There is a lot of exuberance about the nascent hydrogen sector. Proponents of this technology are promising that hydrogen will play a major role in the green energy transition. Many companies have been quick to jump on this bandwagon and have pivoted into this space.
I’d like to provide a bit of a counterpoint to this narrative using the Province Resources HyEnergy project as a specific example. In this post, I will focus specifically on the topic of transportation.
Disclaimer: All of the following is my opinion only which has been using my experience in the energy industry and my interpretation and analysis based on the publicly-available materials published by Province Resources and Provaris.
Background
Province Resources (formerly Scandivanadium Ltd) is a junior minerals exploration company who have pursued various minerals exploration projects such as gold, nickel, and vanadium. It was founded in 1993, and like many junior minerals exploration companies, they have not progressed any of their prospects into viable mines (that I am aware of). Nonetheless, they have stayed active, with revenue for ongoing operations primarily coming from capital raises. Province Resources have now pivoted to the HyEnergy hydrogen project as their primary focus. It seems like we are on the cusp of a major announcement related to this project and their ongoing partnership with Total Eren.
The HyEnergy project premise has changed a fair bit since first announcement, but in its current iteration:
- There would be 8 GW of renewable energy (nameplate capacity) installed near Carnarvon, WA.
- The renewable energy plant will feed a 5.2 GW electrolyser facility, which would produce up to 550,000 tpa of green hydrogen.
- The hydrogen would be compressed to 250 barg, and loaded as a compressed gas onto ships.
- The ships would travel from Carnarvon to a market in the Asia pacific (Singapore) and the gas would be offloaded and fed into gas turbine generators, to turn it back into usable electricity.
Ultimately, the role of hydrogen is to transport energy from one country to another. What I would argue is that compressed hydrogen gas is not an effective way of doing this.
Energy Density – The gaseous elephant in the room.
It’s all about energy density. On a per-kilogram basis, hydrogen actually looks pretty good. It’s specific heat (LHV) is 119.96 MJ / kg. That’s more than double that of natural gas (50 MJ/kg) and diesel (43.4 MJ / kg).
The problem is hydrogen gas is very light, with a molecular weight of just 2 g/mol, it is literally the lightest substance that exists, so for a given weight it takes up a hell of a lot of space, even after compression to 250 barg. After accounting for the density and storage conditions of each substance, the volumetric energy densities are as follows:
To give a crude analogy, lets say I wanted you to deliver 20L of diesel somewhere. That’s 1 jerry can, you could easily carry that in one trip. To deliver an equivalent amount of energy, 738 MJ, as compressed hydrogen gas @ 250bar, you would need to carry 23 scuba tanks (each 12L). You’ll be doing a lot of trips. I’m using scuba tanks as a unit of measure here because they happen to have working pressures around 250barg, so it’s a good visualisation of the required strength to contain a gas at that pressure. Also, the cylindrical shape of a pressure vessel reduces the packing density, and the heavy walls make them expensive. By contrast when transporting a fluid like crude oil, it’s held in a dense form that fills almost the entire ship hull, and there is no need for pressurisation, so this is a lot more efficient for transport.
Enter Provaris.
Nonetheless, transport of compressed hydrogen is the concept for this project. Province are partnering with Provaris (formerly GEV), who are designing a compressed hydrogen transportation ship. Think of them basically as big ships carrying huge scuba tanks. The concept is technically feasible, there is nothing particularly novel about building a ship, nor a pressure vessel. It’s just not efficient for transporting energy in the form of hydrogen gas.
Provaris recently release a Compressed Hydrogen Export Feasibility Study for the HyEnergy Project. This report finds that their project is technically and commercially feasible. I would argue that this report contains various omissions and overly optimistic assumptions which seriously undermine these claims.
I would encourage you to read this report closely:
https://www.wa.gov.au/government/publications/provaris-compressed-hydrogen-export-feasibility-study-public-knowledge-sharing-report
Most of the remainder of my post will be drawing from this feasibility study.
