Australia, once poised to lead the global hydrogen economy, is now playing catch-up, according to a stark assessment from Wood Mackenzie. The energy consultancy’s report, unveiled at the Australia Energy Producers Conference, paints a picture of a nation rich in renewable energy potential and strategic location but struggling to translate these advantages into competitive hydrogen production.
The report, titled “How can Australia compete in the global hydrogen market (before it’s too late)?” reveals that 80% of Australia’s low-carbon hydrogen projects are stuck in the early development phase. Worse still, there have been “multiple” cancellations, including the Grange Resources Renewable Hydrogen Study and Nyrstar Port Pirie. These cancellations, once seen as pivotal in establishing Australia’s hydrogen leadership, have sent shockwaves through the industry.
Australia’s strategic proximity to Asian demand centres is a clear advantage, acknowledges Joshua Ngu, vice chairman for Asia Pacific at Wood Mackenzie. However, this is undermined by a significantly higher Levelized Cost of Hydrogen (LCOH), driven by elevated engineering, procurement, and construction (EPC) and power costs. This cost disadvantage leaves Australia trailing behind global hydrogen front-runners like Europe and the Middle East.
Globally, just six million tonnes per annum (Mtpa) of low-carbon hydrogen capacity is either operational or under construction. Australia’s contribution? Less than 5%. Even marquee domestic projects like Fortescue’s PEM50 and the Yuri Green Ammonia project have capacities of under 10,000 tonnes per annum (ktpa). These figures underscore the scale of the challenge Australia faces.
The report identifies a lack of domestic demand to pay the higher costs of green hydrogen as the primary barrier to scaling hydrogen production. Hydrogen offers significant potential to decarbonise hard-to-abate sectors such as steelmaking, long-haul transport, and power generation. However, at current costs, hydrogen production in Australia is economically unviable without policy support.
Ngu highlights the stark economic reality: “The displacement cost for hydrogen in power generation is around US$0.80 to 1.00/kg, while Australia’s LCOH exceeds US$10/kg.” This cost disparity is a significant hurdle that Australia must overcome to compete in the global hydrogen market.
So, how can Australia turn the tide? The report suggests looking to hydrogen market leaders like Germany, Japan, and South Korea. These countries have introduced Contracts for Difference to stimulate domestic demand. Such policy interventions could provide the necessary impetus for Australia to scale its hydrogen production and reduce costs.
The news is a wake-up call for Australia’s hydrogen industry. It underscores the need for bold policy action and strategic investment to unlock the country’s hydrogen potential. The global hydrogen economy is not waiting, and Australia must act swiftly to secure its place in this burgeoning market. The stakes are high, and the time for action is now. The industry must challenge norms, spark debate, and drive innovation to turn Australia’s hydrogen ambitions into reality. The future of Australia’s hydrogen economy hangs in the balance, and the path forward is clear: invest, innovate, and act decisively.