. One method is to invest in electrolysers. Nucera makes these and is reportedly gearing up for an initial public offering. The company, which Lex values at just under €3bn, is a joint venture between Germany’s Thyssenkrupp and De Nora of Italy.

Hydrogen became a cool substance outside the energy industry only a couple of years ago. Lithium has been the chemical bee’s knees for rather longer as an ingredient in electric-car batteries. Some of its halo is now illuminating soda ash.

In all honesty, a lot of FT business writers, me included, did not know what soda ash was until this week. That changed with the news that Turkey’s WE Soda may bring a much-needed £7bn IPO to the depressed London market.

We scribes now stand at the water cooler nonchalantly remarking: “So Vanessa, were you aware — as I was — that soda ash is actually sodium carbonate and is the world’s tenth most important inorganic compound?”

Soda ash is used for purposes that include processing lithium for electric vehicles. WE Soda boasts low-cost production. That always gives a miner a big advantage, as the following chart shows. Trona is the mineral that soda ash is derived from, by the way.

Sodium itself is mooted as a useful ingredient in lower-cost EV batteries. Chinese companies such as CATL, JAC Motors and BYD see this as a viable technology and are already incorporating it into cars.

Sodium is more abundant than lithium. But power cells containing it have lower energy density, as the next couple of charts illustrate:

Lex thinks nuclear will be an inevitable part of the net-zero energy mix, despite our qualms over waste disposal. It is hard to see where base load power will otherwise come from when the sun is not shining or the wind blowing.

We buy the argument for small, modular nuclear plants of the kind Rolls-Royce, GE, Hitachi and NuScale are developing. These will doubtless trigger protests. The flames of public opprobrium are for the moment tickling the feet of energy companies for other reasons.

UK regulator Ofgem has announced new energy price caps. It should instead have cracked down on “profiteering” by energy companies, screamed trades unionists and consumer rights campaigners.

Really? Lex analysis shows that companies such as ScottishPower and EDF typically make losses on domestic power supply. They do much better on electricity generation, admittedly.

Stretch kvetch

The other main theme this week was continuing financial stress. At the start of rate tightening, one Lex colleague dismissed modish talk of soft landings. He said no previous cycle had avoided financial dislocation and this one would be no exception. He was right.

Central bankers and their supporters want to extend deposit guarantee insurance in the belief it will reduce stresses on the financial system. I strongly disagreed in an FT column. Officials always want more power and in this case it would be at the cost of greater moral hazard.

Wobbly, overleveraged US corporations such as Diebold Nixdorf and Incora are flocking to Houston, the new go-to place for a Chapter 11 bankruptcy. This is the venue for an increasing number of “restructuring support agreements”. These set the terms of a capital rejig in advance.

UK readers will see elements of our local prepack administrations in these arrangements.

The US’s most controversial bankrupt is Purdue Pharma. The Purdue group bears heavy blame, in my opinion, for the opioid crisis that has killed thousands of Americans and ruined the lives of thousands more.

A federal judge this week rubber-stamped civil liability releases for Purdue. This cleared the way for the company to pay $6bn to claimants and abatement programmes. Lex reckoned this was the best pragmatic solution.

Financial strains meanwhile linked some disparate individuals in our coverage: poor Americans, UK finance directors and the entrepreneurial Issa brothers.

US value retailer Dollar General delivered a whacking profits warning, a signal it should focus on core customers who have been cutting back their spending.

About one-quarter of FTSE 100 companies, including BAT and Vodafone, have replaced their finance directors this year, or plan to do so. That reflects how tough the job has become due to economic disruption.

The Issas are using one of their businesses, Asda supermarkets, to buy assets of another, petrol station group EG, for £2.3bn. A simultaneous equity injection and property disposal should make their empire’s hefty debts a little more manageable.

What’s the big idea?

These three caught my eye in Lex coverage this week:

• Absolutist prophecies are usually wrong. We were examining predictions that new technology will completely replace old technology. The latest of these concerns artificial intelligence. We highlighted the woefully inaccurate claim that e-books will supersede printed ones, which are still doing nicely for publishers such as Bloomsbury.

• Multiple friendships get you invited to the best parties. The business exemplar of this theory is Taiwanese contract manufacturer Foxconn. Numerous partnerships mean it has figured sequentially in the PC boom, the smartphone surge and now the land grab in artificial intelligence.

• European defence stocks are ethical investments. Hardly fresh thinking, but a point worth making at a time when Russia is hammering the populace of Kyiv with missiles and drones.

Stuff I have enjoyed this week

Apropos of Ukraine, the FT has published a brilliant exposé of the private army of Gazprom workers that the Russian company has sent to fight. Gazprom’s blurring of peaceable private employment with violent military service is dismaying.

Lex’s Sujeet Indap and FT colleague James Fontanella-Khan delved engagingly into a different power struggle: ructions between top bosses at Wall Street investment bank Centerview.

Outside the office I am enjoying watching swifts, which have recently returned to northern Europe from Africa. These are the fastest birds in level flight. Small falcons, called hobbies, can catch them, but mostly intercept dragonflies. You can see how in this amateur video clip.

Enjoy your weekend, however you choose to spend it.

Jonathan Guthrie
Head of Lex

*Don’t do this. It could end badly. In an explosion. And divorce, which would be even costlier.