Western Australia: A test bed for the new global hydrogen economy

The state of Western Australia, currently accounting for more than half of Australia's total LNG exports, is planning an extensive build-out of hydrogen infrastructure to become a key producer of the new fuel.

Its masterplan dovetails with the national strategy to become a global hydrogen superpower, but the rollout in Western Australia will be of special interest for several reasons.

Western Australia will be a case study for other major global LNG producers like Qatar, Indonesia, Malaysia and the US, which are looking to use existing natural gas infrastructure, and the broader hydrocarbon ecosystem, as a launch pad to build a hydrogen economy.

It will also compete directly with oil producers in the Middle East, who have similar renewable energy potential and stronger financial resources to build the hydrogen supply chain for Asian consumers, and the US, whose Inflation Reduction Act has raised the stakes for new energy investment.

WA plans to extend its success in hydrocarbon development into the hydrogen sector – the state currently accounts for 50% of Australian gas production (including natural gas, coal seam methane and LNG feedstock), 61% of crude oil production and 76% of condensate production, according to government data. Around two-thirds of Australia's crude and condensate production comes from the Carnarvon basin offshore Western Australia alone.

The hydrogen rollout will test regulatory preparedness and how effectively E&P policies for extractive industries can be adapted for hydrogen projects, including controversial provisions such as domestic content regulations and reserving energy supply for local use.

Environmental policymaking was already tested in 2021 when one of the largest hydrogen projects, the Asia Renewable Energy Hub – now called the Australian Renewable Energy Hub – faced obstacles in getting clearances.

Power struggle

The rollout will also test the financing ecosystem for new hydrogen technologies and the availability of resources and manpower at a time when most Australian business sectors are facing a severe labor crunch.

WA's LNG projects are dominated by large international corporations like Chevron, Shell, ExxonMobil and Woodside, despite which the gigawatt scale renewable hydrogen projects still lack investment to reach final investment decision.

Hydrogen project developers also hope to cash in on the existing customer base for LNG in China, Japan, South Korea, Taiwan and Singapore, to back the build-out of hydrogen infrastructure in Australia. Any successful deal will become a blueprint for subsequent hydrogen marketing and pricing initiatives.

"The LNG export industry didn't grow overnight. It took 40 years or more. And for hydrogen we now have 40 years to 2050," Eric May, CEO of think tank Future Energy Exports, said in a recent interview. "Australia and WA in particular have a competitive advantage when it comes to growing exports of clean hydrogen because of the existing world leading LNG industry."

May said green hydrogen is quite expensive and needs wealthy customers as well as large-scale production, which are things the LNG industry can provide, but he also tempered expectations about runway growth.

"I think people in the industry who are conservative and somewhat skeptical are correct," May said. "They should be skeptical with any new technology. It rarely goes the way people initially expect and is a big challenge," he added. Future Energy Exports is funded by the Australian federal government's Cooperative Research Centers program and conducts work on decarbonization projects along with the industry, state governments and institutions like Australian universities.

S&P Global Commodity Insights expects the early stages of hydrogen export growth to be in countries that are currently signing agreements with future importers, with more than half the demand coming from Western Europe, South Korea, and Japan. The Middle East and North Africa initially emerging as the largest areas for hydrogen export growth as they benefit from the EU's steep import targets.

"MENA exports to Europe is expected to be the world's largest trade route through the first half of the 2030s, before import demand from the Far East and South Asia begins to eclipse those of large European economies. The main benefactor of this demand emergence is expected to be Australia," according to S&P Global's Hydrogen Supply and Demand Outlook, 2020-2050 report.

"In the early 2030s, Australia is forecast to hold a share of 20-22% of the export market, as the MENA region benefits from its proximity to Western Europe. However, this share is expected to increase throughout the forecast period [2020-2050], reaching 40% in 2050," S&P Global said.

Prices across Australia for electrolyzer pathways remained relatively stable Jan. 12, with the cheapest state being Western Australia at $4.79/kg for PEM and $3.57/kg for alkaline, according to Platts assessments. The other states were in a range of $5.98/kg-$7.08/kg for PEM, with Tasmania the highest at $7.08/kg.

Interactive: Platts Hydrogen Price Wall

Highway to hydrogen

Australia's LNG export revenues are forecast to reach A$90 billion ($63.1 billion) in 2022-23, on record high global energy prices and a lower Australian dollar, and fall to A$75 billion in 2023-24, according to latest government data.

Meanwhile, the value of Australia's potential low-emissions hydrogen exports could reach A$2.2 billion by 2030 and A$5.7 billion by 2040, government data showed. This means hydrogen in unlikely to fully replace the share of LNG in revenue terms.

Australia's LNG exports reached 83 million mt in 2021-22 and are forecast to decline then stabilize at around 81 million mt in 2024, according to government data. Meanwhile, WA accounted for 12% of global LNG exports, with a capacity of 50 million mt/year. Its main projects exported around 49 million mt of LNG in 2022.

By 2030, WA is targeting a market share in global hydrogen exports similar to its share in LNG today, 10% renewable hydrogen blend in gas pipelines and networks, and renewable hydrogen usage in mining haulage vehicles and transportation, according to its official hydrogen strategy.

According to the state's strategy document, WA has among the highest solar irradiance in the world, reaching 2,350 kWh/sq m/year in the Pilbara region in the northwest, and strong wind resources due to being on the western edge of the continent. Wind capacity factors goes up to 50% in the mid-west region, one of the highest in the world.

WA also has a land area of 2.5 million km2, that's one-third of the continent and the size of Western Europe, as well as low intensity land use and low population density – factors that are favorable for large-scale hydrogen production.

Future Energy Exports' May said there's a lot of hype and risk that projects are not delivered in the timeframe that people suggest. There have been at least two or three cycles of hydrogen hype that occurred over the last 50 years, starting with the oil shocks of 1970s and then to use hydrogen to wean off foreign oil, he said.

"But there is a difference this time and there's a strong driving force. There's social understanding of a need to decarbonize our energy system. That provides motivation that's more important or stronger than has happened before," May said, but added that some time frames could be unrealistic.