Can Australian Green Hydrogen Replace Russian Gas? – Watts Up With That?


By Paul Homewood

This is a story that has our old friend, Ambrose Evans-Pritchard, excited lately.:

According to the AEP:

“Look at the deal just struck by Andy Fortescue and EON to ship green hydrogen (as ammonia) from their planned 200GW solar and wind farm in Australia to Germany. Simply amazing. That’s where the world goes”

The first thing to note is that there is no agreement to ship anything. It is simply a commitment to a research and study association. In particular, Fortescue is under no obligation to spend a dime beyond this investigation. [Fortescue Future Industries, FFI, is, by the way the company. Andy Forrest is its Chairman – “Andy Fortescue” does not exist!]

But is green hydrogen really the breakthrough that AEP envisions?

The first thing to note is that hydrogen does not grow on trees! FFI plans to use wind and solar power in Australia to produce hydrogen through electrolysis, an expensive process that also wastes some of the energy input.

The hydrogen is then combined with nitrogen in another expensive process to produce ammonia, which is more energy dense and therefore cheaper to transport. Then the ammonia must be broken in another expensive process to separate the hydrogen again.

So it goes without saying that in energy terms, hydrogen is much more expensive than the electricity used in the first place.

Solar power, of course, will be relatively cheap in Australia’s deserts. The IEA carried out a detailed study on hydrogen a couple of years ago and calculated that green hydrogen would cost around $2.20 per kg:

Long-term hydrogen costs of hybrid solar PV and onshore wind systems

That translates to $72.60/MWh, let’s say £55/MWh. But on top of that, we need to add all the other costs.

The current extremely high wholesale price for gas is around 270p/therm, or £92/MWh. Even now, green hydrogen is unlikely to offer significant savings, once all other costs are added up.

But there is no reason why natural gas costs should remain as high as they are now. Historically, market prices, which have reflected the “real” costs of extraction, have been around £14/MWh.

If they are allowed to run freely, the markets will quickly correct the current imbalance of supply and demand, and prices will fall accordingly. Clearly, there is absolutely no point in spending literally hundreds of millions developing a green hydrogen alternative.

In fact, if we go down this path, we are locking in today’s unaffordably high gas prices for the long haul.

So why are FFI and E.ON getting into bed with this? The answer is simple: subsidy hunting.

From a technical point of view, there is no doubt that green hydrogen can be produced and shipped in bulk in this way. But neither FFI nor E.ON, nor their bankers, are going to invest a lot of money just hoping that the Ukraine crisis will last forever.

There’s only one way for this project to get off the ground. They will be totally dependent on subsidies from the EU or the German government. Most likely, it will take the form of Contracts for Difference, which are already being considered for hydrogen production in the UK.

Such a scheme would offer a guaranteed price to FFI and E.ON, with the cost being passed on to consumers.

Finally, let’s put the production figures in perspective.

The agreement speaks of 5 million tons of hydrogen per year. That equates to 165 TWh. By comparison, the UK consumes 855 TWh a year. Europe as a whole uses about 6,000 TWh per year.

Clearly, this FFI project will do nothing more than make a dent in the overall gas market.

Finally, one last number. The FT talks about a 200 GW wind and solar zone in Australia to make this happen.

Currently, global solar power capacity is only 707 GW, and in Australia it is 17 GW.

It looks like we’ll need a lot of solar panels, just to replace a small amount of gas!

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