National Hydrogen Strategy Issues Papers

Australia’s neighbours, particularly Japan and Korea have committed to transitioning their energy systems to include significant amounts of hydrogen. Considering the National Hydrogen Taskforce (Taskforce) has set an ambitious target of fulfilling 50% of Japan and Korea’s hydrogen imports by 2030, it is likely that a substantial proportion of supply of hydrogen will be from hydrocarbon sources such as natural gas and coal for the following reasons:
a) Cost: The production of clean hydrogen from natural gas and coal with CCS (CCS Hydrogen) is currently more cost effective that the alternative production processes involving electrolysis powered by renewable energy sources (‘renewable hydrogen’). This is acknowledged in the August 2018 briefing paper prepared for COAG Energy Council by the Hydrogen Strategy Group chaired by Chief Scientist, Dr Alan Finkel AO and confirmed in a recent IEA report. While renewable hydrogen technologies are maturing steadily and may play a major role in the production of hydrogen in the longer term, it is questionable whether sufficiently significant technology developments will occur in the near future to enable renewable hydrogen to be produced more cost-effectively at scale than CCS Hydrogen by 2030. Considering Australia’s abundant fossil fuel resources with brown coal deposits in Victoria, black coal deposits in NSW and Queensland and substantial offshore gas reserves in Western Australia and the Northern Territory, Australia has a natural competitive advantage in meeting expected global demand for the fuel.

b) Risk: Hydrogen production from wind and solar is a promising low-carbon option over the long-term. However, considering the end-to-end low efficiency associated with renewable hydrogen, several hydrogen pathways need to be made competitive to meet the needs of an export market including CCS Hydrogen. In order to support very high shares of hydrogen production from wind and solar and overcome the issue of inefficient utilisation of Variable Renewable Energy (VRE), a massive overbuilding of total installed capacity is likely to be needed to meet demand for product during periods when VRE output is below average. This is a high cost route which is potentially challenging from an environmental perspective as a significant amount of land and water will be needed to sustain such an overbuild.
Any investment in industrial scale fossil fuel-based clean hydrogen production will require industrial scale CCS hub facilities and associated infrastructure as well as deep technical expertise in CCS technology development and deployment. The scale of investment will likely be a function of the number of hydrogen production sites needed to meet supply commitments and factors such as the cost of the feedstock.

However, it is worth noting that in major locations where fossil fuel reserves are abundant, significant and proven geological CO2 storage capacity exists to support the development of CCS Hydrogen. Matching CO2 sources with suitable CO2 sinks will contribute significantly to the economics of CCS. As shown in Figure 1 in the attached, the Gippsland basin has the greatest capacity of the eastern basins and is close to the Latrobe Valley (~150 km).
This makes use of Latrobe Valley’s brown coal as a feedstock together with long-term CO2 storage in the Gippsland Basin a viable first choice to kick-start the development of a hydrogen export Industry on the eastern seaboard.

In some situations, particularly with the development of CCS Hydrogen in Western Australia, the hydrogen industry can benefit from the port infrastructure and export facilities established for the oil and gas and mining industries which can be repurposed to handle hydrogen.

Australia is well placed in regard to CCS technology development and deployment. Independent centres of excellence such as CO2CRC, which bring together academic researchers, the CSIRO, industry and government bodies have the potential to play a significant role in developing and demonstrating technologies that reduce the cost of commercial scale CCS and address regulatory and social challenges. A certain level of Government support is critical in contributing funding towards the research agenda and attracting private capital for innovation.

A good example is the CO2CRC Otway Stage 3 Project, which commenced in May 2019. Under this project, CO2CRC will develop sub-surface storage monitoring technologies aimed at reducing the cost and environmental footprint of long-term CO2 storage monitoring. The project will also provide operators, regulators, financiers and the community with greater certainty around issues of CO2 containment, regulatory compliance and liability. The research outcomes are immediately relevant and applicable to the CarbonNet Project - a joint endeavour between the Victorian and Federal Governments. CarbonNet is investigating the potential for establishing a commercial scale CCS network.

The network would bring together multiple carbon dioxide (CO2) capture projects in Victoria's Latrobe Valley, transporting CO2 via a shared pipeline and injecting it into deep underground, offshore storage sites in Bass Strait. CarbonNet could provide a future CO2 transport and storage solution for the Hydrogen Energy Supply Chain (HESC) pilot project, which is demonstrating production of hydrogen gas from brown coal, its liquefaction and transport by ship to Japan.

The $45 million Otway Stage 3 Project is jointly funded by the Commonwealth Government, Anlec R&D, the Victorian Government and BHP. The successful partnership is recognition of the project’s benefits to industry, the public and regulators.

CarbonNet and the Victorian Government have strongly supported the work of CO2CRC as lead research organisation to the CarbonNet Project. The primary technologies deployed under the Stage 3 Project were developed with the intention of directly supporting the CO2 monitoring operation of CarbonNet once it reaches commercial operations. The technologies tested and validated through CO2CRC’s Otway Stage 3 Project will have direct application to the proposed offshore storage site (Pelican). One of the technologies being tested - pressure tomography – has great potential to make offshore monitoring of storage sites less invasive and more cost effective. CO2CRC also manages the deployment of the technologies within the Gippsland Monitoring Network (GipNet) Project which will test and validate environmental assurance monitoring technologies in the near shore coastal environment ahead of CarbonNet’s commercial operations.

