The end of Japan’s hydrogen rush in Australia?

Japanese Act for the Promotion of the Hydrogen Societywhich came into effect in May this year, came into effect on October 23. Based on that of Japan Basic strategy for hydrogenThe law, which was revised in June last year, aims to facilitate the promotion of low-carbon hydrogen and its derivatives, such as ammonia and methylcyclohexane (MCH), by subsidizing hydrogen company operators who plan to contribute to the creation of hydrogen energy supply chains and setting up hydrogen infrastructure hubs. The subsidies are mainly aimed at the price difference between the costs of domestic or foreign hydrogen production and the price of conventional fuels. They are also intended to support the engineering and construction costs for the construction of domestic hydrogen-related infrastructure.

The entry into force of this legislation took longer than expected; The Japanese government planned to implement the law by summer 2024. Despite the slowdown, Japanese companies have invested in hydrogen energy companies, aiming to create a… hydrogen economy. Japanese companies are racing to enter the hydrogen market, which has resulted in a… hydrogen rush in Australia.

The Australian Government released its new National Hydrogen Strategy on September 13, a revised version of the original strategy first formulated in November 2019. The 2019 Hydrogen Strategy highlighted 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 Albanian government focuses on the production of “green hydrogen”, derived from renewable energy. Therefore, it is fair to argue that Australia’s new National Hydrogen Strategy has been revised based on the Labor Party’s energy and environmental policies, which promote both green hydrogen instead of blue hydrogen and CCS technology.

On November 14, Nikkei Shimbun reported that Kawasaki Heavy Industries (KHI) should have thoroughly revised its plans for hydrogen development in Australia. Although KHI planned to build a hydrogen energy supply chain between Japan and Australia, as shown in the Suiso border project, purchasing hydrogen from Australia proved to be unfeasible due to the delay in obtaining permission for construction in the country. KHI’s decision was not too surprising to hydrogen policy analysts, given the Victorian government’s ongoing policy debate about the technological limitations of CCS. Victorian Energy Minister Lily D’Ambrosio has challenged Japanese companies, including KHI, to prove they can capture the carbon dioxide emitted during blue hydrogen production in the state.

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, which also involved Japanese trading company Marubeni, Japanese industrial gas company Iwatani and Australian energy infrastructure company Stanwell. With a budget of AU$117 million, the project aimed to produce 70,000 tonnes of green hydrogen by 2028. However, recent rising electricity costs led Kansai Electric Power to conclude that it would be difficult for the project to turn a profit. Although Marubeni and Iwatani remain involved in the project, it is uncertain that the other companies will be able to move forward without the support of the giant Japanese electricity company.

KHI and Kansai Electric Power are not the only companies that have decided to withdraw from hydrogen projects in Australia. In fact, some Australian companies have made the same decisions about their hydrogen projects. The Australian Financial Review revealed on July 14 that Fortescue would cut 700 jobs and downsize its green hydrogen projects. Fortescue is not giving up its hydrogen energy activities, but believes that green hydrogen projects are too expensive given energy costs that are affected and exacerbated by the ongoing conflicts and geopolitical instability in Europe and the Middle East.

Similarly, Australia’s ABC News reported on October 3 that Origin Energy has done so as well announced its withdrawal from a green hydrogen project in New South Wales’ Hunter Valley. It is one of the largest green hydrogen plants in the country, but Origin Energy explained that the “fuel is too expensive to produce.” In addition, the company told investors that it “intends to stop working on all hydrogen development options” – which federal Minister of Climate Change and Energy Chris Bowen, who has led the federal government’s hydrogen initiatives, said disappointed.

These decisions could negatively impact the Albanian government’s plan to turn Australia into a “hydrogen superpower” with more than AU$8 billion in taxpayer-funded incentives. Commenting on the withdrawal of major players from the hydrogen sector, Australian Shadow Minister for Climate Change and Energy Ted O’Brien said argued that “we need to be colorblind when it comes to low-emission technologies, including blue hydrogen and pink hydrogen [produced by nuclear energy]” to make Australia a successful hydrogen superpower.

In addition to the major Japanese and Australian companies, other energy companies from abroad have also made similar decisions to scale back or withdraw investments in hydrogen companies around the world. Shell was one of the first companies to withdraw from a green hydrogen project in Australia. Shell and the Australian steel company BlueScope had done this agreed to collaborate on the production of a green hydrogen electrolysis plant at the Port Kembla Steelworks and the development of a hydrogen hub in Illawarra, New South Wales in 2021. However, Shell decided step back from the green hydrogen projects of the coming year. In September of this year, Shell announced that this would happen scrap a blue hydrogen project in Norway due to a lack of demand.

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

Reuters also reported on September 20 that Norway’s Equinor had done so demolished its project to export blue hydrogen to Germany due to high costs 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 use the world’s first offshore hydrogen pipeline. Ultimately, Equinor ruled that the pipeline cannot be considered economically viable.

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 companies and the creation of hydrogen energy supply chains.

Does this mean the end of Japan’s hydrogen storm in Australia and the world? It is premature to reach such a conclusion at this stage; However, the Ishiba government must take further policy measures and provide financial support for the development of domestic hydrogen infrastructure and global hydrogen energy supply chains. From the perspective of Japanese hydrogen energy company operators, the Albanian government in Australia should also reconsider its hydrogen policy so that Australia could become a reliable hydrogen energy partner of Japan.

Adding to the complication, newly elected US President Donald Trump and advisor Elon Musk do not support the development of hydrogen energy, and the US hydrogen strategy under the Trump administration insecure. Both Japan and Australia should continue to strengthen their energy ties while pushing for carbon neutrality so that the bilateral hydrogen energy supply chain can remain alive and sustainable in the Indo-Pacific era.