Does Australia have what it takes to be a hydrogen superpower?

Sascha: [00:00:02] Welcome to the Dive. The podcast asks Who said business news needs to be all business. I'm your host, Sascha Kelly. Zero Emissions hydrogen has the potential to supplant oil and gas as the fuel of the future, and Australia's in a brilliant position to take advantage of this investing theme. But there are some major hurdles to overcome. It's Friday, the 17th of November, and today I want to know does Australia have what it takes to become a hydrogen superpower? To talk about this today, I'm joined by Kate Burgess, climate energy and resources correspondent at Capital Brief. Kate, welcome to the dive. 

Kate: [00:00:38] Thank you. 

Sascha: [00:00:39] Well, let's start with a really basic question, which I'm sure you have to answer all the time, but here I go anyway, For those of us who aren't well versed in the energy sector, can you give me a bit of a brief overview of Australia's current relationship with hydrogen and also some of the potential use cases so we can have an understanding of what this opportunity might be? 

Kate: [00:01:02] Sure. So there's a few ways to manufacture hydrogen, and in the past it's been mainly made from natural gas in a process known as steam methane reforming. And the problem with this is it's very carbon intensive. It creates something known as grey hydrogen. So at the moment, it's mainly used in industrial applications. The biggest use is to make ammonia, and ammonia is the key ingredient in fertiliser. It's also used to make explosives and a number of other products. So the challenge here is to make hydrogen zero emissions and once we do that, it's got a whole load of uses that it can have because basically it can replace natural gas in all kinds of different industrial applications and it can also replace coal. So what people are working on is to make green hydrogen, which is to make it using renewable energy. And it's a process known as electrolysis. And basically under that process, it just takes water atoms and it splits them into hydrogen and oxygen because obviously water is H2O and this process is really good because it doesn't generate any CO2, and so it creates what's known as green hydrogen. So if we can create large amounts of green hydrogen, we can replace natural gas in things like manufacturing, aluminium and cement. It could be used to power cars like using fuel cells. It could be used for trucks. It could also be used to power ships and aircraft. And then it could also replace coking coal in making steel. So it could really help to reduce the emissions in those harder to abate sectors. 

Sascha: [00:02:43] Obviously, we know how much of a push there is towards changing our energy use so that we can be addressing climate change concerns. You've obviously outlined a bunch of anecdotal things that this green hydrogen could be useful, but to give us an indication of just how great this potential space could be, do you have some numbers of what that could look like? 

Kate: [00:03:08] Sure. So, I mean, the most optimistic numbers or ideas is that it can sort of replicate Australia's LNG industry in that like it's come from nothing and then it's become a major export. I think a more realistic forecast is something like 3 million tonnes of hydrogen per year by 2040 and that will allow a lot of uses like it will totally replace grey hydrogen in fertiliser, ammonia production and will also allow it to be used in fuel cells and probably to make some grain iron as well. And that's going to be basically put into it's going to be hydrogen on its own or it could be used as a carrier. So using it to make iron means that you can carry hydrogen in grain iron, you can also carry it is methanol or you can obviously carry it as ammonia. So they're much more easy to transport than hydrogen because the hydrogen, as you probably know, is very flammable. So everybody kind of knows that the Hindenburg disaster, which was a hydrogen blimp that exploded in the air earlier in the 20th century. So the idea with hydrogen is that you need to liquefy it to make it safe to transport. And it has to be cold to -253 degrees. So let's put that in perspective. With LNG, you have to cool it to about 160 degrees. So it's a very complicated process. 

Sascha: [00:04:27] You've already started addressing what I was going to have as my next question, which is, you know, this is such an exciting opportunity. We've obviously got these massive numbers. We know how resource intensive Australia is and our economy really relies on that space. So this is a massive market potentially. But of course there's always hurdles, otherwise we'd be there already. It's highly flammable. We obviously need to cool it to an extreme amount. Are there other hurdles that we're looking at in this quest to become a hydrogen superpower? 

Kate: [00:05:00] Yes. I'm leaving aside the technical considerations which can be overcome. You know, it's not too difficult. The problem is it's really expensive. So the cost of production needs to come into line with the cost of production for existing fossil fuels. Otherwise, no one will have an incentive to switch. Yeah. So currently hydrogen cost between five and 9 AUD per kilogram to produce and that is way more expensive than anything else. So natural gas, coal, petrol and diesel, all the alternatives. The other issues there and this will come back into the cost as well, is you need to scale it up to capacity to be able to make commercial quantities. So you need it to be cheaper to be able to do that. And then if you make it in commercial quantities, it will get cheaper. So it's kind of chicken and egg. So it's a very complex jigsaw puzzle where you need to align all of these different planets. So you need a feedstock in terms of you need enough renewable energy. Then you need to build an electrolyser big enough to create the volumes that you need, and then you need enough customers at the other end to buy it. And basically customers will not commit to signing what's called an offtake contract to buy the hydrogen unless they are confident that there's enough renewable energy to power the electrolyser. So basically it's kind of this weird chicken and egg problem where if we are to get these large hydrogen projects off the ground, we're going to need help from our major trading partners who are going to buy the hydrogen. So that tends to be Japan and Korea, South Korea, that is. So they're emerging as the main customers for hydrogen. But to get projects on an export scale, it's going to need a lot of investment. 

Sascha: [00:06:36] Yeah, excuse my ignorance on this, but are we just in a natural point in the timeline on any kind of new invention or any new technology and, you know, it will just gradually move along? Or are there massive sticking points? And we really need something to kind of shift us into the next gear. 

