What’s happening in hydrogen [Gas Transitions]
Before we jump into the latest news, let’s recall why hydrogen is important for the gas sector.
In Europe, “unabated” natural gas (without carbon capture and storage (CCS)) is expected to be largely phased out by 2050. Many observers are convinced that it will be replaced, at least to a significant extent, by hydrogen.
This could be so-called “blue hydrogen” based on natural gas, in combination with CCS, or it could be “green hydrogen”, made through electrolysis from renewable power. Many environmentalists oppose “blue hydrogen”, because they are opposed to fossil fuels in principle. However, the European gas industry as well as many independent experts believe that it will take many decades before there is enough renewable energy available to produce “green hydrogen” in the quantities needed. They argue that the urgency to reduce greenhouse gas emissions makes it imperative to start producing “blue hydrogen” now. Added advantage: the market and infrastructure developed now can be used for “green hydrogen” later.
For the European gas industry, it makes a difference whether the “hydrogen transition” will take the blue route or go directly to the green phase. Gas infrastructure companies are well positioned to build the new pipelines which will be needed to transport hydrogen (it can’t be transported through the existing gas pipeline system). They could also play a role in transporting and storing CO2. Gas producers would obviously be able to supply blue hydrogen (they already produce hydrogen from natural gas, so they would only need to start capturing the CO2). They could also become active in a future “green hydrogen” value chain, possibly as producers, but certainly as importers and traders, if a global “green hydrogen” market develops, which is what many experts believe will happen.
All of this is assuming of course that a significant hydrogen economy will emerge in the first place. That is not a given. There also many who believe that the European energy system will be largely electrified, with just a small role left perhaps for “renewable” gases such as biogas and biomethane, and no, or only a negligible, role for hydrogen. Such an outcome would marginalise the gas industry in Europe.
In my contributions for NGW, I will keep close tabs on what is happening in hydrogen, to help you assess hydrogen’s possible impacts on the gas market. I can’t look into the future of course, but at this moment what I can say is: quite a lot is happening. To begin with, a lot of reports on hydrogen are being published. But moreover, a lot of concrete initiatives are also being announced.
Let’s first look at some of the most interesting recent research on hydrogen.
German scientists Gunther Glenk and Stefan Reichelstein published a research paper in scientific journal Nature Energy recently, which argues that “green hydrogen” is “already cost competitive” in niche applications with both “blue” and “grey” hydrogen (“grey” being the ordinary natural gas-based hydrogen produced today, which, incidentally, has a very high CO2 footprint). In addition, they write that it is likely to become cost-competitive on an industrial scale too, in about a decade.
That’s surprising, because most industry watchers assume that “green hydrogen” (Glenk and Reichelstein call it “renewable hydrogen”) is still considerably more expensive than the “grey” and “blue” versions. For example, the Committee on Climate Change (CCC), an advisory body of the UK government, concluded in a report in November 2018 that the potential for “renewable hydrogen” in the UK is limited, because, as the website Carbon Brief wrote, “producing hydrogen from electricity and then burning it in a boiler is not very efficient.”
Dr David Joffe, team leader in economy-wide analysis at the CCC, told Carbon Brief: “That has two implications: one is, it’s quite expensive, because you’re taking high-value electricity and losing some of that energy and then burning it in a boiler. It’s not a very efficient solution. Therefore, it will be expensive. But the other thing is you would then also need an awful lot of renewable electricity in order to produce that hydrogen, which then creates huge challenges about whether we can build enough by 2050.”
Glenk and Reichelstein, however, come to different conclusions. They found that “hydrogen produced using wind power in Germany and Texas is already cost-competitive for small- and medium-scale users of the gas, who generally pay more for the material”, as Carbon Brief summarised their findings in another article.
How credible are these conclusions? Well, there are three main reasons for this more optimistic assessment, notes Carbon Brief. First, the paper “finds recent improvements in electrolysers … mean costs have fallen substantially. The paper performed a cost review of electrolyser technologies from a wide variety of sources, including manufacturers, plant operators, scientific journal articles and other reports.”
Second, “the study bases its results on plants with the “optimal capacity size” of both the renewable source and the accompanying power-to-gas electrolysis facility. For example, if a wind turbine on average produces only around 30% of its peak power output, any power-to-gas facility built alongside it should use at most this amount of power: any larger would be a waste of money.”
