High hopes for the hydrogen industry

Global demand for hydrogen is expected to grow exponentially, underpinned by Japan’s decision to prioritise the use of imported hydrogen. Demand in China, Japan, South Korea and Singapore could hit 15.8 million tonnes by 2040, according to consultancy firm Acil Allen.

"Australia is particularly well‐positioned to play a key role in the hydrogen export market.”

Around 70 million metric tonnes are currently produced worldwide, primarily for the chemicals market and the pipeline of new projects is growing fast sponsored by larger integrated energy, industry and financial developers.

Meanwhile national governments, including in Australia, are regularly announcing hydrogen strategies and new initiatives – of varying gravity.

ANZ became a member of the Australian Hydrogen Council last year, testament to its commitment to the emerging hydrogen economy. The bank’s membership has allowed it to draw on the collective expertise of the council and better understand customer needs in financing hydrogen projects.

Export potential

The International Energy Agency and World Energy Council have identified the potential for Australia to become one of the largest hydrogen producers in the world in meeting the clean energy needs of energy‐intensive countries in the Asia Pacific region.

Australia is particularly well‐positioned to play a key role in the hydrogen export market with its abundant renewable resources, existing bilateral trade relationships with Japan and Korea and low sovereign risk.

Just this week, Australian Prime Minister Scott Morrison announced plans to spend $A540 million on new “clean” energy projects, just over half of which will be directed at hydrogen.

A 2018 report for The Australian Renewable Energy Agency (ARENA) suggests the potential demand for imported hydrogen in China, Japan, South Korea and Singapore could reach 3.8 million tonnes by 2030, representing an $A9.5 billion export opportunity. Modelling based on more recently projected export volumes in the National Hydrogen Strategy (NHS) estimates an approximately $A55 billion export market opportunity is possible by 2050 - if Australia can successfully achieve ‘H₂ under 2’ (under $A2 per kilogram (kg) hydrogen production price) before this time.

The NHS has recognised the economic value of the hydrogen export opportunity in one of its four key measures of success by 2030. It states the ambition for Australia to be among the top three exporters of hydrogen to Asian markets by 2030.

New markets

Japan and South Korea have been identified as the most promising export markets for Australian‐ produced hydrogen in the next decade with both countries having published detailed road maps that highlight the need for imports to meet their domestic hydrogen targets.

Japan’s goal to attain carbon neutrality by 2050 has spurred a number of public and private sector initiatives to develop hydrogen as a leading fuel source. These include the establishment of the Japan Hydrogen Association, an industry-led body comprising over 80 Japanese firms as well as a new policy framework. Over the next 30 years, Japan intends to import 5‐10 million tonnes of hydrogen per year to meet its energy needs, highlighting the imperative for Australia to achieve competitive hydrogen production prices in order to supply the Japanese market.

Domestic hydrogen production in Japan is expensive due to the lack of natural resources and is currently estimated to be ¥100 per normal cubic meter (Nm3) or $A16/kg. Japan’s METI (Ministry of Economy, Trade and Industry) has indicated it is aiming to reach roughly a third of this hydrogen price by 2030 (~$A5/kg) and a fifth of this price post‐2030 (~$A3/kg) to make it economically viable for hydrogen to replace fossil fuels in its domestic energy system.

South Korea is aiming for 20 per cent of its energy mix in 2050 to be based on hydrogen (excluding hydrogen used as an industrial feedstock). South Korea has indicated a hydrogen economy is fundamental to achieving a 40 per cent reduction in carbon emissions by 2050 relative to 2015 emission levels. Korean estimates are for hydrogen demand to grow from 3 million tonnes per annum in 2020 to 17 million tonnes per annum by 2050 and demand to exceed the volume of product that can be produced domestically.

Like Japan, South Korea will rely on imported hydrogen to meet its targets. The Korean expectation appears to be that hydrogen landed from Australia will be cheaper in the long-term than hydrogen produced domestically via electrolysis and steam methane reforming with carbon capture and storage.

Apart from Japan and South Korea, China could also potentially become a major hydrogen export market for Australia. However, it is unclear as to whether China will emerge as a net importer or exporter of hydrogen due to China having the domestic capability to produce grey hydrogen from its considerable coal deposits and blue hydrogen using steam methane reforming (SMR).

Producing hydrogen from domestic coal and renewables is also attractive to China from an energy security perspective, given its current reliance on imported oil and gas for its energy needs. The hydrogen export opportunity in China will be assessed as the industry evolves over time.

Increased competition

However, the window of opportunity will not exist forever. Competing hydrogen producers across the globe are scaling up hydrogen production in their respective countries to supply the Japan, South Korea and China markets as soon as 2025. These competitors include Brunei, Qatar, United Arab Emirates and Norway and, in the longer‐term, market entrants such as the United States, Brazil, Chile and New Zealand.

Many of these countries enjoy the inherent strengths Australia has for hydrogen production, including abundant renewable resources, access to low‐cost gas for blue hydrogen production, depleted oil wells that can be utilised for carbon capture and storage, large areas of land for solar installations and proximity to key hydrogen export markets.

Prioritising hydrogen

The Australian Government released a broad strategy plan last September that has hydrogen as one of its five priority low emissions technologies. Titled “Technology Investment Roadmap: First Low Emissions Technology Statement 2020”, the plan sets economic goals for each of the five priority technologies, including achieving under $A2/kg for clean hydrogen (at the site of production). Other goals include low emissions steel production at under $A900 per tonne and (in the case of carbon capture and storage) CO₂ compression, hub transport and storage costs at under $A20 per tonne of CO₂.

The framework sets out the Government’s investment priorities in emissions reduction technologies over the short (to 2022), medium (to 2030) and long-term (to 2050), the cornerstone of Australia’s long-term emissions reduction strategy. It is to be delivered ahead of the United Nations climate conference ‘COP26’ in 2021.

The roadmap is underpinned by an economy-wide survey of over 140 new and emerging technologies with the potential to improve productivity, lower costs, reduce emissions and support secure energy supply. These technologies include hydrogen, renewables, energy efficiency technologies, biofuels, battery electric vehicles, fuel cell vehicles and hybrids and carbon capture and storage (CCS) and other negative emissions technologies including biosequestration.

Significant hydrogen-specific funding program announcements by the Commonwealth or related entities include:

• April 2020 - ARENA opened its $A70 million Renewable Hydrogen Deployment Funding Round. This amount is in addition to the more than $A55 million of ARENA funding awarded to feasibility studies, pilot and demonstration projects and research and development activities since 2018. ARENA has shortlisted seven companies, with selection of preferred projects expected by mid-2021.
• May 2020 - Clean Energy Finance Corporation (CEFC) was able to make available $A300 million of debt and equity finance to invest in suitable hydrogen projects; an early priority for the Advancing Hydrogen Fund will be to invest in projects included in the ARENA $A70 million funding round, where they meet CEFC eligibility requirements.
• September 2020 – the Australian Government announced a $A1.9 billion package to invest in new energy technologies, including the allocation of approximately $A70 million towards establishing a hydrogen export hub, research collaborations and supply chain studies.

John Hirjee is Executive Director, Corporate Finance - Resources, Energy and Infrastructure at ANZ