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Home»Finance»The End of Japan’s Hydrogen Rush in Australia?
Finance

The End of Japan’s Hydrogen Rush in Australia?

December 5, 2024No Comments7 Mins Read
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The End of Japan’s Hydrogen Rush in Australia?
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Japan’s Hydrogen Society Promotion Act, which was enacted in May this year, came into effect on October 23. Based on Japan’s Basic Hydrogen Strategy, revised in June last year, the law aims to facilitate the promotion of low-carbon hydrogen and its derivatives, such as ammonia and methylcyclohexane (MCH), by subsidizing hydrogen business operators that plan to contribute to creating hydrogen energy supply chains and to establishing hydrogen infrastructure hubs. Notably, the subsidies focus on the price gap between the costs for domestic or overseas hydrogen production and the price of conventional fuels. They are also intended to support engineering and construction costs for the creation of domestic hydrogen-related infrastructure. 

The enactment of this legislation took longer than expected; the Japanese government had planned to implement the law by the summer of 2024. Despite the delay, Japanese companies have invested in hydrogen energy businesses, pursuing a hydrogen economy. Japanese businesses have been racing to enter the hydrogen market, resulting in a hydrogen rush in Australia. 

The Australian government released its new National Hydrogen Strategy on September 13, which was a revised version of the original strategy first formulated in November 2019. The 2019 Hydrogen Strategy emphasized the importance of “clean hydrogen,” including “blue hydrogen” (produced by national gas, in combination with carbon capture and storage technology or CCS). On the other hand, the 2024 Hydrogen Strategy under the Albanese administration focuses on the production of “green hydrogen,” derived from renewable energy. Therefore, it is fair to argue that Australia’s new National Hydrogen Strategy was revised based on the energy and environment policy of the Labor Party, which promotes green hydrogen rather than blue hydrogen as well as CCS technology.

On November 14, Nikkei Shimbun reported that Kawasaki Heavy Industries (KHI) had had to thoroughly revise its plans for hydrogen development in Australia. Although KHI had planned to build a hydrogen energy supply chain between Japan and Australia, as showcased in the Suiso Frontier project, the procurement of hydrogen from Australia turned out to be unfeasible due to the delay in securing permission for construction inside the country. KHI’s decision was not that surprising for hydrogen policy analysts, given the Victorian government’s continuous debate on the technological limitations of CCS. Victorian Energy Minister Lily D’Ambrosio has challenged Japanese companies, including KHI, to prove that they can capture carbon dioxide emitted in the process of blue hydrogen production in the state.

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On November 16, Nikkei Asia reported that Japan’s Kansai Electric Power had decided to withdraw from a green hydrogen production project in Queensland, Australia, also involving Japanese trading company Marubeni, Japanese industrial gas company Iwatani, and Australian energy infrastructure company Stanwell. With a budget of 117 million Australian dollars, the project aimed to produce 70,000 tonnes of green hydrogen by 2028. Due to the rising cost of electricity recently, however, Kansai Electric Power came to the conclusion that it would be difficult for the project to make a profit. Although Marubeni and Iwatani remain involved in the project, it is uncertain that the other companies can continue without the support of the giant Japanese electric company.

KHI and Kansai Electric Power are not the only companies that decided to pull out of hydrogen projects in Australia. As a matter of fact, some Australian companies made the same decisions on their hydrogen projects. The Australian Financial Review revealed on July 14 that Fortescue would cut 700 jobs and slim down its green hydrogen projects. Fortescue is not giving up on its hydrogen energy business, but it has judged that green hydrogen projects are too expensive given the energy costs influenced and aggravated by the ongoing conflicts and geopolitical instabilities in Europe and the Middle East. 

Likewise, Australia’s ABC News reported on October 3 that Origin Energy has also announced its retreat from a green hydrogen project in Hunter Valley of New South Wales. It is one of the biggest green hydrogen plants in the country, but Origin Energy explained that the “fuel is too expensive to produce.” What’s more, the company notified investors that it “intends to cease work on all hydrogen development opportunities” – disappointing Federal Climate Change and Energy Minister Chris Bowen, who has spearheaded the federal government’s hydrogen initiatives. 

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These decisions might have a negative impact on the Albanese government’s plan to make Australia a “hydrogen superpower” with more than AU$8 billion of taxpayer-funded incentives. Regarding the withdrawal of major players from the hydrogen sector, Australian Shadow Minister for Climate Change and Energy Ted O’Brien argued that “we must be color blind when it comes to low emissions technologies including blue hydrogen and pink hydrogen [produced by nuclear energy]” in order to make Australia a successful hydrogen superpower.

In addition to the Japanese and Australian major companies, other energy companies of foreign countries have made similar decisions to scale back or withdraw investments in hydrogen businesses around the globe. Shell was one of the first companies to withdraw from a green hydrogen project in Australia. Shell and Australian steel company BlueScope had agreed to cooperate on the production of a green hydrogen electrolyzer plant at the Port Kembla Steelworks and the development of a hydrogen hub in the Illawarra, New South Wales in 2021. However, Shell decided to step back from the green hydrogen projects in the following year. In September this year, Shell announced it would scrap a blue hydrogen project in Norway because of a lack of demand.

On August 15, Denmark’s Orsted announced that it would cancel a green hydrogen-to-methanol project in Sweden, two years after its final investment decision. Moreover, Orsted reportedly decided to withdraw from several wind-powered green hydrogen projects in Denmark. 

Also, Reuters reported on September 20 that Norway’s Equinor had scrapped its project to export blue hydrogen to Germany due to the high cost and a lack of sufficient demand. In January 2022, Equinor and Germany’s RWE had signed a memorandum of understanding for the blue hydrogen project, which would utilize the world’s first offshore hydrogen pipeline. In the end, Equinor judged that the pipeline cannot be regarded as economically viable. 

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Apparently, major hydrogen energy operators around the world have been confronted with the problem of rising energy costs and investment risks in the development of the hydrogen and ammonia businesses and the creation of hydrogen energy supply chains.

Does this mean the end of Japan’s hydrogen rush in Australia and the world? It is still premature to jump to such a conclusion at this stage; however, the Ishiba government needs to make further policy measures and offer financial support for the development of domestic hydrogen infrastructure as well as global hydrogen energy supply chains. From the perspective of Japanese hydrogen energy business operators, the Albanese administration in Australia would also need to reconsider its hydrogen policy so that Australia could become a reliable hydrogen energy partner of Japan. 

Adding another complication, U.S. President-elect Donald Trump and adviser Elon Musk are not supportive of the development of hydrogen energy, and the U.S. hydrogen strategy under the Trump administration will be uncertain. Both Japan and Australia should continue to reinforce their energy ties as they push for carbon neutrality so that the bilateral hydrogen energy supply chain could remain alive and sustainable in the Indo-Pacific era.

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