Third, “the paper assumes that wind energy will get much cheaper over time. It assumes the price of buying new wind turbines falls by 4% per year, roughly halving between now and 2030. It also assumes their capacity factor – the actual electricity produced compared to the maximum possible – increases by 0.7% per year. All this means the levelised cost of electricity from wind in Germany would fall from €54/ megawatt-hour (MWh) today to €33/MWh in 2030, with similar reductions for Texas.”
Dr Daniel Scamman, senior research associate at University College London’s Energy Institute, who was not involved in the study, told Carbon Brief that the costs arrived at by Glenk and Reichelstein “are lower than in some other studies as they assume the wind turbines qualify for a production subsidy, that the electroyser can be shrunk to increase utilisation and that the plant benefits to some extent from off-peak prices.” These conditions might not always apply, said Scamman.
So, the study by Glenk and Reichelstein may be a bit too optimistic on the costs of “green” hydrogen. Nevertheless, Scamman and a number of other researchers also published a paper recently with a rather positive outcome for hydrogen costs – and not just for the “green” variety, but also “blue” hydrogen.
Scamman et al carried out an extensive academic review of a large amount of research that has been done worldwide and concluded from this that “falling electrolysis costs and altered national regulatory frameworks could render power-to-gas profitable within 10 to 15 years.”
In their paper, Scamman and his colleagues discuss all the possible practical applications of hydrogen and conclude that “hydrogen [both “green” and “blue”] can play a major role alongside electricity in the low-carbon economy, with the versatility to provide heat, transport and power system services. It does not suffer the fundamental requirement for instantaneous supply-demand balancing, and so enables complementary routes to deeper decarbonisation through providing low carbon flexibility and storage. The numerous hydrogen production, distribution and consumption pathways present complex trade-offs between cost, emissions, scalability and requirements for purity and pressure; but provide a multitude of options which can be exploited depending on local circumstances (e.g. renewable energy or suitable sites for CO2 sequestration).”
Costs will go down
Another recent report, this one from respected global technical consultancy DNV GL also has a highly positive take on the potential of hydrogen.
The DNV GL researchers looked specifically at “green hydrogen” in the electricity value chain. They conclude that “hydrogen produced from renewable energy will become an economic energy carrier to complement electricity and accelerate the decarbonization of industrial feedstock and heat, as well as providing long-term storage solutions.”
DNV GL’s energy experts conclude that the main reasons for the economic feasibility of hydrogen between 2030–2050 are driven by three key developments:
- The cost of electrolysers will go down caused by learning curve experiences and the cost of asset developments which is expected to decrease. Production by electrolysis from ‘surplus’ or low- cost electricity from renewables is an option for producing low-carbon hydrogen with no related carbon emissions.
- Time periods when low or zero cost prices for electricity are available will increase due to the rise of renewables, generating a surplus of energy available to the power grid.
- Penalization of carbon emissions in the coming years are expected to see industries shift away from carbon-heavy activities e.g. due to introduction of carbon tax and incentives for low-carbon solutions.
“Our research demonstrates that green hydrogen provides an optimal use for surplus electricity, which we expect to see in the years to come due to the rapid rise of renewable energy”, says the DNV GL report. “In combination with electrolysis, hydrogen proves to be an economically feasible solution for the decarbonisation of the heat and storage sector.”
Comparing “green” with “blue” hydrogen, the DNV GL researchers note that: “Hydrogen production from surplus electricity can compete with natural gas-based hydrogen production. When produced in large quantities from electricity, electrolysis may become electricity price setting in the 2050’s.”
But it’s not all smooth sailing for hydrogen, the DNV GL researchers caution: “Hydrogen production is not the first option to be built for using surplus renewable electricity because of competitive options (for instance battery storage and power-to-heat).”
They explain: “Some options are economically more viable than others, depending on the number of operating hours that can be realized. The first option for managing surplus VRES [variable renewable energy sources] is curtailing it. It sounds counterintuitive, wasting potential renewable energy. But for just few operating hours per year, other options are not feasible as they cannot recover their investments. Then, respectively (auxiliary) heat production (temporarily replacing gas) and battery storage (selling the electricity later for a higher price) follow. Only then, hydrogen production becomes an economically viable option. Our analysis shows that in 2050, hydrogen production from surplus electricity needs at least 2,100 operating hours to become feasible.”
