In this interview, Danish investor Morten Stahl, founding partner at Natural Hydrogen Ventures, discusses the discovery and potential business opportunities of natural hydrogen. He also addresses its possible impact on the fight against climate change and efforts to reduce emissions.

Supertrends: Could you introduce yourself and explain what does your company do?

Morten Stahl: I'm Morten Stahl, a cleantech investor for many years. Two years ago, we stumbled across what is called naturally occurring hydrogen and quickly realized the immense potential of this. I've created the world's first natural hydrogen-focused investment fund. That means we are investing both in pre-seed and seed stages in two sectors: one that we call core natural hydrogen, meaning companies exploring natural hydrogen, and a second one called related technologies, which are any companies or technologies that will see a very exponential growth in demand as we start finding natural hydrogen all over the world.

Supertrends: Why did you decide to invest in natural hydrogen? What does hydrogen have that made you chose to focus your career and investments on it?

M.S.: I've always been very much into investing and, basically, saving the climate from overheating, and I think there are a lot of options to do this. I don’t believe there will only be one thing to fix all our problems, and hydrogen is needed for many reasons. Green electricity is a really good solver for our climate problems, getting us to net zero emissions. But, by far, we don't have enough of it, and we are not building an infrastructure fast enough. We need all the energy types that we can get, and hydrogen offers this and, at the same time, serves as a fuel for other types of energy demands where electricity might not work perfectly, like industrial heating, aviation fuel, or ship fuels. That's why I think hydrogen is really interesting. But, of course, it matters a lot what kind of carbon intensity is used in its production and at what price. We'll get back to that, but I think that's crucial.

Supertrends: Are there different types of hydrogen? If so, how are they classified?

M.S.: There are many different types, but in the end, hydrogen is hydrogen. There are different types in the way that there are different ways to get to this hydrogen. But when you have the gas, it's hydrogen, and you won't know the difference—you just know how you got it. I don’t know the exact origin or why, but they’re classified by colors. I imagine that it's because we want to describe things as clean or green, like in any other thing. At some point, someone put the label on a type of hydrogen, calling it green because it's not as polluting as the existing forms of hydrogen we were producing at that point. And from that on, it just really went downhill. 

Now we have green, which is hydrogen produced from green electricity; blue, which is made from natural gas, where you split the natural gas and save the hydrogen and then capture the carbon and store it; and gray, which is made also from natural gas, but we just let the carbon out into the atmosphere. You can also find other colors like pink, for hydrogen derived from nuclear energy, or white or gold hydrogen — there’s not a consensus on how to call this type yet — which refers to the natural hydrogen you can find in nature. 

The big problem with colors is that, as I'm doing right now, you have to explain to people what it means, and then it's not really a good name. Hopefully, we'll get to a carbon intensity classification instead of colors at some point, because that's what's relevant. Do you know what kind of electricity you use to produce your so-called green hydrogen? Because it matters, and if it's coal-fired electricity, then it's not green. Carbon intensity, that's what matters. Right now, we use colors and that's just how it is, but we try to call it natural hydrogen, which is the hydrogen type we work with. That tells us better what it is than just calling it white or gold.

Supertrends: You say that, in the end, hydrogen is hydrogen. Are the properties the same for all the types?

M.S.: Exactly, exactly. The properties are the same. The exciting stuff about hydrogen is that when you use it for energy, it doesn't emit any carbon or any climate-heating gases, and that's important. But the production of it could do so. So, to use it as a sustainable resource, you must produce it in a way that doesn't generate much or any carbon emissions. 

Supertrends: What is considered natural hydrogen? Was it discovered recently?

M.S.: Natural hydrogen is something that occurs naturally in the subsurface. It's created by different processes below ground and, for this reason, it's available to be extracted. This is something new for many people and also for industry and science. You would still see old science books stating that hydrogen cannot exist in a free state and that it will always want to combine with something else. 

We have recently taken a lot of interest in it because of its discovery. It was made in Mali, in West Africa, which sadly is not a very good place to make the first discovery of anything as it's a troubled country right now, although it hasn't always been like that. Back in 1987, they were drilling for water near a local village, and they didn't find water. Instead, they found a gas stream that later turned out to be almost pure hydrogen. At that point, like the rest of the world, no one was really looking for hydrogen; they were looking for water. It didn't make sense. It was only in 2012 when it was re-entered, and they started to use hydrogen to run a turbine to deliver electricity to the local village. This could be counted as the first discovery of natural hydrogen.

