Fortescue (ASX:FMG) share price up amid hydrogen supply agreement

Fortescue shares are rising after a green hydrogen supply agreement was revealed.

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Key points

  • Fortescue’s FFI division has signed an agreement with Covestro for the supply of green hydrogen
  • FFI will supply up to 100,000 tonnes of green hydrogen per year starting as early as 2024
  • This could be a “first step” towards a broader strategic partnership to accelerate the green energy transition, particularly in energy-intensive industries.

The Fortescue Metals Group Limited (ASX: FMG) share price is up after the announcement of a future green hydrogen supply agreement. This is through the Fortescue Future Industries (FFI) segment.

Whilst Fortescue is one of the world’s biggest iron ore businesses, it’s aiming to diversify its earnings sources into the green energy space.

Fortescue says FFI is aiming to take a global leadership position in the renewable energy and green products industry and has a vision to make green hydrogen one of the most widely used commodities in the world.

Green hydrogen is made from renewable energy, producing zero pollution. The only by-product is steam. Its ambition is to grow its green hydrogen production to 15 million tonnes of green hydrogen per year by 2030, accelerating to 50 million tonnes per year in the next decade after that.

Fortescue’s agreement with Covestro

Fortescue Future Industries intends to supply green hydrogen and its derivatives including green ammonia to Covestro.

FFI will supply up to 100,000 tonnes of green hydrogen equivalent per year, starting as early as 2024.

What’s Covestro? It was described as a world-leading, Germany-based supplier of high-tech polymer materials. Covestro uses hydrogen and its derivatives as feedstock in the production of high-performance polymers. Covestro has committed itself to completely transition towards the use of fossil-free alternative raw materials and renewable energy as part of a broader circular economy strategy. The German business says the partnership with FFI is an important milestone towards this goal.

How much of a global difference will this make?

Fortescue said that the arrangement will enable Covestro to reduce its greenhouse gas emissions by up to 900,000 tonnes of CO2 per year, by replacing ‘grey hydrogen’ and its derivatives with green hydrogen.

The green hydrogen could be delivered to multiple continents, with potential delivery locations to Asia, North America and Europe.

But this might just be a “first step” towards a broader strategic partnership to accelerate the green energy transition, particularly in energy-intensive industries.

What do FFI and Covestro management make of the agreement?

The FFI CEO Julie Shuttleworth explained:

Covestro is a global leader in its field with its materials used in nearly every area of modern life, including in the automotive, construction and electronics industries.

This collaboration reinforces that green hydrogen is a practical, implementable solution for a range of difficult-to-decarbonise industries.

The CEO of Covestro, Dr Markus Steilemann, said:

Our collaboration with FFI underlines our ambition to pioneer the transition towards a circular economy and climate-neutral production. Green hydrogen and its derivatives play a key role for the chemical industry, both as an alternative feedstock and a source of clean energy.

The transition towards green hydrogen and its derivatives will be an important step forward in our efforts to offer more sustainable products that also reduce the carbon footprint of our customer industries.

What do brokers make of the Fortescue share price?

Citi thinks the Fortescue share price has gotten a bit too high compared to others in the iron ore sector, which is why it’s rated as a sell with a price target of $17.20.

Morgans is not really a fan of the FFI strategy and thinks it should be focusing on the iron ore side of the business. Morgans rates it as a hold with a price target of $16.90.  

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Motley Fool contributor Tristan Harrison owns 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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