Similar cautionary notes can be found in yet another recent paper written by researchers Machiel Mulder, Peter Perey and José L. Morage of the Centre of Energy Economics Research (CEER) at the University of Groningen in the Netherlands. They look specifically at the outlook for hydrogen in the Netherlands, but their discussion is relevant for the broader hydrogen market as well. They make some very interesting observations.
Comparing “green” with “blue” and “grey” hydrogen, the authors cite a number of factors that are likely to hinder the development of green hydrogen in particular:
- At the market prices of natural gas and electricity which we have seen in the past decade, SMR [steam methane reforming] hydrogen [“grey”] is much more attractive than electrolysis hydrogen [“green”]. At the current gas price of about €20/MWh, the electricity price should be less than half of the current electricity price (which is about €45/MWh) to make electrolysis more favourable than SMR. This conclusion is robust against more optimistic assumptions on higher efficiencies and lower investment costs of electrolysis plants.
- This conclusion hardly changes when we compare electrolysis hydrogen with SMR hydrogen where the carbon is captured and stored (CCS) which results in so-called “blue” hydrogen. At current market prices, blue hydrogen is way more favourable than electrolysis hydrogen. It also appears that blue hydrogen becomes even more favourable than SMR hydrogen without CCS (so-called grey hydrogen) when the price of CO2 is above €30/mt.
Hydrogen produced through electrolysis is not only more expensive than hydrogen produced through SMR, it also faces several other difficulties, note the authors. Again these are quite interesting observations:
- One of these difficulties is that an efficient climate policy requires a relatively high carbon price, but a higher carbon price raises the electricity price which makes electrolysis more expensive. This effect occurs because gas-fired power plants set the electricity price during many hours in a year. This effect will remain also when the share of renewables is much higher, as investors in renewable electricity need these hours of high prices in order to recoup their investments. The higher the share of renewables, the smaller this effect will become though.
- Another factor why electrolysis creates challenges for climate policy is that low electricity prices, which are necessary for electrolysis to be profitable, are an incentive for all energy users to consume more electricity, while climate policy just needs a reduction of energy demand. In addition, when the electricity price is low, then it is reasonable to expect that other sectors will tend to switch to using electricity for their energy-related activities, such as households switching to heat pumps and full-electric cars. Hence, in a situation of low electricity prices, the demand for electricity likely surges.
The researchers from Groningen are also not too optimistic about the possibilities of importing green hydrogen from outside of Europe: “Importing green hydrogen from [regions] like north Africa, where the conditions for solar power are way more favourable, does not seem to be profitable as well”, they note. “The costs of transporting this hydrogen to the Netherlands make that the required hydrogen price of this imported hydrogen is likely higher than the price of alternatives.”
Ouch. Some challenges there for “green hydrogen”.
Nevertheless, the authors do believe that a positive future for “green hydrogen” is “conceivable”, at least under one particular scenario: “When the international gas markets become tight, with high natural-gas prices as result, and when massive investments in renewable electricity generation are made, with many hours of low electricity prices as result, electrolysis may become the most efficient way of making hydrogen. When also the industrial use of natural gas is taxed like it is now done for households in the Netherlands, the industry will have a strong incentive to substitute away from natural gas to hydrogen.”
In other words, a successful green hydrogen market will require strong policy intervention in the Netherlands, and presumably in other countries as well.
The authors add that “when these conditions are not met, blue hydrogen may be an efficient alternative to decarbonize a significant part of the Dutch economy. Key economic conditions for blue hydrogen to become profitable are a low price of natural gas and a price of CO2 which is at least €30/mt.”
A final point to note about this report from Groningen: the authors conclude that in a scenario favourable for blue hydrogen, the market potential for hydrogen in the Netherlands would be about 1000 PJ in 2050. This compares to 120 PJ hydrogen demand today, but a more relevant comparison is with the Dutch gas market today, which has a volume of some 1300 PJ. In other words, the blue hydrogen market would get pretty close to the current natural gas market in size.
The potential for green hydrogen, however, is lower: even in a favourable scenario for green hydrogen, demand would be around 500 PJ in 2050, according to the authors. This is because in this scenario electrification is an attractive alternative.
