Future hydrogen buyers will prioritise the carbon intensity and price of the fuel rather than the method of production, an industry figure said at the S&P Global Asia Energy Transition conference this week.

“Colour is a very good way of starting the conversation at a high level. But as a full trading system, carbon intensity and price are going to be crucial because carbon intensity informs the customer of what their CO₂ footprint is in their own transition to carbon neutrality,” says Jeremy Stone, non-executive director at the Australian subsidiary of J-Power, one of Japan’s largest utilities.

A focus from non-governmental organisations and some policymakers on prioritising green over blue hydrogen has led to public debate over the best way of producing the fuel. But the market will be more nuanced than this, according to Stone.

Blue hydrogen is currently significantly cheaper to produce than green in most regions of the world. This is likely to encourage early uptake of the fuel in sectors which might otherwise take longer to transition away from natural gas and other fossil fuels.

Establishing trade routes

J-Power is part of the Hydrogen Energy Supply Chain (HESC) consortia, which aims to produce carbon-neutral hydrogen from coal and biomass in the Australian state of Victoria while capturing the CO₂ emissions, and then transport the fuel to Japan. The project aims to eventually produce hydrogen for less than A$2/kg ($1.4/kg).

“Multiple forms of hydrogen would be the pathway to ensure hydrogen supply chains aren’t interrupted” Stone, J-Power

The A$500mn pilot phase of the HESC project in Victoria’s Latrobe Valley aims to demonstrate that hydrogen can be produced from local coal and biomass via gasification, and then liquefied for shipment to a receiving terminal at the Port of Kobe in Japan. Besides J-Power, partners on the pilot development include energy companies Shell, Eneos and AGL, as well as Japanese industrial giants Sumitomo, Marubeni and Kawasaki.

A commercial phase could see up to 225,000t of carbon-neutral hydrogen produced with carbon capture and storage (CCS). At full commercial scale, the HESC project could save 1.8mn t of CO₂e from being emitted, which would be equivalent to the annual emissions of 350,000 petrol cars.

Practical solution

Stone says producing hydrogen via fossil fuels with CCS is a practical solution because of the urgent need for rapid decarbonisation. He cites an estimate from Alan Finkel, Australia’s former chief scientist, that scaling up green hydrogen production to the same energy equivalent as the 70mn t of LNG that Australia exported in 2018 would require solar power generation capacity eight times greater than Australia’s total electricity generation at the time.

“It’s a very, very major undertaking and that’s why we need multiple pathways,” he says.

Developing a variety of hydrogen production pathways would offer a level of redundancy and act as a hedge against the energy security risks that have followed Russia’s invasion of Ukraine. This is especially relevant for Japan—the target country of the HESC project—as it depends on imports for virtually all of its fossil fuel demand.

“[Japan] would need to be thinking about how [it] can be more self-sufficient, but also have multiple supply chains in case one of those supply chains is hindered or disrupted. Multiple forms of hydrogen would be the pathway to ensure hydrogen supply chains aren’t interrupted,” says Stone.

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Author: Shi Weijun