Is hydrogen for export over-hyped?

Nov 6, 2022
Self service hydrogen filling station on a background of trucks.

There is a good deal of hype about the potential for exports of Hydrogen. But there are technical and competitive reasons to question how large a boom it will be. There are other opportunities in the low-carbon world, and the need to decarbonise the economy is urgent.

Who can forget There is a good deal of hype about the potential for exports of hydrogen and steel made with the moment in school chemistry when the teacher poked a burning taper into the mouth of a test-tube in which zinc was bubbling in acid? “Pop” went a small explosion, the tell-tale sign of hydrogen.

The Hindenburg disaster of 1937 was the same thing on an epic scale. A huge airship filled with hydrogen became a fireball, with the loss of many lives.

Hydrogen is wonderful stuff. It is the lightest gas and the most abundant element in the universe. It burns easily and can explode in some circumstances. All that is left after it burns is water, or rather water vapour. The same is true when hydrogen makes electricity in a fuel cell.

On Earth, large-scale hydrogen (for instance, for rocket fuel or for making ammonia and fertilisers) has mostly been made by “steam reforming” of fossil gas. This releases a lot of carbon dioxide into the air. Processes using coal or oil generate similar emissions. Now, another main method of making hydrogen is set to become economic at scale. This is electrolysis of water. As renewable power, especially solar, gets cheaper and as electrolyser cells improve, clean “green” hydrogen is likely to become cheaper than the “brown” sort.

This is causing a good deal of excitement, not least in Australia. We are fortunate to have very good sun and wind resources to make cheap power. But is the hype excessive?

Domestic uses

One of the major uses of hydrogen is likely to be for long-term storage of electricity.

A pilot project is under construction at Manilla, NSW, that will store energy in the form of metal hydrides, using technology from UNSW. When power is needed, the hydrogen will be recovered.

A far bigger storage project is being built by Mitsubishi in Utah. It will store large amounts of hydrogen in salt caverns, running it through a gas turbine generator when electricity supply is short and prices are high. This system has the potential to store vast amounts of energy, even keeping some from a low season for use in a high season. One could visualise versions of this scheme in Australia, perhaps using storage in old mines like the Hydrostor compressed air storage system proposed for Broken Hill.

Hydrogen will be used for process heat where the required temperatures are too high for electric heat pumps – in glass furnaces, for example. On the other hand, hydrogen is not likely to be used to heat houses or other buildings. Electric heat pumps are cheaper, and hydrogen can’t be distributed through existing gas pipes (except at less than about one-tenth of a mix). It makes ordinary steel brittle.

Hydrogen will be a feedstock for production of some important chemicals, such as ammonium nitrate and urea fertilisers. This may replace significant imports and possibly lead to new exports. Steel will, in time, be made using hydrogen to reduce iron oxides, rather than coal. More will be said on this later.

We may see hydrogen or its derivative, ammonia, used in some forms of transport such as heavy trucks or trains. For most transport, including light vehicles and short-haul planes, Bloomberg New Energy Finance has calculated that the battery-electric system will cost less and waste less energy.

Exports

When thinking about potential exports based on hydrogen, we must consider two facts. Because of its extreme low density (and its flammability), hydrogen is awkward and expensive to transport. And the other fact: we have competitors.

Hydrogen can be liquefied at minus 253°C, nearly a hundred degrees colder than liquefied natural gas. Or it can be compressed and stored in strong tanks. Either takes a lot of energy. Another way to make hydrogen transportable is to combine it with a hydrocarbon chemical, toluene, forming methylcyclohexane. This can be reversed at the point of delivery. As yet another option, hydrogen can be converted with nitrogen into ammonia, which can be liquefied at minus 33°C or modest pressure. At the destination, it can be converted back to hydrogen or used directly as ammonia. Ammonia can be burnt in some furnaces or engines, provided care is taken to minimise emissions of nitrogen oxides, and it can be used as a feedstock for further processing. Of the possible approaches for the export of hydrogen, the most promising appears to be as ammonia.

Power companies in Japan are very interested in burning a proportion of ammonia in coal-fired power stations, possibly sourcing it from Australia. Trials are beginning. The idea is to reduce carbon emissions as part of a long-term transition. Bloomberg has questioned whether this will prove economic.

Transporting hydrogen is expensive compared with its value. Ligang Song, writing in The Superpower Transformation (edited by Ross Garnaut) says the cost of “green” Australian hydrogen delivered to China is likely to be double its Australian cost. If another country can make and deliver hydrogen at a combined cost that is lower than ours, they could beat us in the China market, or in others in Northeast Asia.

This brings us to our competitors. We have very good solar and wind resources. But so do other countries, including China itself.