So much for theory! Practice may tell us more about the potential of hydrogen in the end than any scientific paper.
So let’s look at some of the recent announcements around hydrogen initiatives.
In Germany ARGE Netz, a renewable power producer, MAN Energy Solutions, producer of heavy duty vehicles (a subsidiary of Volkswagen) and Swedish utility company Vattenfall announced earlier in April that they will build “the world’s first large-scale industrial power-to-gas facility” for producing “green hydrogen”.
The aim of the project, called HySynGas, is to “create a power-to-gas-hub for cross-sectoral decarbonisation in northern Germany” near the town of Brunsbüttel, the companies say.
The project envisions the construction of a 50-MW electrolyser which would produce hydrogen on the basis of renewable energy for delivery to companies like Volkswagen and other buyers. In addition, it involves the construction of a plant for synthetic methane which will get a capacity of 40 mt/day. The consortium wants to mix the syngas with natural gas in the gas grid.
“With the possibility of an LNG terminal opening in Brunsbüttel in the future, this opens up a perspective for refining imported gas by adding green synthetic gas,” said MAN Energy Solutions CEO, Uwe Lauber.
However, the companies also said that “the current legislative framework does not currently permit economic operation.” The partners are therefore applying to the Germany's economy ministry for a so-called “Reallabor” (“living lab”) to develop the project. The German government can give permission to companies for such “regulatory experiments” if it believes this can help the energy transition.
If you are disappointed that a 50-MW electrolyser is “the largest in the world”, well, there are certainly other, more ambitious plans around.
In the Netherlands, Engie and Gasunie announced in October 2018 that they will build a 100-MW electrolyser in the province of Groningen. In the same month, Tata Steel, Nouryon and the Port of Rotterdam announced that they are investigating the feasibility of building a 100-MW electrolyser at the Tata Steel factory in IJmuiden, the Netherlands, to be fed by offshore wind.
Nouryon and Gasunie are also planning to build a 20-MW water electrolysis facility in Delfzijl in the province of Groningen. A final investment decision on this project will be taken in 2019. In February 2019, Nouryon and Gasunie announced that they have agreed to supply “green hydrogen” to methanol producer BioMCN, which will combine the hydrogen with CO2 from other processes to produce renewable methanol.
In November 2018, a broad initiative was announced in the Netherlands by a consortium of 27 companies, research institutes, environmental organisations and local authorities – including transmission system operators Tennet (electricity) and Gasunie, distribution system operator Stedin, the city of Groningen, the ports of Rotterdam and Amsterdam, chemical company Nouryon (formerly AkzoNobel), Tata Steel and Greenpeace – to build 3 to 4 GW green hydrogen production capacity in the Netherlands by 2030. The Hydrogen Coalition, as it is called, said it wants to build five large electrolysers throughout the country to realise this ambition.
On March 19, another ambitious hydrogen project was announced in the Netherlands by the Institute for Sustainable Process Technology (ISPT) to investigate the possibility to build an electrolysis facility with 1 GW capacity.
In this “Gigawatt Electrolyser” project, a consortium of companies, universities and knowledge institutions, including Shell, Nouryon, Gasunie, Dow Chemical, Danish Orsted (formerly Dong), ECN/TNO, Utrecht University and Imperial College London, wants to “pave the way for the design of an industrially relevant electrolysis plant” with a capacity of 1 GW.
ISPT notes that this is “a huge challenge. At present, the electrolysers are no larger than a few megawatts. A factory with a capacity of a gigawatt would thus operate a hundred to a thousand such electrolysers. The partners in the Gigawatt Electrolyser project will jointly investigate what it takes to build such an electrolysis plant in the Netherlands around 2025-2030.”
The project is part of the ISPT Hydrohub program, “aimed at the scaling up of green hydrogen production. This also includes the Hydrohub MW test centre for testing new electrolysis technology on a megawatt scale, and an analysis of the future value chain in hydrogen production (HyChain).”
According to ISPT, “with the current state of technology and current market prices, the investment for a GW electrolysis plant would amount to about €1bn. The partners in the Gigawatt Electrolyser project aim for a design that reduces this amount three- or fourfold. Bringing the cost back to around €350mn for a GW electrolysis plant, would give rise to a competitive alternative for the conventional ‘fossil’ hydrogen technology.”
