The Future of Hydrogen in Australia

For decades, hydrogen has been hailed as a potentially revolutionary alternative to fossil fuels. Today, ASX investors are paying increasing attention to the hydrogen sector as the world's leading oil, gas and steel companies ramp up expenditure in this promising alternative energy source.

Australia, like most western nations, is determined to decarbonise its economy as part of the global transition toward renewables. Many industries now face strict targets for reducing emissions, and new technologies are being developed to produce clean, "green" hydrogen that will have a sweeping impact in diminishing the carbon footprint left by Australia's steel and coal industries.

The rapid growth of the Australian hydrogen industry is being driven by massive investments in the "green" hydrogen sub-sector as opposed to the dominant form of "grey" hydrogen that is produced via carbon energy sources.

Now, in the wake of the Russian invasion of Ukraine, the US Biden administration has banned Russian oil imports and there is growing pressure on EU countries to follow suit. This immediately thrusts hydrogen into the spotlight as a key component in a changing landscape where energy security has become a major priority in an unstable political environment.

This is the view of Dr. Andrew "Twiggy" Forrest, Chairman of Australian iron ore giant Fortescue Metals Group (ASX:FMG), which is now investing billions into green hydrogen production as part of an overall plan to transform itself into a clean energy company: "The Middle East has taught us this before and (Russian President Vladimir) Putin is teaching us this now … Green energy plans are our only energy security," Forrest said at the onset of the Russian invasion.

According to Noel Tomnay, global head of hydrogen consulting at Wood Mackenzie, low-carbon hydrogen has enormous potential to capture a growing share of the world energy market, and there is now more need than ever for major hydrogen producers such as Australia to accelerate hydrogen projects that will one day reduce dependency on any single oil and gas supplier.

"There is a serious need to expand the production of green and blue hydrogen to increase the security of supply (in light of bans on Russian oil)," Tomnay said.

Tomnay, one of the authors of a major hydrogen study on behalf of Wood Mackenzie, believes that Australia must join other countries in providing alternative energy sources, particularly hydrogen, which, like liquified natural gas (LNG), can be chilled and liquefied for transport on ships. It can also be blended with natural gas in the pipeline stream to reduce carbon emissions.

"The world needs to be buying fuel from many more and varied suppliers by reducing dependence on any one supplier. As Europe is becoming increasingly reliant on LNG, instead of importing it from just a couple of countries, you're going to need to develop green hydrogen and produce LNG from Chile and Australia and Africa and Morocco and thereby broaden the range of potential suppliers in the near and medium term."

The world’s three largest LNG importers — China, Japan and South Korea — along with the EU, have all set targets for net-zero carbon emissions. Hydrogen is an essential component if these goals have any hope of being met.

Royal Dutch Shell CEO Ben van Beurden has stated that without hydrogen in the energy mix by 2050, “we cannot aim to be a net zero economy.”

"There is lots of potential for green hydrogen in Australia, Canada, and the Middle East. It's a global market and all the new projects will be looking for global exports and additional offtake customers," Tomnay said.

Australia's virtually limitless solar power capacity also gives it a natural cost advantage over other global producers, and Australia's private sector is ideally positioned to become a leader in the production of green hydrogen.

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Securities Disclosure: I, Harold Von Kursk, currently hold no direct investment interest in any company mentioned in this article.