Project developers in Australia’s nascent hydrogen industry are negotiating prices with offtakers that are competitive with existing fossil fuel products, delegates heard at an industry conference in Singapore on Wednesday.

A number of large-scale export projects in Australia have been announced this year, most recently on Tuesday when Woodside Energy said it would invest A$1bn ($750mn) to build a hydrogen and ammonia production facility in Perth, Western Australia (WA). Developments are also underway in the country’s other major resource-exporting states of New South Wales and Queensland.

Large-scale projects targeting first output in the second half of this decade are negotiating offtake prices “pretty much parallel or what you would expect for fossil fuel products”, said Alannah MacTiernan, WA hydrogen industry minister, at the Asia LNG and Hydrogen Gas Markets Conference. “It is not that there is necessarily a premium being paid.”

“The speed of offtake negotiations is going very fast” Pinto, Chile

The scale of the projects, combined with ongoing cost reductions and some of the best solar and wind resources on the planet, have allowed developers in WA to “confidently predict” they will be able to offer offtake at prices that more than cover production costs and are “not particularly different from the fossil fuel price”, according to MacTiernan.

When it comes to projects that are targeting earlier dates, developers have found that buyers are prepared to pay a 10pc premium above fossil fuels for a green hydrogen product or derivative, she adds.

Hydrogen economics

The negotiations are a positive sign for the economics of hydrogen production, as the fuel will need to be both profitable for producers and affordable for buyers to make in-roads in the global energy mix.

Hydrogen priced on par with crude or LNG would be significant for Japan and offer Tokyo an opportunity to partially wean itself off fossil fuel imports, which account for more than 90pc of the country’s primary energy supply, according to Yukari Hino, director of hydrogen and fuel cell strategy at Japan’s Ministry of Economy, Trade and Industry.

The assumption in Japan is that even domestic hydrogen production will be price-competitive with imported fossil fuels, she adds.

In Chile, negotiations on offtake agreements are also in their early stages, according to Vicente Pinto, Chile’s first investment attache in Asia.

“What we have seen is that the companies are already talking about some price agreement,” he says.

The momentum of negotiations between producers and offtakers in Chile has picked up in the past 6-7 months.

“Of course, manufacturers want to have the highest price and offtakers the lowest price, but… I think on balance this will be surely defined in the quite near future. The speed of these negotiations is going very fast,” says Pinto.

WA is the world’s second-largest LNG producer and much of its hydrogen and ammonia output will likely be exported to markets in East Asia. But there is significant potential for domestic hydrogen use—particularly in transport and the hard-to-abate metals and mining sectors.

In the case of transport, Australia is nearly dependent on imported fuel such as diesel, which presents a significant opportunity for hydrogen substitution. “We are very focused on how we can generate hydrogen here to decarbonise our own economy,” says MacTiernan.

Chile is in a similar position as Australia when it comes to fuel imports, although domestic applications of hydrogen are more likely to be in the mining sector—where there could be demand for green ammonia in explosives—and transport.

“Each heavy-duty mining truck uses 4t of diesel every day. It is crazy, so that is why all the initial efforts are…to have some kind of hybrid use of hydrogen in mining trucks,” says Pinto.

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Author: Shi Weijun