The adaptation imperative: decoding Australia’s hydrogen export plans

By James Bowen

The following article is based on a presentation given by Policy Fellow James Bowen at a workshop facilitated by the Centre for Strategic and International Affairs on 25 January 2022.

Australian interests predominantly see hydrogen as a tool for adapting the national energy export industry to changing realities.Most of the large-scale prospects we are already seeing in the sector focus on tapping external demand.

The Australian Government implemented a National Hydrogen Strategy in 2019, whose headline goal was for the country to become a top-three exporter to Asia. This is consistent with Australia’s recent model of economic growth, which reflects its status as a resource-rich but sparsely populated liberalised economy on the doorstep of major Asian economies.

Past demand and investment from Japan, Korea and China in particular have been critical to establishing Australia’s leading positions in the liquefied natural gas (LNG) and coal trade. These three major markets now have net zero commitments in place and are enacting policies that have created an adaptation imperative.

The Reserve Bank of Australia recently modelled that Australian thermal coal exports to those three countries could drop by 80 per cent and LNG exports by half under net zero scenarios by 2050.

The Commonwealth Science and Industrial Research Organisation records there are 19 export-focused projects for shipping hydrogen or its derivatives, predominantly ammonia, either in the planning or trial stage.

Another 10 or so intend to use hydrogen domestically as inputs to other export commodities, including Australia’s world-leading minerals and metals sector.

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The focus of export projects is overwhelmingly on green hydrogen. Of those 19 projects, 16 target green, two target blue and one targets both blue and green.

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This is somewhat at odds with the focus we are seeing from the Federal Government, which has close ties to the fossil fuel industry. It has adopted an officially colour agnostic approach to clean hydrogen development, including in the National Hydrogen Strategy. Yet a lot of its fiscal and rhetorical support has presented hydrogen primarily as a tool for supporting the continuation or even expansion of the coal and gas sectors.

The Federal Government put significant money into hydrogen-linked carbon capture and storage (CCS), for example, and the most prominent hydrogen development it has supported is the Hydrogen Energy Supply Chain (HESC) project.

HESC resulted from a partnership between Japanese and Australian industry (J-Power, Kawasaki, Shell, AGL) and the two national governments.

It utilises brown coal to produce hydrogen, with associated carbon capture and storage set to be deployed if and when it reaches the commercialisation stage.

The project reached a milestone just last week, with the world’s first shipment of liquefied hydrogen departing the state of Victoria bound for Japan. That ship and the other technology and infrastructure being developed after the point of production can obviously be adapted to the green hydrogen trade.

It’s notable also that most of the Australian states and territories have offered greater support to green hydrogen production export pathways than has Canberra.

Most of the provincial-level strategies and associated funding commitments have an exclusive focus on green hydrogen funding. This partly explains the industry focus in this area.

Many of Australia’s offshore gas fields are also in decline and there are numerous challenges to unlocking onshore resources that would likely be necessary to develop a significant blue resource base.

Australia’s potential as a leading green hydrogen exporter

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There are ultimately few better places in the world to emerge as a leading green hydrogen exporter. Australia has world-leading solar, wind and other renewable resources with relatively small domestic power and competing land use demands.

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Solar in particular has become increasingly cheap and Australia has one of the cheaper levelized costs of production anywhere around the world. It also has sufficient fresh and potential desalinated water resources for electrolysis.

These assets are augmented by an open foreign investment climate, established trade connections with emerging hydrogen consumers and reputation as a trusted supplier of energy on market-based principles.

The rate of new renewables capacity that has been built in Australia in recent years is also world-leading, though the country is essentially starting from zero in terms of the capacity necessary to realise its hydrogen export ambitions.

There are some truly huge projects now being considered, though they are uniformly at early stages of development.

The Western Green Energy Hub project is the largest proposal and is targeting the creation of up to 50 gigawatts of renewable power over an area of 15,000 square kilometres. This compares to there being about 70GW of electricity in the entire electricity grid of Australia.

At full operation it could produce over three million tonnes of green hydrogen or around 20 million tonnes of green ammonia.

These types of projects seem infeasibly large at present but Australia does have a history of delivering very large-scale and more complex engineering projects.

Who are the major players?

There’s currently no dominant player in the emerging hydrogen industry. One notable proponent is major LNG exporter Woodside, which is pursuing both blue and green prospects. Another is iron ore miner Fortescue Metals Group, which has made world-leading decarbonisation pledges, including achieving net zero Scope 1&2 emissions by 2030 and Scope 3 by 2040.

There are also a range of foreign investors involved, largely from Asia, including InterContinental Energy and Kawasaki Industries.

The Australian Government has so far invested a little over than US$1 billion directly into hydrogen, which is a comparatively modest amount when compared with somewhere like Germany.

It’s still significant, however, when considering the Government’s longstanding aversion to this sort of “picking winners” market intervention.

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Its major funding priority has been the creation of numerous hydrogen hubs around the country to co-locate industry and expedite market creation and innovation.

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A modest amount has also gone into new research and development. Australia also formed numerous partnerships with prospective export markets, including Japan, Korea, Singapore and Germany to build supply chain linkages and incubate necessary technologies.