Is green hydrogen the future for Fortescue (ASX:FMG) shareholders?

FFI has a lot of ideas around hydrogen.

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Fortescue Metals Group Limited (ASX: FMG) is one of the world’s biggest iron ore miners. However, the business has a relatively new segment called Fortescue Future Industries (FFI) which is planning a number of green hydrogen ideas.

What is Fortescue Future Industries (FFI)?

FFI is the division of Fortescue that is aiming to take a global leadership position in the renewable energy and green products industry by harnessing the world’s renewable energy resource to produce green electricity, green hydrogen, green ammonia and other green industrial products.

Fortescue is funding this by allocating approximately 10% of its net profit each year.

FFI’s FY22 expenditure is expected to be between US$400 million to US$600 million, including US$100 million to US$200 million of capital expenditure and US$300 million to US$400 million of operating expenditure.

There are a number of places that FFI is looking for international projects such as New Zealand, Papua New Guinea, the Democratic Republic of Congo, Indonesia, Latin America, Africa, Europe and North America.

Plans for hydrogen

FFI’s vision is to make renewable green hydrogen the most globally traded seaborne energy commodity in the world.

For starters, FFI is looking to help Fortescue become greener itself. Some of those plans include hydrogen.

A few months ago it said it had completed the design and construction of a hydrogen-powered haul truck for a technology demonstration, with systems testing underway. It also had completed the design and construction of a hydrogen-powered drill rig for technology demonstration, with systems testing underway.

Fortescue and FFI point to the US$12 trillion estimated global market for green hydrogen by 2050. There has been US$70 billion of public funding committed worldwide for hydrogen projects. There are more than 30 countries with hydrogen roadmaps. Fortescue believes that hydrogen can play a major role in passenger and heavy industry transportation.

FFI and Fortescue are looking to be able to offer customers green iron ore and enable green steel, facilitated by renewable energy and green hydrogen. It wants to be the first green iron ore provider in the world.

Latest project

A few weeks ago, FFI announced the construction of the world’s largest electrolyser, renewable industry and equipment manufacturing centre at Gladstone, Queensland.

This green energy manufacturing (GEM) centre will be the first in a series of centres that will “transform regional Australia through the manufacture of equipment that is critical to the generation of renewable energy and green hydrogen.”

Stage one of the six-stage project will establish Australia’s first multi-gigawatt-scale electrolyser factory, with an initial capacity of 2 gigawatts per annum, which is more than double current production globally. Construction of GEM will commence in February 2022, following final approvals, with the first electrolysers scheduled off the production line in early 2023.

FFI and Fortescue said that subject to customer demand, as orders firm for both electrolysers and associated green industry, the investment could be up to US$650 million. The initial electrolyser investment is expected to be US$83 million.

Detractors of green hydrogen

However, not everyone is convinced that green hydrogen is going to be the best idea.

Santos Ltd (ASX: STO) CEO Kevin Gallagher, according to reporting by media such as the Australian Financial Review, recently noted that green hydrogen is expected to be more expensive than other types of hydrogen. Mr Gallagher believes the focus needs to be on the carbon impact of hydrogen and its affordability, and thinks describing hydrogen by different colours as to how it’s made as an emotional one. According to the AFR, he also said:

The goal is to get rid of emissions, so it doesn’t matter at the end of the day whether you use natural gas or the sun to make zero emissions hydrogen, and you can call it whatever colour you like.

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Motley Fool contributor Tristan Harrison owns shares of Fortescue Metals Group Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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