Then, as the world started looking more into it, we looked through old data on wells that were drilled and it turned out we have discovered hydrogen all over the place. There's a company called Gold Hydrogen, working in Australia, which just redrilled an old discovery from the 1920s. Farmers were drilling, looking for oil, but they found hydrogen instead. Now this company just redrilled that well and confirmed that there's a lot of hydrogen. Same thing in Denmark, where I come from. We were looking onshore for oil and gas in the 50s, but we found hydrogen. Again, at that point, we weren't looking for it, so scientists or drillers didn't care. Sometimes they didn't even test the gas flow. 

So, during the last century, some drilling sites found hydrogen, but they just thought this is curious, it shouldn't exist, but it does. But who cares? No one's demanding hydrogen. We're looking for hydrocarbons, oil, and gas. It has always been there. Actually, the Olympic flame burning in Turkey is half hydrogen. If we had tested it back when the Olympic flame started burning, we would have known it for thousands of years already.

Supertrends: How abundant is it? Are there any studies estimating the presence of natural hydrogen worldwide?

M.S.: Yes, I think there's been some research done by the US department of geology, the USGS (United States Geological Survey), and they estimate that there are millions of megatons, or in other words, trillions of tons of hydrogen. That’s insane. Their estimation is based on the back of the fact that they know how much of the right type of subsurface rock exists on Earth. If we could just extract one or two percent of this, we would have enough hydrogen to feed demand for hundreds of years. 

What's really interesting about this is that this is the first estimation. As you look for it, you get more knowledge, and you figure out more places where this could be found. This first estimation by the USGS only takes into account one type of natural hydrogen generated by the reaction between water and iron-rich rocks. But there are other theories and other ways to create it that will add to this. So, the volume of natural hydrogen could be huge.

Supertrends: Which countries or continents are expected to have the biggest resources of natural hydrogen?

M.S.: If you're an oil and gas guy, if you're used to estimating resources, you would rightly say that we hadn’t validated a resource estimation at 100% anywhere in the world. At the moment, we have information from the countries that decided to spend time and resources on exploring it. Historically, that's been Russia. They tested a lot of wells to find hydrogen, so we know there's a lot of hydrogen there. 

Anyway, it's widely expected to be just like oil and gas: something you can find all over the world. Maybe not in your backyard, but somewhere near you. Right now, there are a lot of things going on related to extraction, drilling, and exploration in the US, Australia, and France. And that's also where you have information coming out. Africa has a huge geologic potential too. In the end, these types of rocks exist everywhere.

Supertrends: How different is the extraction process compared to other gases? Does hydrogen need some kind of treatment before it can be used? 

M.S.: The brilliant thing about natural hydrogen is that you are leveraging existing oil and gas and, to some extent, mining industry skills. So, there are all these industries where you have thousands and thousands of companies and millions of people knowing how to look for, extract, transport, and sell gases or other resources coming from the subsurface. This means that extracting natural hydrogen can be done with the same equipment in the same way that we are currently extracting natural gas. 

But there are still issues, like where to look for it, if the amount is big enough so it makes a good business case, how do you transport it once extracted, et cetera. As you said, hydrogen needs to be purified or separated from other gases that it flows with. And, of course, there's a lot of trial and error. There are some really good ideas, some really good thinking, and I'm hearing that we have made some interesting discoveries that the world doesn't know about yet. But hopefully, somebody will announce it soon. 

The purification part is not a big problem, but it is something that we could get better at, because we're expecting that the cost driver of natural hydrogen will be the cost of separating and purifying the gas. Of course, drilling is expensive, but if you have something that flows just reasonably well, then separating and purifying becomes the day-to-day cost driver. Anyway, there are already big gas companies that know how to do this, and new membrane technologies are being developed for the general hydrogen industry.

Supertrends: Is natural hydrogen poised to be the cheapest type of hydrogen?

M.S.: I would say that natural hydrogen will be by far the cheapest form of hydrogen, because it doesn’t have any input cost. No matter how good you get at producing electrolyzers—the machines that produce the green hydrogen from electricity and water—you'll still have to buy the electricity. There will always be a cost, and even if it's not a monetary cost, it will be an opportunity cost, because we need so much electricity to feed our general usage. So, I’m sure natural hydrogen will be the cheapest to produce.

