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Hydrogen has a unique role in global energy says BHP


One of the world’s largest mining companies predicts hydrogen will occupy a unique and potentially profitable niche in the worldwide energy scenario rather than serving as a primary fuel source. This perspective stems from current challenges hindering the transition to hydrogen as a mainstay energy solution, and the emerging prevalence of alternative renewable energy sources.

Lee Levkowitz – who spearheads BHP’s energy, carbon, and technology research division – articulated two contrasting viewpoints on hydrogen’s role. Levkowitz believes the fuel’s potential in the international economy akin to “champagne” – a luxury rather than a staple like “tap water”. While there are certainly prospects during the global energy transition where hydrogen could prove indispensable, it is not always the leading choice in the array of decarbonisation technologies, the executive stressed.

If Australia aims to become a significant global hydrogen exporter, projections from BloombergNEF green energy researchers estimate a hefty investment of $592 billion by 2050. This amount would be distributed between new wind capacity (about 62 per cent) and solar energy, contributing to the country’s journey to a net zero economy.

By 2050 Australia will need to establish an astounding 812 gigawatts of wind and solar power – over 10 times the national electricity market’s current capacity. This need is driven by electrolysers’ growing demand. However, realising Australia’s ambitious hydrogen dreams presents formidable challenges, from the absence of specific governmental targets to stiff competition – and potential export markets to significant infrastructure issues.

Nevertheless, Australia presents a promising pipeline of green hydrogen projects that could generate up to 10.6 million tonnes of annual production. The federal government also recently committed to inject $2B into reducing the cost of green hydrogen production. This move is Australia’s first response to the US Inflation Reduction Act, aimed at promoting clean energy production.

While the US focuses on enticing clean energy investment, Labor’s “safeguard mechanism” seeks to mandate emission reduction by the nation’s 215 largest emitters. Levkowitz suggested Australia should leverage on its strategic advantage in producing critical minerals required for new renewable energy technologies.

The role of hydrogen in the global energy transition is hotly debated. Supporters like Andrew Forrest see it as a potential substitute for LNG. However, the costs and challenges associated with its transportation arguably make it less viable than other renewable energy sources.

Notably, Japan incorporated hydrogen at the core of its energy transition plans, setting a bold target to boost hydrogen supplies to 12 million tonnes by 2040. Green hydrogen, produced when renewable energy splits water into its core elements, faces the challenges of cost and scale.

Australia will need an estimated 500 petajoules of electricity generated by solar and wind to power electrolysers by 2050, accounting for over 97 per cent of all electricity generated for hydrogen production according to a BloombergNEF study. However, critics argue such a vast expansion of zero-emission sources might encourage Canberra to embrace electrification instead.

Hydrogen is deemed useful in decarbonising shipping, steel and refining sectors but remains a niche player in other areas. It lags behind where alternatives were already present or emerging, including the power sector, buildings and industrial sectors other than steel. Nevertheless, the possibility of transporting green hydrogen as ammonia is favoured by significant buyers in South Korea and Japan, further highlighting Australia’s potential to model its vast coal and LNG export industries after hydrogen. This opportunity is especially viable given Australia’s vast low-cost renewable resources and strong trading relationships with Japan and South Korea, as suggested by Goldman Sachs in 2022.

As for steelmaking an industry that significantly contributes to global carbon emissions, hydrogen has been touted as a revolutionary fuel source. It could potentially enable a shift from coking coal and natural gas to smelting using electricity and hydrogen. However, BHP suggests electric arc furnaces are best suited to processing scrap steel and high-grade direct reduced iron.

Despite these challenges the role of hydrogen in the energy transition cannot be completely dismissed. In particular hydrogen might play a significant part in decarbonising specific sectors. According to BloombergNEF while hydrogen has found its niche in shipping, steel and refining, its role in heavy road transport and sectors such as petrochemicals and cement remains limited.

In conclusion, the pathway towards a hydrogen-fuelled future appears to be intricate and contentious, filled with both opportunities and challenges. The current narrative suggests hydrogen will not replace traditional fuel sources wholesale, rather occupy a unique and potentially lucrative space within the global energy mix. This is a position that will likely evolve over time as advancements in technology and policy further unlock hydrogen’s potential in the global energy transition.

Click here to read Goldman Sachs’ full report.

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