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Australia's Hydrogen Economy - the export opportunity

Port of Dampier, Australia (Image credit: Pilbara Ports Authority)

This is the third and final part in a series about hydrogen. The first part looked at why there is so much interest in hydrogen now, particularly in Australia, while the second part examined the possibilities for hydrogen in heating and mobility. This third part will look at the export opportunity along with the flow on benefits to the Australian grid. For a discussion of the challenges and counterarguments, please take a look at the sister article: Australia's hydrogen exports - Potential Pitfalls.

To recap, countries such as Japan and Korea currently depend on imported fossil fuels for a large part of their energy supply. Looking to decarbonise, they lack suitable land for significant renewable energy projects and have made a clear commitment to hydrogen. Japan, for example, is aiming to get 40% of all its energy from hydrogen by 2050.

1. Hydrogen demand

Global hydrogen demand is currently about 55 million tonnes. About 96% of it is made from fossil fuels, mostly steam methane reforming (SMR). Almost all of this hydrogen is used to refine oil or produce ammonia and other chemicals. Depending on where you look, forecasts of global demand in the coming decades vary considerably, as seen in the graph below. 

Global forecast hydrogen demand, from different sources

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Source: ACIL Allen, 2018

For this article I’ll base my analysis off the numbers provided for the “medium” hydrogen uptake scenario in ACIL Allen’s report for ARENA “Opportunities for Australia from Hydrogen Exports, 2018”.

The chart below shows that even on the medium scenario, global hydrogen demand in the power, transport and space heating/cooling sectors is set to grow to about 8 million tonnes in 2030 and 35 million tonnes in 2040. 

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Source data: ACIL Allen, 2018

According to the ACIL Allen modelling, Japan is the most promising export market, where Australia could capture an approximate 20% share of the demand. When the potential exports to other countries are included, Australia could feasibly be exporting around 500,000 tonnes of hydrogen a year by 2030 and 1,350,000 tonnes by 2040, as shown in the table below. 

Australia’s potential exports of hydrogen (‘000 tonnes)

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Source: ACIL Allen, 2018

For Australia to supply 500,000 tonnes of hydrogen a year to meet the potential 2030 export market would require a lot of energy. Let’s look at how much:

  • Using the lower heating value of hydrogen, 1 kg of hydrogen contains 33.3 kWh energy
  • So 500,000 tonnes of hydrogen contains about 16.65 TWh
  • If we assume 50% of the energy put in is lost during electrolysis, compression, pipeline transport and liquefaction (or conversion to ammonia) then we need about 33 TWh.

So about 33 TWh of electricity is required to produce 500,000 tonnes of hydrogen. To put that into context, Australia’s 2020 Large-scale Renewable Energy Target (now met) was, coincidentally, 33 TWh. The total demand for electricity in the National Electricity Market is around 200 TWh per year.

While 33 TWh may sound like a lot, 2030 is still a decade away and there are some very large renewable energy projects already being planned in Australia. These include the 15 GW Asian Renewable Energy Hub in the Pilbara region of Western Australia, the 10 GW Sun Cable project in the Northern Territory and the 5 GW Murchison Renewable Hydrogen Project also in Western Australia. If we assume a combined wind/solar capacity factor of 30% for the sake of a rough calculation then these projects alone would generate 79 TWh a year. 

2. Cost of exported hydrogen

Due to the costs incurred to transport it, exported hydrogen is significantly more expensive than that produced locally. The cost to produce the hydrogen only makes up roughly half the cost of exported hydrogen.

Japan has provided clear targets through its 2017 Basic Hydrogen Strategy for a delivered cost of hydrogen to be ¥30/Nm3 by 2030. That’s A$4.88/kg by 2030 at today’s exchange rate. This will require significant cost reductions in both hydrogen’s production and its transportation.

Production costs for renewable hydrogen in Australia are currently around A$7/kg. However, with savings due to falling costs for renewable energy, increased plant size and greater efficiencies, the CSIRO predicts this cost could fall to A$2.29-2.79/kg by 2025 as shown in the graph below.

Cost reductions of renewable hydrogen by 2025

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Source: CSIRO National Hydrogen Roadmap

Analysis by ARENA goes one step further and predicts hydrogen production costs will fall to the A$2/kg mark by “2025-2030”. 

Production is only half the story though, and transportation costs also need to fall. For long distance transport there are two main options: hydrogen must either be liquefied or attached to a chemical carrier such as ammonia.

  • With liquefaction, substantial energy is used to liquefy the hydrogen. There are some losses during transport due to “boil off”. Conversion back to gaseous hydrogen at the destination is simple and does not require much energy.
  • With ammonia, energy is used to convert hydrogen and nitrogen to ammonia and then there is chemical processing at the destination to convert back to gaseous hydrogen.

The cost of delivered hydrogen is expected to be largely similar in both the ammonia and liquefied hydrogen options.

