The Opportunity and Challenges for Hydrogen

Opportunities and Challenges for Hydrogen in Australia

By Brent Merrick, Executive General Manager, International and New Business

5 August 2022

When Ampol prepared its future energy and decarbonisation strategy, we developed in-house energy modelling capability to understand the Australian context and how it will shape the energy transition. 

The analysis showed different solutions and technologies are likely to be more viable for different transport purposes. The most likely applications for hydrogen, and its derivatives such as ammonia, were found to be in heavy transport, shipping, and potentially aviation over the long-term.

Although there are hydrogen fuel cell EV passenger cars already available in Australia, we don’t believe these will be a large percentage of the light fleet, particularly given the momentum in the transition to battery EVs that is already taking place.

Our work showed early hydrogen adoption most likely in heavier vehicle fleets with closed loop or back-to-base style operations – things like bus services, waste collection, delivery vehicles or cement mixer fleets. These will be easiest to manage from a refuelling perspective and have a known demand profile that refuelling assets can be matched to.
Leaving aside global supply chain constraints that will impact hydrogen vehicle and asset availability in the medium-term, there are a range of issues and opportunities for Australia as we begin to invest and develop hydrogen as a future energy solution. 

Reliability and supply security

For hydrogen to become mainstream, reliability of supply will be key. The hydrogen supply chain will eventually need to match the reliability and convenience of existing fuel supply chains.

Our customers depend on us to provide reliable and secure supply and Australian businesses will need to be confident they can make investments in hydrogen powered assets. The productivity of our economy relies on high asset utilisation. That means non-productive activity, such as refuelling, needs to be efficient. An extreme example is something like a regional fire fighting vehicle needing to drive four hours to refill, which is impractical. Once refuelling is close to use locations, resilience is further enhanced by having the ability to interconnect refuelling points by creating a broader distribution network for vehicles to rely on.

The development of the hydrogen industry also provides Australia with a unique opportunity to reset its energy security profile, particularly given the shift to electricity in transport as the primary energy source. To achieve this, Australia will continue to need multiple pathways of supply and the ability to respond quickly to supply disruptions.

For this reason, to be successful domestic policies for large scale hydrogen exports will need to be carefully considered. The hydrogen supply chain will be connected into the world’s energy complex, and a future hydrogen market will look similar to the global fuels market we see today. The choices we make now on where hydrogen is produced and transported to, are intrinsically linked to the security, reliability and efficiency of energy supply in the future. Similar public policy issues, like the potential role of a domestic reservation policy, will also need to be considered to support increased energy resilience and lower costs domestically. 

We should view the possibility of developing large scale export hydrogen production as part of building domestic hydrogen ecosystems.  The scale of export projects can provide access to lower cost hydrogen to support the development of domestic use that is economically viable.

The role of government 

Government has a critical role to play in establishing scale. This includes by supporting the development of new infrastructure domestically and connections to global value chains. 
Government’s considerations on how to effectively regulate carbon emissions are also critical – the ESG drive through shareholders and corporates is important, but not sufficient on its own to drive the energy transition at the pace required. Ultimately the cost of carbon is a global factor that will impact the Australian market and the economics of developing new hydrogen solutions.  Whether directly or indirectly, the cost of carbon will be priced into Australian goods and operations in the future.

While the government’s role is important, we should not be trying to pick winners too early and instead focus on making progress on decarbonisation. Whether this be green hydrogen over blue, or specific technology applications such as battery EVs over fuel cell EVs – each solution will have a role to play, and we will need all the levers available to us. Over time it is reasonable to expect there will be a winning technology for an application, and it is unlikely to be one size fits all.

Industry players will ultimately find the most cost-effective solutions. Government needs to ensure the frameworks and incentives are targeted at the end objective - which is to decarbonise Australia in the most efficient and orderly manner and building the industries that will endure in a low carbon future. 

Moving quickly to understand applications 

At this point we should not be unduly focussed on the colour of hydrogen, but in making quick and meaningful progress on solutions. There are so many elements to the development of the industry and the supply chain, and we will need to use all the levers available and work them in parallel.  Progress over perfection.

Getting hydrogen vehicles into use and getting infrastructure established is key to building demand and in-turn scaled production. For industries with hard to abate processes, trialling and understanding the applications of hydrogen in their specific processes will be important to understanding longer term pathways to decarbonise. 

In these instances, there is much to learn and no need to wait for the perfect low carbon hydrogen source. It is better to start these processes in parallel to move up the learning curve as soon as possible.

Safety and skills

Finally, safe use and development of the required skills will be critical. 

Hydrogen is suitable from a safety perspective like the existing fuels we use and transport today. However, there are some unique properties that mean we need to ensure we have the right assets and processes in place from the beginning to manage transportation, storage and refuelling safely. A major incident in the early days of the industry would set every participant back.

We also know that skills, capability and human capital are in short supply and this will be an ongoing challenge as the industry develops. Investing in skills development in both secondary and tertiary education, while looking at opportunities for skilled migration, will ensure the industry has the capacity to deliver. 

Hydrogen has a key role to play in reducing emissions across Australia’s transport and broader energy sector. Hydrogen offers a unique opportunity to decarbonise the hard to abate heavy transport and heavy machinery sectors and to build new export industries for our economy. 

Ampol is excited to be part of the hydrogen story as we continue to work to deliver affordable, convenient and safe future energy solutions for customers.