A feasibility study telling only part of the story
First and foremost, it must be understood that the scope of the study is only for the hydrogen transportation chain. That is, the gas compression, loading, transportation, and unloading. So, the figures presented in their report are only a part of the story. The costs of the renewables generation, electrolysers, and utilities like fresh water generation, are not captured in the figures they give. These costs are well documented, since renewables are ubiquitous. This first point isn’t really a critique, it’s fine to put a battery limit around an engineering scope, but I’m raising it for peoples’ awareness. Until the binding term sheet comes out, we don’t know exactly which parts of the development would be shared by PRL and which by Total Eren, but all the same it can be said that the costs for the renewable generation and the 5.2 GW electrolyser facility is not captured here in this study, and this should be understood when reviewing their levelized cost of electricity transportation.
Secondly the Provaris study is based on the transport of 200,000 tpa of hydrogen, with the assumption that “the remaining 350,000 tpa will support another energy export stream”. This is a bad assumption in my opinion, because there really is very little option to deal with this hydrogen other than to export it. The Dampier to Bunbury Natural Gas Pipeline for example has a very limited capacity to integrate hydrogen due to the threat of hydrogen embrittlement (more on that topic in another post if I get around to it). So really, discounting this assumption, one needs to apply a factor of 275% to understand the costs and scale of export to a full 550,000 tpa of hydrogen.
From the cycle time analysis, an armada emerges
The study outlines the case of transportation of hydrogen with a vessel called H2Neo. Each vessel can transport 430 tonnes / 26,000 m3 of hydrogen in a single trip. 430 tonnes isn’t a lot when considering that the plan is to move 550,000 such tonnes each year, and the journey from Carnarvon to Singapore and back takes a couple of weeks. The study modelled this cycle time, and found that “From a commercial perspective 19 H2Neo carriers was be adopted for the Study to transport the target rate of 200ktpa to Singapore.”, so extrapolating this out to the full project scale @ 550,000 tpa, that comes to a fleet of 53 vessels, all moving continuously back and forth between Carnarvon and Singapore.
OPEX
53 vessels is a huge fleet. Each of these vessels will needa crew, typically this is about 22 people for the minimum manning. That’s atotal of over 1100 positions onboard continuously which would be required tosail and maintain this fleet. Accounting for a few off-swings (the bare minimumof course – it’ll be a foreign crew) would bring this figure closer to 1500people. Of course the study completely neglects to include their wages,training, etc in the commercial assessment. The study only accounts for 13 bluecollar workers at the gas compression plant, and a total OPEX cost of 80MM /year.
Aside from labour, ships have a lot of other maintenancerequirements. For example, each ship must be drydocked twice in each 5Y marinesurvey window. In this process the ship is put on blocks and the area around itis drained of water. The seachest valves are inspected, the hull is repainted,the engines are overhauled, and so on. It’s extremely expensive (can costmillions of dollars, depending on scope), and each year approximately 21 ships from the fleet will need to be drydocked in this fashion.
When you consider all of the operating and maintenance costs involved with vessels of this nature, and the huge number of ships in the supplychain, in my opinion, the stated OPEX is out by about 1 order of magnitude.
CAPEX
The study went into some detail with regard to onshorestorage, by contacting pressure vessel fabricators to find the costs tofabricate large pressure vessels for hydrogen storage. The study states “Asdiscussed in Section 3.8, the cost of onshore hydrogen storage is quitesubstantial with CAPEX exceeding AUD 1M per tonne”. Their figures here areaccurate. If this same norm was applied to the pressure vessels which would befabricated for the H2Neo carriers, the pressure vessel costs would be AUD 430MM each ship. There will of course be significant economies of scale whenbuilding bigger things in foreign shipyards, but given that a standard VLCCcarrier costs about 120MM USD, just for the hull and vessel machinery, I thinkit is fair to say that the capital cost to build a single H2Neo carrier wouldbe about 200 MM, accounting for the extra efforts to fabricate the huge, heavypressure vessels in each ship.
