Singapore — Asia may witness some of the initial hydrogen trade flows from Australia to Japan and South Korea, the two countries in the region that have rolled out long-term plans for the clean fuel, which analysts and market participants said have to be largely met through imports.
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Even though the actual trade flows may be years away and there are multiple hurdles to clear, energy traders and analysts told S&P Global Platts that Australia's ambition to be a key hydrogen export hub would mean that Japan and South Korea would be aiming to source a substantial portion of their needs from the Pacific region.
Thus, Australia-to-Japan and Australia-to-South Korea could potentially emerge as two main routes in the region.
"The reason for this is that Australia is really at the forefront of developing an export hydrogen industry while Japan and South Korea are furthest ahead using hydrogen in their economies," said Edgare Kerkwijk, board member of the Asia-Pacific Hydrogen Association.
Analysts said Australia has started the development of regional hydrogen hubs for export as it had a huge pipeline of renewable energy projects that need to have an export market to make them viable.
"Certainly right now, the obvious hydrogen markets in Asia are Japan and South Korea, both of which have established hydrogen strategies and requirements for imports. Australia is clearly the most obvious supplier for both green and blue hydrogen," said Peter Godfrey, managing director for Asia Pacific at The Energy Institute.
Long list of hurdles
There are a long list of hurdles to clear before regular trade flows could materialize. S&P Global Platts Analytics forecasts high production and transportation costs to be some of the stumbling blocks.
"Given the very high costs of transporting hydrogen over distances -- adding that to already relatively high production costs for low-carbon hydrogen -- emergence of trade flows will absolutely need to be policy driven," said Roman Kramarchuk, head of scenarios, policy and technology analytics at Platts.
Flows will emerge into those regions that, firstly, do not have potential for low-carbon hydrogen production at scale and secondly, have an ambition, willingness and ability to pay for end-use hydrogen uptake. "If this does happen, Japan as one of the key destinations seems reasonable," he added.
Platts launched hydrogen assessments in December 2019 based on the value of hydrogen produced in the US and Europe. On April 1, Platts increased its market coverage to produce daily hydrogen price assessments for Japan. These assessments include three different production pathways: SMR without Carbon Capture and Storage, PEM Electrolysis, and Alkaline Electrolysis.
Platts assessed the price of Japan's hydrogen alkaline electrolysis at $3.95/kg, hydrogen PEM electrolysis at $4.98/kg, and hydrogen SMR without CCS at $2.54/kg on Oct. 6, with capital expenditures included for all three production pathways.
Japan's launched its Basic Hydrogen Strategy in December 2017 and plans to open up the world's first "hydrogen society." The strategy aims to decarbonize key sectors like transport, power, industry and residential while strengthening energy security.
South Korea unveiled its "roadmap for hydrogen economy" in 2019, with the vision to sharply increase production of hydrogen-powered vehicles and electricity generation by hydrogen to use it as a major energy source for transportation and power generation.
Meantime, Australia has crafted a national strategy for hydrogen with an aim to be a major global player by 2030. This would involve areas such as advancing hydrogen production, developing export and domestic supply chains, establishing hydrogen hubs, and backing projects that build domestic demand for hydrogen.
A Germany-based source said developments on green hydrogen suggests that while Australia will be eyeing Japan and South Korea, the blue hydrogen supply chain being built from Brunei to Japan may not turn out to be a trade route of similar size.
He noted though that the industry is on a wait-and-watch mode for hydrogen production and trades to be developed on a larger scale after the coronavirus pandemic subsides.
"Government funding remains key and we may see hydrogen starting to become competitive with other fossil fuels during the 2025-30 period," the source said.
An Australia-based source said liquid hydrogen would be a viable large-scale renewable hydrogen transport method for Asian hydrogen trade flows, given its direct use case for fuel cell power generation and the huge CO2 reduction potential from the transport sector.
"The timing for liquid hydrogen shipping from Australia to South Korea and Japan has been significantly brought forward for exports within this decade, given the technology breakthrough for large-scale liquid hydrogen containment in countries like South Korea," he said.
Edgare said Saudi Arabia could emerge as a competitor to Australia as the former has relatively low costs for green hydrogen. In addition, although China would possibly be the biggest market in the Asia-Pacific region, it will most likely supply its own industry.