The commitment from the Federal and Victorian governments to support the development of the HESC Project in the Latrobe Valley to demonstrate the feasibility of hydrogen production from coal gasification and transport to Japan will greatly enhance Australia’s position in the international market as a potential producer of commercial scale clean hydrogen. It will also provide government with a deeper understanding of the infrastructure investments needed to support a commercial scale hydrogen development involving multiple stakeholders, methods of reducing project risk for participants and pathways to achieve community buy-in.

Australia is in a strong starting position, having established mining and LNG industries which have nurtured the skills needed to grow a clean hydrogen industry. However, further investment and participation in pilot and demonstration projects will highlight any gaps in skills which can then be addressed through education and training programs.

To establish a commercial scale hydrogen industry, federal level support is needed to lead a coordinated effort in engaging with international governments and industry to establish Australia as a hydrogen producer and exporter of choice.

In relation to CCS hydrogen, governments have a pivotal role to play, by providing a clear, stable and supportive policy framework which stimulates CCS market uptake, supports CCS project development, enables CCS project funding and advances next-generation CCS technologies. Together the aim should be to de-risk investment in CCS and incentivise the development of this vital industry.

The development of next generation CCS technologies will also help create a robust, sustainable hydrogen industry that contributes significantly to the Australian economy and serves the public interest. To achieve this, it is necessary to invest in demonstration projects across increasing scales to ensure all technical, regulatory and social challenges are addressed. Demonstration projects should incorporate and facilitate high quality research and development to reduce the cost and improve the productivity of CCS Hydrogen.

It is worth noting that Australia has one of the largest, integrated subsurface research facilities in the Otway basin. Owned and operated by CO2CRC and funded through industry memberships and government grants, the Otway National Research Facility continues to advance technologies to reduce the cost of CO2 capture, improve CO2 storage efficiency and undertake high quality research to support Flagship CCS projects such as CarbonNet and other commercial projects.

As mentioned in section 2.1 above, federal level support is needed to lead a coordinated effort in engaging with international governments and industry to establish Australia as a hydrogen producer and exporter of choice. Importantly, Australia needs to establish itself in the international market as a potential technology-neutral producer of clean hydrogen with an abundance of natural energy resources.

This can be best achieved by taking a technology-neutral approach to the development of a hydrogen industry. It is important to continue with the ‘technology-neutral’ approach established by COAG Energy and Resources Ministers when they commissioned this study. The focus is then appropriately on ‘clean hydrogen’ – whether produced using renewable energy or using fossil fuels with carbon capture and storage (CCS). Hydrogen is an industry with significant potential for Australia and the nation should keep both options open.

Coordinated leadership from federal and state governments is needed for Australia to successfully achieve the goal of developing and sustaining a cost competitive hydrogen export industry.

It is important to acknowledge up front that CCS is a proven and well-known technology. There are no technical barriers to securely storing CO2 in depleted oil and gas reservoirs or underground saline formations provided the storage site has the right geological characteristics. That is, the target formation must be:

• Porous with good permeability
• Below 800m in depth (at which CO2 remains in dense liquid-like state);
• Secure for storage through the presence of impermeable caprock and various other ‘trapping mechanisms’ to keep CO2 trapped in place: structural, residual, solubility, mineralization (long-term);
• In a stable geological environment; and
• Thick and continuous over larger areas in order to store large volumes.

Globally, around 40 Mt of CO2 is being stored annually. There are many operating projects in place, including Deep Sleipner (1996); Snohvit (2008); Decatur (2011); Quest (2015); Boundary Dam (2014); Petra Nova (2016). Later this year, the world’s largest commercial scale carbon dioxide injection project will commence with the start-up of the Gorgon LNG CO2 Injection project on Barrow Island, WA. The project will to inject and store 3 - 4 MT CO2 per annum reservoir CO2 into a deep reservoir unit, known as the Dupuy Formation, more than two kilometres beneath Barrow Island. An on-going monitoring program, which includes observation wells and seismic surveys, will assist in managing the performance of the injected reservoir CO2 in the Dupuy Formation.

CO2CRC owns and operate a carbon capture and storage research facility (the Otway National Research Facility) at Nirranda South in south-western Victoria and has more than 15 years of experience in developing and maintaining a high level of community trust. This has been achieved by developing good relationships with local landholders and taking an open approach to communication featuring regular open days, community meetings, newsletters, an informative website and briefings. The Otway Research Facility is backed by strong regulatory compliance and a commitment to maintaining a strong social license to operate.

The most common queries CO2CRC encounters in its interactions with the public stem from the community’s lack of familiarity with CCS technologies, what a CCS facility looks like and how the CO2 storage complex is managed and regulated.

From a technical standpoint, successful demonstrations at our Otway site have effectively de-risked the application of CCS. Our experience has been that many of the community concerns can be addressed by having the opportunity to inspect the relevant facilities and through regular sharing of the results of demonstrations using simple, layman’s terms.