Woodside (WPL) Strategic Valuation, page-81

The AFR View

Hydrogen injects reality into gas-fired energy transition

The first shipmentof liquid hydrogen from Australia shows fossil fuels have a crucial transitionrole to ensure the world has affordable, reliable, and cleaner energy.

Jan 23, 2022

This week’s world’s first shipment of liquidhydrogen from the port of Hastings in Victoria to Japan may prove as importantto Australia’s future prosperity as the first shipment of iron ore to departthe Pilbara was in the 1960s.

It marks an important milestone in the transitionthat Australia’s fossil fuel-based resource economy seeks to make as the worldheads towards a lower-carbon future. It is also an opportunity to injectgreater reality into thinking about the scale of the global energy transitionand what’s actually required to ensure the cleaner future has access toaffordable and reliable energy.

First are the technological challenges to makeinternational trade in clean energy possible.

The $500 million Hydrogen Energy Supply Chain pilotproject uses brown coal hewed from the Latrobe Valley to refine hydrogen.

To make transporting by ship feasible, the hydrogenmust be super-cooled to minus 253° to reduce its volume. This is much colder thanthe minus 161° needed to ship liquefied natural gas.

Former Chief Scientist Alan Finkel says the world’sfirst liquified hydrogen carrier, the Japanese-built Susio Frontier, is an“engineering marvel”. The vessel’s vacuum seal, which keeps its extra-chilledcargo safe and stable at sea, is the kind of air lock that keeps astronautsalive in deep space.

This underlines that the energy transition willprimarily depend upon human ingenuity and innovation. Such as the novelgravity-based storage system that Korea Zinc is set to build near itsTownsville refinery, which uses renewable energy to lift heavy blocks into thesky that can descend to generate electricity when the sun isn’t shining or thewind isn’t blowing.

Australia’s pioneering of global hydrogen exportsalso underlines that an orderly energy transition in a decarbonising world willtake decades. It will be no small thing to produce the cleaner energy needed tokeep the world powered every day, especially when many people in developingnations are not connected to mains and aspire to do so to escape poverty.

“Blue” hydrogen made by burning coal or gas, withthe carbon released either captured and stored or offset, is currently the onlytechnological possible and cost-effective method of hydrogen production.

This has tangled it up in the climate activistcause of the moment – calls for an abrupt global exit from all fossil fuels by2030. Europe’s energy crisis – which has allowed Vladimir Putin to weaponiseRussia’s gas supplies – shows how the transition can go wrong.

The alternative is fashionableposturing on green issues, instead of facing up and helping solve thechallenges of decarbonising the world.

Environmental zealotry, such as Europe’suncoordinated renewable generation frenzy and the closing down in Germany ofzero-emissions nuclear power plants, has led to energy shortages, skyrocketingfuel prices, and geostrategic risk.

This was the point underscored by the 2022 annualletter of BlackRock chairman and chief executive Larry Fink, who declared thatthe world must move through “shades of brown to shades of green” on the way tonet zero carbon emissions by 2050.

Two years after the world’s biggest fund managerannounced it was divesting from thermal coal, Mr Fink has recalibratedBlackRock’s position by recognising that “to ensure continuity of affordableenergy supplies during the transition, traditional fossil fuels like naturalgas will play an important role both for power generation and heating incertain regions, as well as for the production of hydrogen”.

Last April, an influential proxy adviser, theAustralian Council of Superannuation Investors, announced that its industrysuperannuation fund backers would vote against the reelection of directors ofcompanies deemed to be taking insufficient action on climate change.

Yet ACSI’s position on big bank lending for gasfired energy transitions, such as Woodside Energy’s Scarborough and Pluto Train2 project remains unclear. Following BlackRock’s lead, Australia’s financesector, including Big Super and its proxies such as ASCI, also needs to getreal about gas’s crucial role as a transition fuel of global importance.

The alternative is fashionable posturing on greenissues, instead of facing up and helping solve the real challenges of decarbonisingthe world while keeping cleaner energy affordable and reliable during thetransition.