It’s a rough figure, sure, but if we accept that an H2Neocarrier will cost around 200MM, a fleet of 53 such carriers would cost aboutUSD 10 B, and that’s completely neglecting all of the other costs, such as theonshore compression, 8 GW of renewables, and 5.2 GW of electrolysers. The study did not provide any detailwhatsoever on their capital cost breakdown, but estimated that the transportationsupply chain will cost $2.5 Billion (USD). In my opinion, this number is a completefantasy.
The CAPEX figure was said to be a AACE Class 5 CAPEXestimate. This part I agree with. This is the least accurate estimateestimation class, normally this would only be used for rough concept screening.A feasibility study in my view should be minimum AACE Class 4.
Transportation energy losses – getting high on your ownsupply
However, these points that I have raised are minor sidenotes. The primary issue with the concept comes back to my original point, andthat is energy density. Because these ships can only carry small amounts ofhydrogen each trip, they need to do many trips. And in doing all these trips,they burn a lot of fuel.
Section 7.5 of the study, ‘Carbon Emissions ReductionAnalysis’ conveniently provides fuel consumption figures for the H2Neo vessels.The 19 vessels (transporting a total of only 200,000 tpa, not the full scoperemember) consumes 223,259 tpa of LNG, and 8,753 tpa of diesel (MDO). I wouldassert that these figures are deliberately obtuse. Where is this fuel comingfrom? Certainly not from fossil fuels I hope.
A natural analogy here is an LNG carrier. In all LNGcarriers, the carriers are powered by a portion of the product that they arecarrying. The study should have accounted for the consumption of hydrogen in order topower the prime movers, rather than an external fuel source like LNG,especially since they did not capture these extraneous fuel costs in OPEX.Still energy is energy, and we can convert between different forms using therespective energy densities.
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Based on the values stated in the study, for every 2.39e+10MJ loaded each year (by way of 200,000 tpa of hydrogen), about 49% of thiswould be wasted simply just powering the ships for transportation. Think of itthis way. Each ship is loaded with full tanks. By the time they reach Singapore,a quarter of the product is gone. The vessel unloads a half tank, and uses theremaining quarter tank to return to the starting point.
A 51% efficiency for transportation is very bad since otherforms of liquid fuel transportation are in the high 90s. But when looking atthe complete chain, it is fatal. This efficiency needs to be compounded with avariety of other losses, including from the electrolysers, the gas compression,and the gas turbine generators.
Other energy losses – putting it all together
I would argue that due to these cumulative losses, from the8 GW of installed (nameplate) renewable energy, this would result in only about0.59 GW of delivered electricity into the Singapore power grid. Doesn’t looktoo good, does it?
Conclusion – transportation is a terminal problem.
Given that the only role of hydrogen in this story is tomove electricity from one place to another, in my opinion, the losses involvedmake it terminally unviable. Even if it’s not particularly sunny or windy inparts of Asia, it’s always going to be more effective to install the renewablesclose to where they are needed, and connect the energy directly with electricalcables, rather than going through a highly inefficient transportation chaininvolving conversion of electricity to hydrogen and back. Direct connection avoids a lot of efficiency losses which means that you don't need to build such a large generation facility.
For the record, I work in the energy industry and am verymuch pro-renewables. I have no financial exposure to this company, long orshort. In my opinion the Hyenergy project is not a very effective way to reduceour net CO2(e) emissions and it could not be viable without massive subsidies.
I have no view about whether ASX
RL is a good investment.It could go up a lot in the short term based on market sentiment following somepositive announcements, or it could crash if Total Eren were to pull out of thedeal for some reason such as rising cost of debt. I don’t know. All I will sayon this is that PRL is clearly a speculative investment.
I’m happy to engage in any technical discussions, but nopersonal attacks please.
(20min delay)