Take India. The Economist recently reported on India’s plans for green energy and hydrogen. They sound a lot like Australia’s. The biggest Indian industrialists, Gautam Adani (notorious in Australia for his Carmichael coal mine) and Mukesh Ambani of Reliance Industries are heavily involved. Mr Ambani says his firm will be the first in the world to make “green” hydrogen for less than US$1 per kilo (it costs about US$4 now). India already makes solar panels and electrolysers. There are areas like the Kutch peninsula in Gujarat that have excellent wind and solar potential. The Economist cites Bloomberg data showing that India now has the second-lowest cost solar power in the world, after the UAE, well below the cost in Australia.

And there are the Gulf countries, including the UAE, Saudi Arabia and Oman. Closer to the European market are Egypt, Tunisia, Algeria and Morocco. All have good solar resources and some have wind. Oman is already building a hydrogen and ammonia complex, the first in the world to receive a “green” stamp from the certifying body TÜV Rheinland. It plans to produce 1.2 million tonnes a year of “green” ammonia. An even larger plant is under construction on the Red Sea coast of Saudi Arabia.

Electrolysers are reported to be relatively easy to turn on and off, making them well suited to intermittent sources of power. In many countries (including Australia), solar power peaks around the middle of the day, overloading the grid. In these circumstances, spare power can be had for nothing, or one could even be paid to take it. We can therefore expect there to be supplies in the future in many countries (and not only desert countries) of very cheap hydrogen and probably of ammonia.

We will have to wait and see how much long-distance trade Australia develops in hydrogen and ammonia and how profitable it proves.

Iron and Steel

There is another way to realise value from hydrogen in export. This is to use it in Australia to add value to raw material exports. The one with biggest potential is, of course, iron ore.

In a blast furnace, carbon monoxide from partly burnt coke draws oxygen atoms from iron oxides, “reducing” them to crude iron. This is refined in a basic oxygen furnace to make steel. Hydrogen can reduce iron ore as well, in a different type of furnace. The first trial batch of steel based on iron reduced with hydrogen was shipped to Volvo by the Swedish venture Hybrit in August. Hybrit (owned by steelmaker SSAB and electricity company Vattenfall) plans to start commercial production of “green” steel by 2026. Other European steel companies such as ThyssenKrupp have big plans for “green” steel as well.

If all the iron ore now shipped from Australia to China were instead reduced in a hydrogen furnace and shipped as crude iron, its value would be increased by many billions of dollars. Not only that, but Ligang Song (quoted earlier) estimates that it would reduce China’s CO₂ emissions by two percent of the world’s total. This means it would eliminate more than the whole of Australia’s CO₂ emissions.

Blast furnace technology is centuries old and has been developed to a high level of sophistication. By contrast, hydrogen reduction of iron is a new technology. It will probably take some years to get to a point where its costs are competitive with the blast furnace. Mr Song cited a study from 2022, using data from before the recent sudden hikes in the prices of coal and fossil gas, which found that steel made by the Hybrit process using hydrogen and an electric arc furnace would cost 40 percent more than that made by blast furnace and BOF. This cost disadvantage will be offset and competitive parity reached more quickly with a high price on the CO₂ emissions avoided.

It is reasonable to expect that Australia will develop a hydrogen reduction industry in time. I have not yet noticed major investors moving in this direction. BHP and Rio Tinto, the two biggest miners of iron ore, have probably not forgotten billions they wrote off two decades ago on unsuccessful ventures to reduce iron ore with fossil gas. Nick Dyrenfurth and Dominic Meagher of the Curtin Institute have called for the federal government to take a lead.

Mr Song, commenting on the market opportunity in China, said that it would require a more cooperative relationship between Australia and China than exists now. If this comes (and I hope it will), China may find a way to capture more of the margins than it does with iron ore today.

Opportunities in the China market will be replicated (with adjustments) in the other main markets for iron ore, such as Japan and Korea.

Some writers have suggested that Australia will export refined steel rather than crude iron. This may come to some degree. However, in most industries where the product is made in many grades and specifications, final value adding takes place close to the users. This allows tight control of inventories and close alignment with customer requirements. Steel is one such industry. Another is wool, in which Australia has long found it hard to integrate forward to high value-added products.

Other opportunities

Australia will have many other opportunities in the low-carbon world. We need them, because our big coal and liquid gas export industries are sure to decline over the coming decades. Already, Korean-owned Sun Metals is well advanced with its plans to produce “green” zinc. The aluminium smelters are working on similar projects. Copper, lithium and a range of less common metals found in Australia are expected to experience rapid increases in demand. The government is supporting a number of projects in these so-called Critical Minerals through its Modern Manufacturing Initiative.

We need to keep the hydrogen story in perspective. I have some sympathy with Saul Griffiths when he says the main game is to electrify all parts of the economy as quickly as we can.

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