There are already a lot of calculations available from the US Department of Energy estimating that companies working with natural hydrogen could get below a dollar for a kilo, which is kind of the holy grail in hydrogen economies. By reaching that, natural hydrogen would have cost parity with fossil fuels, and that’s what is truly needed. Hydrogen is interesting, definitely, but only if you can get it to be cheap enough. If not, it would mean that buyers would have to pay a green premium that only a few can afford, and others might not do it for ideological reasons. So, the potential of natural hydrogen to be a true game changer lies in its cost-parity with fossil fuels. 

For many use cases, and that’s why we are truly interested in this, natural hydrogen could be a type of “green swan,” the good cousin of the black swan. Instead of negatively surprising us, it could surprise us in a positive way, helping us reach our 2050 goals. It’s cheap and it leverages existing skills, which sets it apart from many other potential energies. 

Supertrends: How can natural hydrogen boost the energy transition?

M.S.: I think it will differ from country to country. We can’t avoid the fact that hydrogen is more difficult to transport than oil and gas. It simply has a lower energy density, so it requires either finding a lot of it and building a pipeline network, or turning it into something else.  We are big fans of this second option, where hydrogen could be converted into ammonia or methanol, easier to ship and with a big market already. Ammonia, for example, is the biggest market for hydrogen, representing a US$130 billion market. It could also be turned into sustainable aviation fuel (SAF).

What's really interesting is that for these technologies, you have already developed new—maybe at a smaller scale—technologies with green hydrogen in mind. There are companies transforming green hydrogen into green ammonia, but the cost is really high, so it only works if people are willing to pay a lot of money and they have carbon credits or carbon taxes. But just with this existing technology, if you just unplug expensive green hydrogen and plug in natural hydrogen, you end up with a product that in many cases is cost-competitive with fossil ammonia in your local market, because of how much cheaper it is to produce. You’re doing it locally; you're not moving it from a faraway field where the big ammonia plants are. So that's, again, a big potential. It can also be used for industrial heat or to produce all kinds of things we need in our daily lives, like steel obtained by removing the oxygen out of iron. The problem with this is it has to be near the steel plants or have a really good pipeline connection. 

Another industry where it can make an impact is transportation. And this is one of my favorite things about natural hydrogen, because it turns many people’s understanding of hydrogen upside down. A fair argument could be why should we use hydrogen for transportation? Why should we put it in a truck or a car? You're turning electricity into hydrogen and then into electricity again to drive the truck or the car. You're losing a lot of energy. But with natural hydrogen, it wasn't electricity in the first place—it's just hydrogen. Let's say you spend US$3 moving it to the nearest refuel station, and you also add US$1 of profit for the refueling station owner. You still end up with a price at the pump of maybe US$6 or 7 per kilo, and that's cost parity with diesel. No subsidies, no carbon tax. With this, I’m not saying that all EVs are pointless, but for heavy transport or cars in countries where you don't have a developed electric grid, natural hydrogen could play a role. But only if it’s natural hydrogen. 

Supertrends: How polluting is the extraction process? With that in mind, is natural hydrogen still the most sustainable?

M.S.: The important thing when measuring this is the carbon intensity. Green hydrogen is not born equally, because the carbon intensity is going to be lower if it’s connected directly to a windmill instead of the electric grid, taking into account that a lot of electricity is produced by burning coal.  There are already some papers saying that the carbon intensity of natural hydrogen could be much lower than green hydrogen. You are already saving a lot by not having to produce and install windmills or create an electrolysis network. 

But it’s the same for natural hydrogen. You can't say that it has always the same carbon intensity, because you can use a diesel generator to power your drilling rig, or an electric one, et cetera. That has to be taken into account. It’s also going to depend on whether the hydrogen extracted is almost pure or if it is mixed with methane. In that case, the process of purifying it would increase the carbon intensity. So, summing up, we need to look at the carbon intensity whenever we're discussing hydrogen’s sustainability. But generally, yes, natural hydrogen would have the lowest carbon intensity, since you're not going to build all the windmills, solar cells, or electrolyzers needed to produce green hydrogen.

Supertrends: In your opinion, what are the biggest disadvantages regarding natural hydrogen?

M.S.: The disadvantage is that we don't know how big the potential is, either on a local project scale or a world scale. And I think that's where other types of hydrogen might have an advantage. We also have to consider the risk that you might not find anything in this exact well you're drilling, and, of course, that's a con. 

Supertrends: What's the share of natural hydrogen in the global hydrogen market?

