'The real struggle': Can an ASX investment in hydrogen really pay off?

Some energy experts have suggested there are major hurdles for the hydrogen sector.

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Key points

  • Multiple businesses on the ASX are getting involved with hydrogen, including Fortescue and Hazer
  • At a petroleum production and exploration conference, some speakers spoke of the difficulty and cost of producing and shipping hydrogen
  • The Australian Government recently unveiled a $2 billion fund to help get a few projects up and running

ASX hydrogen shares are getting plenty of attention with the promise of opening up a new industry while simultaneously helping the world with decarbonisation.

Starting a new industry from scratch is not easy, but several ASX companies are moving into the space. They include Fortescue Metals Group Ltd (ASX: FMG), Pure Hydrogen Corporation Ltd (ASX: PH2) and Hazer Group Ltd (ASX: HZR).

Different businesses have different plans for their hydrogen production.

Hazer wants to use a "low-emission hydrogen and graphitic carbon production process". This involves converting natural gas (predominately methane) and similar feedstocks into hydrogen and "high-quality advanced carbon materials". The process would use iron ore as a catalyst.

Meanwhile, Fortescue Future Industries (FFI) wants to make 'green hydrogen' through electrolysis using water and renewable energy.

What's holding back hydrogen?

While many companies in Australia and worldwide want to be involved in the hydrogen sector, some experts have pointed to hurdles that need to be overcome. These were outlined recently at the Australian Petroleum Production and Exploration Association annual conference, according to reporting by The Australian.

The conference heard that the sectors faced challenges such as customer demand for the many proposed hydrogen projects around the world and how to safely and cost-efficiently transport the gas once produced.

The BloombergNEF senior associate of hydrogen, Kathy Xitong Gao, said:

This is the real struggle for hydrogen right now, the slow pick-up from the demand side. The transportation of hydrogen is a big issue, and to liquefy hydrogen is still very, very expensive. It's around $US5 to $US7 per kilogram, so it's very expensive.

Deloitte partner Matthew Walden said that low-emission hydrogen was "emerging as a key element in the pathway to net zero", but costs and regulatory issues remained. Walden said:

Important mechanisms to achieve this include the implementation of targets and mandates for low-emission hydrogen production and uptake.

What progress has been made?

Earlier in May, the Australian Government announced a $2 billion 'hydrogen headstart' initiative to help the "biggest green hydrogen projects to be built in Australia". This funding will:

… provide revenue support for investment in renewable hydrogen production through competitive production contracts. Funding will cover the commercial gap between the cost of hydrogen production from renewables and its current market price.

It will support two to three flagship projects, though there hasn't been any confirmation of which projects will be helped yet.

One ASX hydrogen share that's making progress is Fortescue. Its FFI business was pleased to announce last year it had signed an agreement with E.ON to deliver up to 5 million tonnes of green hydrogen to Europe by 2030. However, not all of this green hydrogen may necessarily come from Australia.

FFI has also signed an agreement with JCB and Ryze Hydrogen to supply those two UK businesses with 10% of FFI's global green hydrogen production. This was heralded as a "multi-billion pound deal".

While FFI is working on a global portfolio of green hydrogen production projects, it has also revealed it's working with energy infrastructure developer Tree Energy Solutions (TES) to develop the TES green energy hub in Wilhelmshaven, Germany. It aims to start receiving green hydrogen deliveries in 2026.

Time will tell how successful Australia, FFI and other ASX hydrogen shares are at producing low-emission hydrogen and transporting that to the world.

Motley Fool contributor Tristan Harrison has positions in Fortescue Metals Group. 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 Scott Phillips.

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