Kate: [00:06:54] I think what it needs is it needs a head start in terms of reducing the cost of production, because without that, they're never going to scale up beyond what's called a demonstration facility where where you basically produce hydrogen in small quantities. So the Australian Government's trying to address that like it's got the hydrogen Headstart program, which is a $2 billion fund that it's running through the Clean Energy Finance Corporation. And the idea of that is when it announces the winners next year, it's going to provide them with ten year contracts with this credit, which basically will underwrite some of the cost of production. So it will mean that when they build a facility, they're locking it in at a lower production cost rather than locking it in at a higher production cost. So that will make the economics of everything a lot more attractive. 

Sascha: [00:07:47] More of my conversation with Kate in just a moment. Welcome back to the Dive. Before we get back into it, I know you know what I'm going to ask you to do? Can you please give us a five star review in your podcast player? Spit it out. It'll take 30 seconds of your time, but it makes the world of a difference to us. Every new review we get, it talks to that magic algorithm, helps us climb the charts. It gets us pushed in front of new people, in different podcast players, and as an independent media company, that makes the biggest difference to us. Anyway, back to my conversation with Kate. Let's return to the opportunity then, because obviously you've just talked about the fact that there's this competition that's running for this lock in for next year. What does the landscape look like in Australia at the moment? How are we currently embracing it? 

Kate: [00:08:40] Yes, I mean, in terms of the amount of development out there, it's surprisingly healthy. So the CSIRO tracks the number of hydrogen projects in development and it's got a map with more than 100 projects on it and they range in size from being like super ambitious to like very small. So the small end, like Andrew Forrest Twiggy, the founder of Fortescue Metals Group, has a project to put hydrogen in his trucks at the Christmas Creek mine in Western Australia and then at the Lodge. And there's a project called the Australian Renewable Energy Hub, which is trying to have up to 26 gigawatts of renewable energy to produce 1.6 million tonnes of hydrogen. So if we think about the 3 million number, that's actually more than half of the forecast. So it's a huge amount. It's a very ambitious project and they've also got an even larger one in the south east of Western Australia near the South Australian border. There's also some projects in South Australia, so there's one near the Whyalla steelworks which could mean that hydrogen could be used to make green steel. And there's also ones around other industrial hubs so that the tendency is to locate these projects near where the hydrogen might be used in the industry. So there's projects in Gladstone, which is the home of a lot of industries. It's where LNG gets exported. So there's export facilities and wharves and things are available there. And then there's some also in further north in Queensland around Townsville. 

Sascha: [00:10:17] Hmm. So earlier, Kate, you did mention the Hindenburg disaster. 

Audio Clip: [00:10:21] The ill fated Hindenburg on her last flight sails over New York. Inside the silver envelope are 16 separate gas bags, each filled with hydrogen, a highly inflammable gas. The actual crash of the Hindenburg. An airship was destroyed in less than half a minute. 

Sascha: [00:10:43] And I think that that is a pretty good segway into the fact that not everyone is enthusiastic about hydrogen as a solution. Obviously, there's the risk of it being highly flammable and combustible. But are there other criticisms of why this might not be a good alternative? 

Kate: [00:11:01] Yeah, I mean, so the safety considerations are a big one. So that's more of a sort of general public consumer type level where you don't really know very much about it and you think all this sounds a bit dangerous. Yeah, I mean, I think with enough money those things can be overcome. So the main other criticism is that it's basically so expensive that it's never going to be cost competitive with other uses. So there are charts that show that there's not going to actually be that much demand for hydrogen until well into the 2030s. And that's when all of these green processes start up because do use green hydrogen in processes to replace something else. You actually need technological advances in whatever that process is. So for example, in steelmaking, you need to invest in new blast furnaces to be able to use green hydrogen. So all that has to happen at the same time. So a lot of people think it's just not going to be a thing for this decade. It's going to be more like a 2030 type thing. Yeah. And then there are other people like Saul Griffith, who is the author of Rewiring Australia. So he's a big believer in electrification and he just thinks that it's going to solve the problem. So most things will have electricity as a solution and that hydrogen is just not going to be the safest and most cost effective option. And so it is largely going to be kind of, you know, crowded out by electrification solutions in the same way as most cars will probably be EVs and not have hydrogen fuel cells. 

Sascha: [00:12:26] Yeah, it's so fascinating because I think earlier you used that metaphor of the fact that it's this highly complicated jigsaw puzzle with all these chicken and the egg kind of moments. And and that seems to be the more you zoom out in on the larger climate and energy question and tension, it seems like that jigsaw just keeps writing and spreading and getting bigger and bigger. Okay. We're going to leave it there for today. I think that's all we have time for. But I've really enjoyed digging into this conversation with you. If someone's interested in more of the information that you're filing, where can they read more of what you're reporting? 

Kate: [00:13:01] Sure. Well, I'm doing a whole series on net zero at capitalbrief.com. Sorry. We're producing a story every week and we've got two stories on Green Steel, which a little bit related to hydrogen. And we're also now kicking off a series on recycling.

Sascha: [00:13:15] Plenty there for me to get into. Kate, thanks so much for your time today. 

Kate: [00:13:19] Great. Thanks, Sascha.

Sascha: [00:13:20] A huge thank you to Capital Brave and Kate Burgess for joining me today. I'm going to be back in your feeds on Monday when Alec and I are talking about the big four banks and their massive profits when so many of us are feeling the squeeze. What on earth is going on? A reminder, if you'd like to get in touch with us, contact@equitymates.com. All details are in the show notes below and I'll talk to you on Monday.