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Despite the investor frenzy, the arguments against the widespread adoption of green hydrogen in Chile are strong. When looking at the feasibility of the product, the local domestic market demand is negligible, export costs are too high, and hydrogen is extremely hard to store (H2 is the smallest and least dense gas in the world). Chile also lacks the transport and storage infrastructure needed for the hydrogen value chain. When looking at the bigger picture, Chile is experiencing a turbulent political environment and a temporary freeze in investments as it undergoes the re-writing of its constitution. Until there is a concrete outcome on the constitution, expected in September 2022, development of new energy projects (especially those that are not yet proven to be commercially viable) will be put on hold.

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Negligible domestic demand will limit local use-cases

In the short-term, Chile will be unable to develop a substantial local green hydrogen market because of limited demand for green hydrogen and an underdeveloped transport/storage infrastructure. Despite the limitations, the three most appealing domestic applications for green H2 are the following:

1. Oil refining

  1. German-based Linde is developing a 3,200 t/yr. green hydrogen project to replace some of the gray hydrogen used in the Aconcagua refinery in Valparaiso
    1. Chile has three refineries with a joint capacity of 238,000 b/d[1]

2. Production of derivatives (e.g., ammonia used for fertilizers, liquid fuels)

  1. Dubbed the HyEx project, Enaex and Engie are piloting a 18,000 t/yr green ammonia project that would supply an explosives plant in Mejillones. They hope to reach a final investment decision by the end of 2022[2]
  1. Enel Green power signed a US$16.9 MN deal with Highly Innovative Fuels (HIF) to produce methanol and eFuels

3. Heavy transportation (e.g., mining equipment and heavy cargo trucks)

  1. Engie launched a pilot in 2021 to retrofit diesel haul trucks into H2 vehicles. They will likely decide on a potential large-scale development by Q4 2022
    1. Mining trucks in Chile consume 28,000 b/d of diesel, but this project won’t reach scale until at least the middle of the decade[3]
    2. Note: The timeline for hydrogen cargo trucks is more likely a reality for 2030, if ever

Exports become an interesting alternative… but at what cost?

Since Chile’s domestic market is small and more of a long-term prospect, most hydrogen developers are focusing on exports. In fact, Chile plans to export around 70% of its hydrogen production and it has MOUs with several different countries. One of the largest projects in this space is being funded by Copenhagen Infrastructure Partners, which joined forces with Austrian developers AustriaEnergy and Okowind to develop the HNH project in Southern Magallaes. This would consist of a 1.7 GW onshore wind farm to feed electrolysers and produce green H2 and ammonia. A US$3BN investment is expected, which will include a wind farm, an ammonia plant, and a port facility.[4]

The key obstacle here, however, is that there is still no feasible and energy efficient way of transporting hydrogen overseas. We know that converting green hydrogen to ammonia cuts transport costs, but it is still very inefficient and expensive to convert ammonia back into hydrogen to be used as an energy source. Another transport option, liquid hydrogen, is at least five times more expensive than LNG—which is hitting record prices.[5] Hence, projects focused on creating ammonia as the end-use fuel, either for domestic or international consumption, have a substantial cost advantage over pure H2 projects (e.g., HyEx project).

Another risk that is being overlooked is the use of water in Chile’s hydrogen projects. Although water used in green H2 is not too extensive—1 cubic meter of hydrogen usually requires 1 liter of fresh water and 2 liters of salt water —the country is undergoing a decade-long drought. This is impacting its hydro generation and increasing local competition for water resources.

Despite the challenges, opportunities exist

The silver lining is that Chile has the most aggressive decarbonization targets in all Latin America. This forces sectors that are dependent on gray hydrogen (e.g., oil refining, petrochemicals, and fertilizers) to naturally transition towards green/blue hydrogen to comply with the country’s climate targets. H2 pilot projects in the mining sector, responsible for more than 10% of the country’s GDP, are also an opportunity for industrial players seeking to decarbonize their operations. And when looking to overcome some of the cost-limitations related to hydrogen transportation, an attractive option is using green H2 to produce derivatives such as ammonia and eFuels. Investing in these pilot projects could allow energy players to develop the knowledge around these low carbon technologies, while providing them with privileged access to prospective projects that may undergo large-scale development in Chile.

Chile is also the most advanced country in Latin America when it comes to low-carbon hydrogen development.  As part of its decarbonization efforts, Chile launched a national green hydrogen strategy aimed at developing the local hydrogen sector and turning it into a world-class exporter by 2040. Through the adoption of a carbon tax, government-sponsored financing and an investor friendly regulatory framework, Chile believes it can produce the cheapest hydrogen in the world by 2030. In December 2021, Corfo (the National Development Agency) provided a U$50 million grant to six projects in the world’s first ever national green hydrogen auction. This auction is a symbol of the country’s continued commitment towards becoming a green-hydrogen hub for exports and domestic use.[6]

Lastly, Chile’s abundant and cheap renewable energy give it a competitive advantage for large-scale green H2 production. As of May 2022, non-conventional renewable energy (e.g., solar and wind) accounted for nearly 40% of Chile’s installed capacity, a byproduct of its world-class conditions for solar in the north and wind in the south. In fact, hydrogen could serve as a solution to prevent curtailment in northern regions where there is an abundance of renewable supply, but inadequate transmission and storage infrastructure (i.e., use this excess renewable energy to produce green H2).[7]

Once there is a final vote on Chile’s constitution, money will flow into the country’s hydrogen sector as energy operators seek to monetize H2. Oil majors and utilities envision a strong growth in blue and grey hydrogen demand through 2030, which will allow them to monetize their fossil fuel reserves and carbon capture technologies—two key aspects of their portfolios. Yet, before taking the leap, energy investors and operators must first be able to read the mixed signals coming from the country’s weak local demand, high transport costs and limited infrastructure.


[1] “APEC Oil and Gas Security Exercise in Chile.”APEC. 15 March 2019.

[2] “Engie ushering green H2 into Chile’s mining patch.” Argus Media. 9 April 2021.

[3] “Engie ushering green H2 into Chile’s mining patch.” Argus Media. 9 April 2021.

[4] “CIP and Austrian developers team up for gigascale hydrogen project in Chile.” Recharge. 14 January 2022.

[5] “Hydrogen shipped for energy would be at least five times as expensive as LNG.” Illuminem. 29 June 2022.

[6] December 2021, Recharge.“Enel wins grant at world’s first national green hydrogen tender”

[7] ACERA Chile

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