The trends impacting the size and nature of hydrogen demand

With global demand for hydrogen reaching 95 megatonnes last year, there has never been a more pressing time to understand the trends and market characteristics shaping this fast-evolving sector.

With this in mind, Informa Connect spoke with Izzi Messina, Vice President of Growth & Development at Wood, ahead of the Australian Hydrogen Conference (West).

He highlighted several hydrogen-related trends and a number of attainable avenues into industrial markets.

Technology is influencing demand

“Globally and here in Australia, we are seeing quite a lot of demand trends come into focus,” Mr Messina said.

“In general, the world remains relatively colour agnostic when it comes to hydrogen, but in Australia there is a preference for green hydrogen.

“That is largely because other countries are curious about how to drive carbon reductions in other stages of hydrogen production choosing to focus on reducing the carbon content of the end product.”

A key factor influencing this trend, is the rise of carbon capture and storage (CCS), which reduces the carbon intensiveness of hydrogen production facilities that use natural gas or nuclear feedstock.

Advances in CCS technology have fuelled appetite for blue hydrogen and Mr Messina believes this will be our first to go to market.

“Blue hydrogen allows companies to use existing infrastructure, so it inevitably requires less upfront capital. Add to that the developments in CCS and for many, it’s enough to rival green hydrogen,” he said.

Export potential is increasing

Technological advances are also seeing more possibility for hydrogen vectors to reach export markets in North and South East Asia.

However, questions remain around the best way to densify the energy for shipping and take advantage of cost parameters.

“That’s the biggest issue for the market currently. If you send it as a gas it obviously takes up a lot more volume than liquid form which is significantly more energy intensive than vectors like ammonia and methylcyclohexane,” Mr Messina said.

As such, trading partners in South Korea, Singapore and Japan are exploring how to best use existing infrastructure to support their decarbonisation journeys.

“They are thinking along the lines of, can we offload and store ammonia safely, can we identify the right ammonia cracking technology and separate the hydrogen molecules. A lot of attention is being given to how we transport and utilise hydrogen.”

Industrial markets in Australia are also showing significant growth potential, but it is mainly projects involving vertical integration that are likely to secure FID, Mr Messina said.

“Predominantly, projects that are getting FID are producing and using hydrogen in the same location. It removes the need for expensive infrastructure like hydrogen pipelines, which require different metallurgical parameters to stop it escaping.”

Energy companies are innovating

Major energy companies are also rethinking their relationship with hydrogen. Many, like Shell, are doubling down on hydrocarbons and divesting or closing off other clean energy projects, Mr Messina said.

“A lot of innovation and diversity is being seen in the business models of energy companies. Look at where Shell’s strategy has gone in last six years under its new leadership.

“We also have a number of clients focussing on hydrogen derivatives, including the sustainable aviation projects. Others, like Fortescue, are very focussed on green opportunities.”

Going forward, Mr Messina expects to see electrification playing a significant role in the consumer transport market with a greater number of companies catering to this trend.

Logistical barriers remain

While an impressive amount of innovation is seen in Australia, shortages in skills and labour are seeing some projects struggle to progress from FID to execution, especially in the chemicals and materials markets.

A lack of marine and port infrastructure to facilitate access for power generation for these projects is also lacking, along with connection to transmission infrastructure, needed for converting electrons into green hydrogen molecules.

As such, there is a growing trend for industry to focus on common user infrastructure, Mr Messina said.

Fiscal challenges

The fiscal environment is also an impediment, with a lack of incentives for companies to pursue low carbon hydrogen products in markets like Australia, when compared with the scale of the IRA, (Inflation Reduction Act in the US).

Mr Messina says improving our policy and regulatory position and bridging the gap between CAPEX and OPEX is a “delta that needs to be overcome”.

“The cost of a hydrogen product is driven by basic market economics and for very low carbon or green options this might not stack up. At times, alternatives – like biodiesel products – enable more immediate carbon reductions.

“If replacing a product costs two to three times more and there is no cost-benefit from the supply chain, who will bear the cost? It certainly can’t be purely the Australian tax player. We don’t have the fiscal mechanisms like the US and the $2billion worth of hydrogen funding set aside for the next decade in Australia won’t move the needle.”

Cooperatives and collaborations

Where you do move the needle is through cooperatives and collaborative relationships. However, these remain under-utilised in an Australian context, Mr Messina said.

“We are seeing the same project parameters across the board. Project proponents are going out there looking to produce 2million tonnes of green ammonia and a similar proponent is doing the same thing in a disparate location but in close proximity.

“Some are in areas without dedicated Infrastructure. So then, you are having to look at building your own port and marine facilities, offload solar panels and wind turbines, develop your own behind the meter renewable energy generation and ultimately look to run independent pipelines.”

As an example, Mr Messina is familiar with two independent projects looking to be co located in a strategic development area that will require two separate ammonia pipelines going to two separate mooring facilities.

“Why not build the ammonia trains side by side and use one pipeline, or partner with pipeline operators who are happy to spend the CAPEX themselves, reducing the overall capital requirement for the project proponent. Unfortunately, proponents often aren’t thinking that way,” he said.

In contrast, hydrogen projects, like that developed by Stanwell and the Queensland Government have several proponents, along with foreign investment under-riding the CAPEX and offtake.

“We need to see more of these vertically integrated opportunities in Australia. We don’t have the fiscal bandwidth or strength like the US does, so we must play these to our strength.”

Further insight

Izzi Messina is the APAC Vice President of Growth & Development at Wood – one of the world’s leading consulting and engineering companies and a global leader in project delivery, engineering, and technical services. Wood provides efficient, integrated solutions across the asset life cycle in energy and the materials markets.

Izzi’s expertise in these fields has allowed him to be a crucial thought leader and facilitator in the development of various projects including the Southeast Asian and Pacific regions oil and gas, hydrogen and energy sectors.

His passion for creating a more sustainable world has driven him to become a prominent figure in the field of clean energy.

Join Izzi Messina for more expert commentary at the upcoming Australian Hydrogen Conference (West).

This year’s event will be held 21-22 November at The Crown Perth, WA.

Learn more and register your place here.