M.S.: It’s really easy to answer: zero. It’s that new that the market is nothing; it’s still emerging. We only had one well producing, and that's the one in Mali. I think there haven’t been any announcements out of the US, but a lot of things are happening over there. But in France or Australia, it still remains to be seen. Some places could produce commercial quantities really cheaply and sell it at a much higher price because the price of rest of the zero-emission hydrogen is set by green and blue hydrogen. But it could also be this world-saving energy type because there's potential to find so much of it and we will leverage any existing industry skills. But we don't know that yet.

Supertrends: How dependent is the research and extraction of natural hydrogen on public funds?  How interested is the private market?

M.S.: Both of them are really starting from a low point. Again, it’s an industry that is truly emerging. I would estimate current private funding is around US$500 million, which is probably lower than the funding thrown after mining asteroids. It's still low. It's growing a lot. And, of course, as an investment fund, we are part of the investors putting more money into it. But the public money being spent is much, much, much lower. Some people are popping up; there's some public interest in doing some financing and research in the US, Australia, and France. But the only public money that's been handed out, if I’m not wrong, is in the US, where the Department of Energy has handed out US$20 million for different projects. But the brilliant thing about this natural hydrogen is that we will not need subsidies. I think we'll take them, and it's important to have a level playing field—hydrogen, and energy in-betweens—but this can work on its own.

Supertrends: In your opinion, are politicians sufficiently aware of the potential of natural hydrogen? What would you like to see from them?

M.S.: That’s a very good point. I would probably say that they are never aware enough, but it's getting better. When we started reaching out to authorities around the world, they were just telling us that it didn’t exist. But now they know it exists, so they are definitely more interested. What we'll need from politicians around the world is to be allowed to explore and drill, looking for natural hydrogen. 

Since natural hydrogen wasn’t thought to exist, there aren’t laws contemplating this resource or its extraction. They’ll have to change it in many jurisdictions before we can start doing anything. You won’t hear the industry asking for subsidies. We just want to be allowed to explore using private money.

That being said, politicians could do a lot of good to the industry by investing more. What is spent in the grand scheme of things compared to what we spend on other types of hydrogen? They could do a lot of good by just putting US$50 or 100 million into some active research or support. But again, if we could just be allowed to explore, we'd be happy.

Supertrends: Are regulatory frameworks sufficiently developed for these resources? Are they too focused on electricity?

M.S.: I think that it’s a shame that Europe seems to be a bit hooked on deciding on the technology instead of just saying we want zero-emission hydrogen. Much of the European legislative work has been drafted stating that it has to be made from electricity. In the US, instead, they've been doing a better job, saying that it just needs to be sustainable hydrogen. If proven to be sustainable, the hydrogen will be eligible for tax credits or other forms of support. But in Europe, we are very focused on hydrogen produced with electricity, and that will need to change. There will need to be natural hydrogen in the future that is certified in a system that, right now, only acknowledges hydrogen made from electricity. And I'm sure that will happen, because no one is that evil or stupid. If it's zero or low emission, hydrogen will get there, and that's needed. So, the question worldwide will be how far left behind will Europe want to be? If we don’t fix it, the investment industry will be in other places where it's possible to certify it and then, crucially, treat it on equal terms with other types of hydrogen.

Supertrends: How many years is natural hydrogen going to need to scale up?

M.S.: It's difficult to say. The bigger the interest in the industry, the quicker things will move. We're at the stage where a lot of natural hydrogen wells need to be drilled, and a lot of them will be unsuccessful. But some will be successful, and that's exactly what’s needed to show that this works. You'll start having a production that will move forward. Right now, you can explore for natural hydrogen in France, Australia, and the US, but we need to be allowed to explore in more countries, also in Europe.

Supertrends: What would you like to see from your company in 20 years? What milestones would you like to have achieved by then?

M.S.: We have a dual purpose as a company and as a fund, which will be running for 10 years. In a 10-year-plus kind of way, I think we want to show that you can make a big profit investing in something that has also a huge impact potential: natural hydrogen. It will have a big impact and there's also a big profit opportunity for anyone involved because it's so much cheaper. Its price will ensure that it’s used, positively impacting the environment. 

So, hopefully, in 10 or 20 years we will look back seeing our first fund having an impressive return for investors, and, at the same time, we could say we played a part in kickstarting this industry to help us reach our 2050 goal of net zero emissions. On the profit side, we already see that by following a strategy of early investments in an industry with this much potential, we get some very high returns and gains. 

This text is a transcript of an interview conducted in July 2024. The interview was conducted as part of Supertrends “Interviews with Experts” series. Please note that the transcript may have been lightly edited for editorial reasons.

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