Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
Hydrogen and its role in Australia
Global asset manager, Nanuk Asset Management, which specialises in sustainability, presented its “Hydrogen or Hamburgers” webinar to investors last week. It was an interesting take on some of the confronting issues, such as the global efforts to address climate change and the realisation that technologies like solar, wind and batteries have widely become a success, and have drawn widespread investor interest.
Nanuk director Tom King says: “Technologies that exist today to transition away from fossil fuels and reduce greenhouse gases today, pose a challenge; they’re expensive and need significant investment and economies of scale to solve the problems at hand. It has to come from Government commitment and regulation, that such change will occur.”
King says the pathway that is “going to happen” is very clear from history; it will be driven by government policy and long-term targets. “From a technical perspective, hydrogen can provide energy solutions to most of the global economy; it has huge potential but it doesn’t mean it will be adopted,” he says. “It’s often shown as the centrepiece of a decarbonised future. Australia is shown to have significant policy support and to be a hydrogen producer.”
In Australia, funding will come in the form of grants and subsidies, making hydrogen’s potential enormous. There is already a huge amount of hydrogen used today; it is a mature industry. About two-thirds is produced from natural gas through steam methane reforming, in which the by-products are carbon dioxide and hydrogen. The major market for that hydrogen is oil refining. Hydrogen is responsible for a big part of carbon emissions.
King says there are challenges, however. He says, “Hydrogen takes up more volume – about 3.5 times the volume of natural gas is required for the same energy, and 2.5 times the volume of LNG.” Hydrogen also requires much colder temperatures for liquefaction: -255 degrees Celsius, compared to LNG, which requires -162 degrees Celsius. On the other hand, 1 kg of hydrogen would give you roughly 1000 kilometres of range in a car, equivalent to four litres of petrol. There are a few types of hydrogen (see below).
“Green hydrogen currently is substantially more expensive than hydrogen derived from fossil fuels. But costs are coming down and will continue to do so until it comes below ‘blue’ hydrogen and finally cheaper than hydrogen produced from fossil fuels. However, it is highly unlikely it will be cheaper than natural gas,” says King.
A big issue for hydrogen is transport. “In transporting hydrogen, given it is 3.5 times the volume of natural gas, the costs are extremely high. And it means that the concept of transporting liquefied hydrogen across the world is not very economic. There is also the issue of infrastructure that doesn’t exist today. Billions need to be spent,” says King.
What was interesting is King’s take on hydrogen use in cars. He says, “There are challenges to hydrogen as a transport fuel. In simple terms, battery-operated vehicles are far simpler, far more reliable and offer far better performance and are safer. On top of that, the cost is a lot cheaper because of the volume being produced and the infrastructure for battery-electric cars already exists. There really isn’t a strong case for using hydrogen in cars. This sector will be dominated by battery-electric cars, not hydrogen.”
So where is hydrogen going to be used?
King says, “The main market is substituting black/brown/blue hydrogen that is currently supplied for ammonia production, oil refining and methanol production. The second set of opportunities that follows is where hydrogen is used to support processes that will replace existing high-emission processes. Iron and steel production and aluminium production are two areas where hydrogen will be used. And finally, hydrogen will be used as a means for storing and transporting energy. Not cars, but it is slightly better for shipping, but more likely in the form of ammonia. And then in aviation, there is a significant opportunity that has already started to decarbonise.”
One myth that King busts is Australia being the lowest-cost producer of hydrogen globally. King says, “Australia will not be the low-cost hydrogen producer globally. We won’t even be close. Using solar and onshore wind as the main renewable energy source, Australia’s sunlight levels and its impediment of distance from major markets, prevent it from being the lowest-cost producer globally.”
That doesn’t mean that hydrogen doesn’t have an important role to play in Australia. “There is a huge opportunity to use green hydrogen to produce firstly ammonia for export or use in fertiliser, and in particular, the production of steel. Shipping green steel is more competitive than producing it in Japan,” says King.
There are a lot of listed companies that can give hydrogen coverage. The Nanuk portfolio follows Air Products (NYSE: APD), Air Liquide (EPA:AI), Air Water (TYO:4088) and NEL (FRA:D7G).