It is worth noting that the ISPT project does not involve any existing manufacturers of electrolysers, because “these already have their own philosophy and methods,” a spokeswoman of the project told the press.
Back to Germany again, where steelmaker Salzgitter recently announced that it has developed “a technically feasible but not economically viable” concept to replace the fossil fuels used in conventional steelmaking with a rising share of renewable hydrogen in order to reduce emissions, reports the German-based website Clean Energy Wire.
Company CEO Heinz Jörg Fuhrmann said at a trade fair in Hanover that he expects that “policymakers will provide the support necessary” to realise this “unique project”, called “SALCOS” (Salzgitter Low CO2 steelmaking). “Many success stories of the present received initial [government] funding”, he said. “Just think of Airbus. I would claim that we are the Airbus of steelmaking and therefore, I’m optimistic.”
The Salzgitter steelworks emit around 8mn mt/year of CO2. Salzgitter wants to build “the world’s most powerful steam electrolysis plant, in co-operation with the start-up Sunfire, to generate hydrogen with renewable energy for use in the steelworks.” The first phase of the project would cut the company's carbon output by one quarter, and could be implemented by 2025 at a cost of around €1.2bn, Salzgitter said.
But Fuhrmann added “that Salzgitter needs more than just initial financing. He added lower electricity prices are also required, because otherwise the steel will be much more expensive to make.”
Meanwhile, hydrogen startup Sunfire, which will cooperate with Salzgitter on the SALCOS project, reported that “the cosmetics industry is increasingly interested in using renewable hydrogen,” according to Clean Energy Wire.
Hydrogen made with renewable power can be used to make waxes, a common ingredient in beauty products that is currently produced using fossil fuels, Sunfire marketing manager Katja Mattner told Clean Energy Wire.
Mattner also said :”the idea of replacing fossil fuels with renewable hydrogen is also spreading rapidly in many other industrial sectors. Industry is increasingly focusing on this topic. While many companies are just about to start, the pioneers are already beginning to scale up.”
Nevertheless, Mattner echoed Fuhrmann’s concern that electricity prices in Germany are too high currently to make large-scale commercial production of “green hydrogen” possible. “Most industry applications remain showcase projects, because the regulatory framework means that electricity is too expensive in Germany for large-scale commercial use”, Mattner said. “We’re currently planning a large e-fuel project in Norway, because electricity is so cheap there.”
Another significant hydrogen project was announced April 1 in Sweden: Hybrit “is an initiative that will revolutionize iron- and steelmaking”, said project partners SSAB, LKAB and Vattenfall. They are planning “to replace coking coal with fossil free electricity and hydrogen, developing the world´s first fossil-free steelmaking technology. Emissions from the steel- and iron production will be water vapour instead of carbon dioxide.”
The consortium notes that “the steel industry is one of the highest CO2-emitting industries, accounting for 7% of CO2 emissions globally and 10% of Sweden's. A growing global population and an expanding urbanisation are expected to trigger a rise in global steel demand and by 2050 steel use is projected to increase 1.5 times compared to today.”
Hybrit – short for Hydrogen Breakthrough Ironmaking Technology – “aims to solve the root cause of the problem, by replace coking coal, traditionally needed for iron ore-based steelmaking, with fossil-free electricity and hydrogen.”
The three owners of Hybrit have, together with the Swedish Energy Agency, decided to invest about SK 1.4bn (€140mn) in a “world-unique pilot”. A facility has started to be built in Luleå north of Sweden and soon the construction of a test plant for pellets will be built in Malmberget.
In France, electricity company EDF, the largest utility in Europe, recently announced the launch of a hydrogen production and distribution subsidiary, called Hynamics. According to a report in World Nuclear News, this company “will offer hydrogen to industrial customers through services to install, operate and maintain hydrogen production plants. It will also support hydrogen in transport applications, by supplying service stations that refuel fleets of electric vehicles such as trains, buses, refuse collection vehicles, commercial vehicles, or even river transport systems."
"EDF aims to become a major player in the hydrogen industry in France and internationally," the company said, enhancing its "contribution to the fight against global warming and for a low-carbon world."
In June last year EDF already invested €16mn in a partnership with McPhy, a specialist in electrolysers, hydrogen storage and charging stations, writes WNN. “Now, Hynamics has been created from a start-up incubator within EDF and has purchased that stake.”