However, there do seem to be some advantages for ammonia. Australia already has experience in shipping ammonia: 6% of the world’s tradeable ammonia is exported by Dampier Port in the Pilbara. Liquid ammonia contains more hydrogen than liquid hydrogen does, so it’s a more compact option and is already shipped around the world in the same class of ship used to transport LPG.

Transportation costs are expected to fall though and ACIL Allen comes up with the following based on CSIRO and other data:

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Source data: ACIL Allen, 2018 

This has the landed cost of hydrogen in Japan at A$4.61/kg. That’s just under the A$4.88/kg 2030 target although exchange rate fluctuations could go either way but with another 5 years to further reduce costs it seems readily achievable. 

3. The opportunity for Australia

If Australia is exporting 500,000 tonnes of hydrogen in 2030 at a price around $4.50/kg this makes it a A$2.25 billion export market. That’s on top of the hydrogen industry contributing A$1.7 billion to the Australian economy and providing an additional 2,800 jobs.

However some people, such as Chief Scientist Alan Finkel and Australian Renewable Energy Agency (ARENA) CEO Darren Miller have a far more ambitious longer term vision.

Australia is the world’s largest exporter of Liquefied Natural Gas (LNG). Imagine that in 2050, Australia produces hydrogen equivalent to its current LNG exports.

  • Take current LNG exports as 70 million tonnes (Mt) – latest 2018 data
  • Due to the lower heating value of natural gas compared to hydrogen, in energy terms that’s equivalent to about 30 Mt hydrogen
  • Using our 33.3 kWh/kg heating value from earlier, 30 Mt hydrogen contains 999 TWh of energy.
  • With losses of 50% as before, that would require around 2,000 TWh of energy.
  • Using our 30% capacity factor and rounding down, that would require about 700 GW of wind and solar capacity.
  • To put that in context, if that 700 GW was just solar it would require a land area of around 18,000 km2

How large is that? That’s about the size of a small country such as Fiji or Kuwait. It’s also about ¾ the size of Australia (and the world’s) largest cattle station, Anna Creek.

But Australia is a big country with a lot of empty space and 18,000 km2 is less than 0.25% of Australia’s nearly 8 million km2.

Here is a map showing Kuwait in blue superimposed over Australia, thanks to thetruesize.com.

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In reality of course the 700 GW wouldn’t all be supplied by solar and it wouldn’t all be located in one place.

Where it gets really interesting is if all this generation is grid connected, we end up greening Australia’s domestic electricity system on the side as well. At this sort of scale, domestic consumption ends up representing such a small fraction of the available generation capacity that the idea of not having enough renewable energy becomes meaningless.

“If hydrogen gets done at scale, you’ll just need so much wind and solar to produce hydrogen that this idea of not having enough renewable energy will just be a weird concept that we had in the late 2010s.”

- Darren Miller, ARENA CEO

Electricity supply and demand in Australia are finely balanced and neither is particularly flexible. Smelters need to run all the time, coal plants like to run flat out and wind and solar only generate when the wind blows or the sun shines.

On the other hand, hydrogen electrolysers represent a flexible load that can be ramped up and down very quickly (less than a second in the case of PEM electrolysers) to match the availability of electricity. They can consume cheap excess renewable energy when it is available and turn off during peak hours when demand and costs are higher.

Also, with such rapid response times from the electrolysers, it means they can contribute to grid services such as frequency control ancillary services and fast frequency response.

Stored hydrogen can be used as dispatchable generation to produce electricity when needed. Since hydrogen can be stored economically for long periods, it can provide seasonal storage if required, i.e. excess energy generated in summer can be stored for consumption in winter.

So not only will the cost of generating electricity be much lower, the costs of balancing the system will also be lower, which will lead to lower electricity prices for homes and businesses.

Potential pitfalls

As this article is already quite long I have addressed several of the counterarguments in a separate article. Examples include:

  • What if Japan decides to generate its own clean energy? 
  • Why would countries import renewable (green) hydrogen if SMR + CCS (blue) hydrogen is cheaper?
  • Can exported hydrogen compete with LNG on cost?

Conclusions

The hydrogen sector is still in its infancy in Australia as well as globally. The economics aren’t there today but there is a need for investment to scale up the industry which is why we are starting to see funding commitments and demonstrator projects springing up, such as these or these as well as several others detailed in Australia’s National Hydrogen Strategy that was released last month.

We will need to increase the scale at which we manufacture and install electrolysers and we will need the price of renewable electricity to continue to fall.

There is a long way to go but this is a medium to long term play spanning two or three decades rather than a few years. One of my favourite quotes is from Bill Gates:

“Most people overestimate what they can do in one year and underestimate what they can do in 10 years.”

- Bill Gates

For hydrogen we are talking about 20 or 30 years.

Disclaimer: I’ve done my best to provide accurate calculations but humans are prone to error so I encourage anyone who finds any inconsistencies to let me know and I can update the article.

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