ArrowArtboardCreated with Sketch.Title ChevronTitle ChevronIcon FacebookIcon LinkedinIcon Mail ContactPath LayerIcon MailPositive ArrowIcon PrintIcon Twitter
Energy

Australia's hydrogen dreams colored by 'blue' vs. 'green' divide

Reliance on fossil-fuel based output seen as risk to future competitiveness

A fierce debate is unfolding over whether Australia's nascent hydrogen industry should be powered by fossil fuels or renewables. (Source photo by Getty Images) 

SYDNEY -- Australia aspires to become a hydrogen superpower in the next decade but some experts say a push for fossil fuel-based, rather than renewables-backed production could undermine its future competitiveness and leave some projects stranded.

The country has emerged as a key player in the global hydrogen supply chain, with nearly 30 projects under construction or in the advanced planning stages. Many of these will come on stream by 2025, putting the country on track to become a top-three exporter to Asia by 2030.

Australia's vast land mass, intense sunlight and long, wind-swept coastline make it an ideal place to produce "green" hydrogen by passing electricity, generated by solar or wind power, through water to separate it into hydrogen and oxygen.

The government, though, is promoting cheaper "blue" hydrogen projects fueled by Australia's vast natural gas reserves. Most of Australia's key oil and gas players, including Origin Energy, Woodside Petroleum, BP Australia and APA Group, see the emerging hydrogen sector as a natural evolution of their businesses.

"There's been a rush to develop a hydrogen industry in Australia. A lot of that has come from the gas industry, or proponents for the gas industry, in order to lock in the infrastructure using natural gas to make hydrogen, to service any future markets," said Richie Merzian, climate and energy program director at the Australia Institute, an independent think tank.

Canberra last year set a target price of 2 Australian dollars ($1.46) per kilogram for hydrogen production, with an eye to competing in export markets such as Japan, Singapore and Germany. It has also pushed to expand funding for projects that use carbon capture and storage (CCS) technology.

Blue or "brown" hydrogen, produced using coal, together with carbon capture, currently costs about $1.80-$2.40 per kilogram. By comparison, green hydrogen, which has zero emissions, ranges between $3 and $6 per kilogram because the technology is still developing.

"We are big fans of green hydrogen, and I hope it works, down the track. But people are trying to address emissions today. And the way to do that is basically through finding a means of producing hydrogen at an economically attractive level where consumers are going to actually utilize it," said Charles Whitfield, chairman of Hexagon Energy Materials, which plans to produce hydrogen through coal gasification in Northern Australia.

Shaun Gregory, Woodside's head of sustainability, wrote in an opinion piece last year arguing that the company expects green hydrogen "to be a major opportunity for Australia," but adding that it is "advocating for a technology-neutral, lowest-cost approach to developing hydrogen infrastructure and markets."

"We believe that pathway will start with 'blue' hydrogen, produced from natural gas ... and transition to 'green' hydrogen as technology developments drive costs down," he wrote. "Blue hydrogen provides the means to develop markets and underpin the infrastructure required for large-scale production."

Some have doubts over this approach and say the CCS technology required to cut emissions in gas-based hydrogen projects is expensive and unproven. The best that CCS has demonstrated for large-scale projects is "about 80% capture," said Fiona Beck, a senior research fellow at Australian National University.

It could also prove more costly in the longer term as the world increasingly puts a steep price on carbon.

"Developing brown or blue projects comes with the very real risk of future carbon penalties, whether that's through carbon pricing or carbon border adjustments," said Andrew Dickson, a spokesman for CWP Renewables, which is developing a project in Western Australia that will produce 1.75 million tons of green hydrogen per year.

CWP's proposed $36 billion, export-focused, Asian Renewable Energy Hub won "major project" status, meant to speed up the granting of permits. Instead, it has run into trouble after Canberra refused environmental approvals last month.

The rejection has sparked fresh concerns about the lack of a consistent national climate policy, although the tide is shifting rapidly overseas in favor of renewables.

Climate change has been embroiled in political debate in Australia for more than a decade, partly because of the fossil fuel industry's sizable contribution to employment and exports. The climate wars have claimed a host of political scalps and left the world's biggest per capita carbon emitter unable to formulate a national climate policy.

In contrast, both the U.S. and Europe have outlined plans to impose additional levies on fossil fuel-based energy imports, raising fears that many of Australia's gas-based hydrogen projects could become uncompetitive by 2030.

By then the cost of green hydrogen is expected to drop significantly, making it a sensible investment now, "from a risk-to-reward perspective," said Daine Loh, a Singapore-based renewables analyst at ratings agency Fitch. "We are still seeing broad support for gas and coal [projects] because of the current economic structure. But over the longer term there is a bit of a systemic risk that comes [with] it," Loh added.

Gas-based projects would also do little to address Australia's large emissions footprint at a time when it is under increasing pressure to match net-zero commitments by the U.S., the U.K. and most Asian countries.

Australia is the world's largest exporter of both coal and liquefied natural gas, which make up a quarter of its exports and contribute over AU$100 billion in annual revenue.

But a global exodus from coal as well as commitments by China, Japan and South Korea -- its three biggest energy customers -- to achieve net-zero carbon emissions by 2050 have left the two key sectors scouting for an alternative.

Hydrogen could play that role, given its increasing attractiveness as a source of energy for countries looking to decarbonize their economies. A 2018 report for a government agency identified potential demand worth AU$9.5 billion from Asian countries by 2030. Another study has estimated an export market worth AU$55 billion by 2050.

"Hydrogen is fundamentally tied up in the renewables discussion because its role in supporting renewables is where we are really seeing value," said Fiona Simon, chief executive of the Australian Hydrogen Council.

The lobby group has seen its membership double over the past 12 months due to rising interest in the industry, spurred by growing government funding for projects. It is now asking for a clearer road map.

"There needs to be a national perspective [and] clear targets and milestones so that industry has more certainty and knows what's investable," Simon said.

How Australia's hydrogen industry ultimately develops, though, will likely be determined by events beyond its shores.

"Irrespective of the internal debates in Australia about climate and energy, it's the customers who will drive this change," said CWP's Dickson. "Either we change with them or we will lose market share and lose future export revenue."

Sponsored Content

About Sponsored Content This content was commissioned by Nikkei's Global Business Bureau.

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this monthThis is your last free article this month

Stay ahead with our exclusives on Asia;
the most dynamic market in the world.

Stay ahead with our exclusives on Asia

Get trusted insights from experts within Asia itself.

Get trusted insights from experts
within Asia itself.

Try 1 month for $0.99

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this month

This is your last free article this month

Stay ahead with our exclusives on Asia; the most
dynamic market in the world
.

Get trusted insights from experts
within Asia itself.

Try 3 months for $9

Offer ends July 31st

Your trial period has expired

You need a subscription to...

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers and subscribe

Your full access to Nikkei Asia has expired

You need a subscription to:

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers
NAR on print phone, device, and tablet media

Nikkei Asian Review, now known as Nikkei Asia, will be the voice of the Asian Century.

Celebrate our next chapter
Free access for everyone - Sep. 30

Find out more