In April last year, McPhy presented a modular electrolysis system capable of scaling from 4 MWe to over 100 MWe. It said its high-efficiency system would produce 8.5mt/day of hydrogen from a 20 MWe continuous input. Hynamics said it has identified 40 target projects in France, Belgium, Germany and the UK.
Note, though, that in France, “green hydrogen” production comes with an interesting twist: it can be made not just from renewable energy, but also from the country’s ample nuclear power. Hynamics said “that hydrogen is usually produced using energy from fossil fuels, resulting in 10 kg CO2/kg of hydrogen. However, EDF plans to produce hydrogen from its nuclear power stations. It has a fleet of 58 nuclear units which already is complemented by hydro as well as wind and solar to create a mix that is 96% CO2-free. By using EDF's electricity to produce hydrogen through electrolysis Hynamics contributes to reducing CO2 emissions.”
There also has been quite a bit of hydrogen news from the transport sector lately. At this moment, hydrogen cars are far behind electric cars in terms of availability and pricing. But there are signs that they may at last enter the race in a serious way.
Japanese car companies like Toyota and Hyundai have long been frontrunners in hydrogen cars, but they are now joined by a Chinese company called Grove. Grove is said to be “the only automaker in the world to be fully dedicated to the large-scale production of hydrogen fuel cell (HFC) passenger vehicles. The company’s goal is to be the global leading producer of hydrogen-powered vehicles by 2025.”
The company intends to launch it first fuel cell car later in 2019 and Grove Hydrogen Automotive says that it will reach mass production sometime in 2020, according to the website Hydrogen Fuel News.
The hydrogen car, which was developed in Barcelona, “will have up to 625 miles of range from its hydrogen tanks, which can be refuelled in a matter of minutes.”
Meanwhile, Markus Bachmeier, head of the Hydrogen Solutions division of German industrial gas supplier Linde, said recently that, “We’re absolutely sure about the future of hydrogen in passenger cars.” Bachmeier cited “exponential growth in hydrogen applications, albeit from a very low base, such as increasing numbers of hydrogen cars in Germany and California.”
He added “that whereas e-car charging infrastructure does not offer any viable business models, rolling out a network of hydrogen fuelling stations offers companies the chance to earn money.” Interesting point!
Clean Energy Wire notes that Linde is part of the Hydrogen Council of companies that has pledged to invest €10bn to push hydrogen fuel-cell vehicles. Daimler, BMW and Toyota are also part of this group. However, German carmakers BMW, Daimler and VW said in March that they will “focus on electric and hybrid cars rather than fuel cells, saying they believe fuel cells won’t be market-ready for another 10 years.”
Still according to some experts, it is not a question of either-(EVs)-or (hydrogen cars). Thus, for example, “German e-car pioneer Günther Schuh believes that extending the range of battery-based electric cars with an additional hydrogen fuel cell makes more sense from an economic and environmental perspective than using huge batteries,” Clean Energy Wire reported recently.
“The battery won’t become significantly cheaper over the next ten years, and using a smaller battery is much more environmentally sound,” said Schuh, who is not an EV-hater: he runs e-car start-up e.GO Mobile and spearheaded the development of the electric delivery van StreetScooter that is now used by Deutsche Post DHL.
A lot of news to take in – but none of this is a guarantee for success of course. Next week I will look at some reports – and innovations – that indicate the energy transition can do perfectly well without hydrogen. Or with gas, for that matter.
How will the gas industry evolve in the low-carbon world of the future? Will natural gas be a bridge or a destination? Could it become the foundation of a global hydrogen economy, in combination with CCS? How big will “green” hydrogen and biogas become? What will be the role of LNG and bio-LNG in transport?
From his home country The Netherlands, a long-time gas exporting country that has recently embarked on an unprecedented transition away from gas, independent energy journalist, analyst and moderator Karel Beckman reports on the climate and technological challenges facing the gas industry.
As former editor-in-chief and founder of two international energy websites (Energy Post and European Energy Review) and former journalist at the premier Dutch financial newspaper Financieele Dagblad, Karel has earned a great reputation as being amongst the first to focus on energy transition trends and the connections between markets, policies and technologies. For Natural Gas World he will be reporting on the Dutch and wider International gas transition on a weekly basis.
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