SHELL, the oil company, yesterday opened its first hydrogen fuelling station, at a petrol retailing site in Reykjavik, Iceland, and declared that it was a stepping stone to a commercially viable business.

The site, which is a joint venture with Icelandic New Energy, includes a plant created by Norsk Hydro, the Norwegian company, that generates hydrogen gas from water by electrolysis.

Initially, the site will supply hydrogen for three DaimlerChrysler buses powered by fuel cells, but Iceland hopes in due course to abandon fossil fuels and become a hydrogen-driven economy, with private vehicles powered by fuel cells providing emission-free electric motoring. Fuel cells, which generate electricity by combining hydrogen and oxygen molecules through a proton-exchange membrane, are the great hope for a greener alternative to the internal combustion engine.

The only by-product of a fuel cell is water. The tricky problem is hydrogen, a volatile gas that does not occur naturally. An unfortunate paradox for those advocating fuel cells as the green power source of the future is the huge quantity of energy needed to make hydrogen from water. Many scientists reckon that nuclear power is the most likely source of the electricity required to run the many hydrogen plants needed to fuel a hydrogen economy.

Hence the choice of Iceland for Shell’s first hydrogen dispenser. The island’s volcanic structure provides it with a vast, free source of geothermal energy that can be used to make hydrogen. Jeroen van der Veer, managing director of Shell, said that the hydrogen station was an historic milestone. “We believe that hydrogen offers immense new business opportunities,” he said.

The Anglo-Dutch energy company is involved in several hydrogen-related ventures, including the California Fuel Cell Partnership, which is testing fuel cell vehicles, a project with DaimlerChrysler to make a gasoline fuel processor that would re-form petrol into hydrogen and a scheme with Siemens using natural gas as a hydrogen source.

Shares in Shell fell by 7¼p to 387½p yesterday.