Investors spooked as Australia hydrogen project still stalled

There’s been considerable enthusiasm about producing and transporting liquid hydrogen across long distances by ocean carrier though the ability to do so is not yet widely proven. Recently, however, doubt has been cast over the technology due to complications arising from a joint Japanese-Australian hydrogen project.

Japan, nevertheless, is still going long on its hydrogen production ambitions though much of that plan calls for blue hydrogen which is produced using fossil fuels along with pumping out considerable emissions. In June, it released its updated Basic Hydrogen Strategy which seeks to ramp up investment to more than US$100 billion through private and public funds.

Part of this strategy includes the Hydrogen Energy Supply Chain (HESC), an effort between a Japanese industry consortium and support from Victoria State and the Australian Federal Government. The project aims to produce 30 million tonnes of hydrogen from brown coal gasification in Latrobe Valley in Victoria to be liquefied and exported to Japan. Another 10 million tonnes will be produced for domestic usage. Japanese companies involved in the project include Kawasaki Heavy Industries (KHI), Electric Power Development Company (J-Power), Iwatani Corporation, Marubeni Corporation and Sumitomo Corporation.

The HESC project is being developed in two phases, beginning with a pilot phase that was completed in 2022. The Japanese government has already committed AUD$2.35 billion through its Green Innovation Fund to finance scaling up the project. Victoria State and the Australian Federal Government have contributed a combined AUD$100 million to the project.

Mounting problems

However, the HESC now faces so many hurdles that it’s hard to envision it ever reaching the commercialisation phase. Notably, shipping liquefied hydrogen remains impractical. The only time it was attempted was with the HESC pilot project two years ago. However, it resulted in a brief fire onboard the carrier ship Suiso Frontier on its maiden voyage. The incident was downplayed by both the Japanese and Australian governments, while most media outlets also largely ignored the mishap. It does, however, give credence to opponents who point to the inherent technical difficulties in transporting liquid hydrogen by ocean carriers. To date, no hydrogen trade industry exists anywhere in the world.

Additionally, gasification of brown coal creates substantial environmental problems that has led to greenwashing allegations against the HESC project. Around 35 percent of the energy from brown coal is lost in the conversion to hydrogen. This means that hydrogen produced from the fuel is far more emissions-intensive than simply burning coal itself. Contrary to claims that the HESC will reduce emissions by 1.8 million tonnes (Mt) per year when at full production, the Australian Institute recently found that the project will instead likely increase emissions by up to 3.8 mt per year.

The HESC will also use carbon capture storage (CCS) technology to address CO2 emissions. However, CCS remains an unreliable technology that has yet to be proven at scale, while numerous projects worldwide have either been postponed or cancelled indefinitely due to high development costs. Many operational CCS projects are also not living up to their emission reduction earmarks. Since CCS projects store CO2 underground, there’s also the possibility of leakage.

Added to the fray, an Institute for Energy Economics and Financial Analysis (IEEFA) report recently found that HESC will also likely face financial difficulties. As soon as it reaches commercial scale it risks being uncompetitive against renewable green hydrogen which will see significant cost reductions, the report said. It added that due to the “high shipping costs involved, the delivery cost is likely to threaten its commercial viability.”

Loss of governmental support

These hurdles seemed to not dissuade project proponents, at least initially, but now support for the arguably ill-conceived project could be losing steam. The Australian government, for its part, has been sending mixed signals. Prime Minister Anthony Albanese’s government decided last August to rule out fossil fuel-based projects from its AUD$2 billion Hydrogen Headstart funding programme. Victoria State Energy Minister Lily D’Ambrosio has also refused to publicly support the project. Australian MPs have been under pressure to shelve the controversial project since last year, according to The Guardian. This in turn intensified worries by KHI and other Japanese investors that policy setting around CCS was not being supported by state and federal Labor Parties.

John Pabon, a Melbourne-based sustainability expert and author of “The Great Greenwashing,” told Gas Outlook that the level of HESC greenwashing is astounding. He also cited a few reasons why he thinks the government is having a change of heart about the project. “First, it reeks,” he said. “The general public is hyper-aware of anything even hinting at greenwashing. While this doesn’t mean pressure has been put on politicians per se, Labor ministers don’t want to be called out for supporting unsustainable projects, especially in very left-leaning Victoria.”

“Second, the national government is really pushing a narrative countering greenwashing,” he added. “Lastly, the public is very angry right now with companies like AGL [one of Australia’s largest power generators] selling off national resources to foreign countries. With the rising cost of utilities, many Aussies see this as a slap in the face.” 

Currently, media coverage about the HESC is mostly non-existent while it appears that investors are adopting a wait-and-see attitude. However, there’s a somewhat easy answer to these problems. Australia should develop more renewable energy instead. Though the country has ramped up renewable energy development in recent years, with around one-third of total electricity generation coming from wind, solar and hydropower, more can be done.

Moreover, there’s little justification for developing more fossil fuel projects in Australia since solar and wind power projects have already reached cost parity with their fossil fuel counterparts and in many cases are less expensive, particularly compared to fossil fuel projects that have the added Capex of developing CCS infrastructure.