As global economies look towards a net zero future, “green hydrogen” is increasingly seen as a clean energy to replace fossil fuels … and Australia is positioned to emerge as a leading exporter.
According to the International Energy Agency (IEA), by 2030, global use of fossil fuels will have peaked while hydrogen production will reach 30 million tonnes per year — a massive ramp-up from the less than 1 million tonnes of hydrogen produced worldwide in 2021.
Further, of that 1 million tonne produced last year, practically all of it was made in plants using fossil fuels without carbon capture technology. This is important to note as not all hydrogen is equal and certainly not all is clean.
While it is the most common element in the universe, here on Earth, hydrogen generally does not occur naturally in its pure form. However, it is found in water, biomass, and fossil fuels. Not a primary fuel source itself, hydrogen is produced from these other energy sources and functions as an energy carrier or vector used to move and store electricity.
Brown and black hydrogen are made from coal, so they are the most polluting. Then there is the most common form, grey hydrogen, made from natural gas, producing carbon dioxide and other greenhouse gases. Likewise, blue hydrogen is also produced from natural gas, but it does have some green credentials as its production process involves carbon capture and storage technologies.
Lastly, green hydrogen utilises energy from renewable sources that produce no greenhouse gas emissions. It is produced using an electrolyser (as seen below) that uses electricity from renewables, such as wind and solar, to split water into hydrogen and oxygen.
There are big hopes for green hydrogen to help replace fossil fuels and cut greenhouse gas emissions. However, it is yet to be developed commercially and at an affordable price. The current high cost of renewable energy and the amount of hydrogen that today’s electrolysers can produce means it is not yet feasible to produce green hydrogen on a large scale.
However, it is expected that once renewable energy is captured on a large scale and costs fall, and electrolyser technology improves, green hydrogen will become an increasingly viable clean fuel source.
The majority of the world’s hydrogen projects are in Europe, as the European Union’s ambitious emission reduction targets have seen it adopt a similarly ambitious hydrogen strategy, the importance of which has been heightened amid the current European gas crisis. The Russian invasion of Ukraine highlighted the importance of securing energy independence and saw Europe further boost its green hydrogen targets to 20 million mt/year of available green hydrogen by 2030.
Hydrogen in Australia
In Australia, government commitment to a green economy has lagged behind that of the EU, yet our abundant renewable energy resources position Australia as a potentially dominant green hydrogen exporter.
Steps to achieve the country’s potential appear to be in motion, with Australia soon to host one of the world’s largest renewable hydrogen plants — the $87 million Yuri project owned by French multinational ENGIE, due to be built in the Pilbara in Western Australia.
The federal government’s Australian Renewable Energy Agency recently conditionally approved $47.5 million, along with $2 million from the WA government’s Renewable Hydrogen Fund, towards ENGIE’s renewable hydrogen and ammonia project — the country’s first large-scale hydrogen plant.
Nevertheless, this is far from the only development to receive funding. The recent federal budget provided funding of $71.9 million over seven years to build a Hydrogen Hub in Townsville to speed up the development of Australia’s green hydrogen industry.
This brings federal investment to support the rollout and development of regional hydrogen hubs across Australia to over A$525 million, anticipating further investment for regional hydrogen hubs of at least $501 million. These hydrogen hubs aim to give the green hydrogen industry an early-stage springboard to scale.
Meanwhile, Fortescue Metals boss Andrew Forrest has committed to investing more than $9 billion in global projects with the goal of reaching net-zero emissions by 2030.
Regarding hydrogen specifically, FMG’s clean energy division intends to become a global exporter of green hydrogen, targeting initial production of 15 million tons per year by 2030 — almost half of the annual global production that the IEA forecast for 2030.
FMG’s Gibson Island hydrogen project, where existing ammonia production will switch from gas to hydrogen, just received a $13.7 million government injection for engineering studies. FMG is also constructing a Gladstone plant to manufacture electrolysers to create hydrogen. With expected demand for the zero-emission fuel already outstripping plant capacity, more manufacturing facilities in Australia look likely. Forrest has also outlined plans to build vast solar and wind farms in Western Australia to supply the renewable energy required for green hydrogen production.
In Victoria, the state government has identified green hydrogen generation as a capacity solution to replace coal-fired power, which it wants out of its energy grid by 2035. The government has promised to mandate the removal of coal-fired power generation from the state’s power grid while targeting 95 per cent renewable energy generation. The move is expected to create significant economic activity by delivering major renewable energy generation and storage infrastructure to an extra $9.5 billion in gross state product and 59,214 new jobs by 2035.
That said, whether green hydrogen will live up to its potential is still to be seen as it faces efficiency and cost barriers. However, there is no doubt that investment in the space is on the rise. Demand for hydrogen is set to increase 30-fold by 2030, and governments worldwide are increasingly motivated to shift to clean energy solutions, so there are definite incentives to invest in this technology.
Disclaimer: FMG.ASX is currently held in TAMIM portfolios.
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