Future of Australian Green Hydrogen industry in doubt after further project cancellations

Australia’s green hydrogen industry has suffered several setbacks in recent weeks, beginning with the deferment of a South Australian green hydrogen hub proposed to support the struggling Whyalla steelworks and followed by several quiet cancellations across the country.

Commodity trader Trafigura cancelled a 440 megawatt (MW) green hydrogen project in South Australia, while Origin Energy has similarly backed out of a hydrogen project in New South Wales’ Hunter Valley and the Queensland State Government has withdrawn a $1 billion support package for the Central Queensland Hydrogen Project.

Hydrogen: Hype or long-term solution?

While these recent setbacks certainly don’t do anything to engender confidence in the nascent industry, the Federal Government has not withdrawn its support for the development of a green hydrogen industry within Australian shores.

The Albanese Government announced $814 million in funding support for major hydrogen and green ammonia export project in Western Australia on Thursday, part of almost $8 billion earmarked to support the developing industry.

Speaking with The Guardian, Australian Industry Group director of climate change and energy Tennant Reed said hydrogen is currently in something of a ‘hype trough’, where expectations fall to more reasonable levels as the true barriers of establishing a new type of energy industry become more apparent.

As efforts shift from the conceptual stage to more practical applications, challenges and barriers become more obvious, but solutions also begin to present themselves.

Much of the issue is cost – hydrogen must be cost-competitive with traditional hydrocarbons to replace them, and the energy inputs of electrolysis can be prohibitively expensive.

The incredibly low cost of renewables like solar and wind energy have ironically displaced many of the use cases proponents touted for green hydrogen, shifting it into smaller niches of long haul transportation and green ammonia, iron and steel production.

Could natural hydrogen be the answer?

The industry is considering several potential pathways to bringing Australia’s green hydrogen industry online, including a more targeted approach concentrated specifically on industrial production sectors or long-distance transportation applications.

Another potential solution could be reducing input costs by tapping directly into natural hydrogen from geological processes, where hydrogen deposits form in similar conditions to oil and gas resources.

Interest and investment in exploring and eventually developing and exploiting hydrogen gas fields has increased drastically in the last handful of years, especially after recent reports of high concentrations of hydrogen gas in deposits within Australia.

These high concentrations have been reported across the continent, from the Canning Basin in Western Australia to the Gippsland Basin in Victoria and the Yorke Peninsula of South Australia.

Location map showing exploration well, mine and groundwater samples with measurable concentrations of H2 (mol%). Well names are displayed for gases with >1 mol% H2 (air-free).

Australian states have produced an array of hydrogen policy strategies, with varying degrees of emphasis on natural hydrogen exploitation versus electrolysis production.

The Northern Territory, Western Australia, Victoria, Tasmania, and New South Wales have made multi-million-dollar investments in various green and blue hydrogen hubs and initiatives, but only Queensland and South Australia have targeted natural hydrogen occurrences directly.

Queensland has committed $4 million over two years from 2024 to access natural hydrogen occurrence and production potential in Queensland, while South Australia enacted the Hydrogen and Renewable Energy Act 2023 to regulate and licence large-scale projects across the state.

The act’s objectives include facilitating and regulating the exploration for and exploitation of renewable energy resources like natural hydrogen, as well as providing a regulatory framework for the construction, operation, maintenance and decommissioning of renewable energy infrastructure and facilities.

Hydrogen is not a Swiss army knife

While it remains to be seen whether a viable hydrogen industry can be developing within Australia, it’s certainly true that the gas will not be able to fully replace hydrocarbons as some supporters have argued.

Whether through natural hydrogen exploitation or a more targeted application in the industrial production and transportation sectors, it seems likely it will play a distinct role in the energy mix as Australia transitions away from fossil fuels.

Hydrogen is being positioned as a viable method for reducing carbon emissions from the steel sector, with the first commercial-scale green steel plant using hydrogen already under construction in Sweden and slated for commissioning in 2026.

“It’s not a question of if it’s going to happen in the steel sector,” Institute for Energy Economics and Financial Analysis lead analyst for global steel Simon Nicholas told The Guardian. “It is actually happening.”

Nicholas went on to say it was a matter of timing, a question of whether Australia will be able to seize the opportunity – and he sees South Australia in particular as being well positioned for the challenge, with access to high-grade iron ore, a strong renewable energy sector and a proactive government.