Hydrogen for Mining - Economics and Roadmap

In 2018, the Australian government set a clear target to position the country as a major global hydrogen player by 2030. This means twelve years of research and development, investment and experimentations in order to build a resilient hydrogen economy. The government sees particular potential in hydrogen exports to Japan, South Korea, China and Singapore, where governments have committed to renewable strategies that include hydrogen. In fact, Queensland sent its first green hydrogen shipment to Japan - part of a pilot project with JTXG - at the end of March.

But in the process of developing Australia’s hydrogen supply for export, the government is also creating opportunities for domestic applications. In the mining sector, these revolve around transportation, fuel to power operations, and energy storage. Some tier-one mines have already started to invest in the technology: Fortescue Metals Group, for example, has a partnership with the Commonwealth Scientific and Industrial Research Organization (CSIRO) to fund hydrogen research.

Smaller Australian mining operators are following hydrogen developments closely. Dominic Rodwell, Manager Gas at Citic Pacific Mining, explains that while his company isn’t yet in a position to invest, he personally foresees a sound future for renewably-produced hydrogen in the mining industry.

“We can run a 10% hydrogen blend with our natural gas to fuel our power station without modifying anything,” he observes. “That would be a start, then we can progress toward producing enough to also start buying a hydrogen-powered mining fleet, gradually.”

Rodwell believes these projects may be eligible for funding through ARENA [the Australian Renewables Agency] and NAIF [the Northern Australia Infrastructure Facility]. “Once started, I see a path to growing the renewable generation at the site to align with the hydrogen production and consumption in an organic and sustainable way where part of the savings made gets reinvested into further hydrogen production capacity and consumption,” he adds.

For all the enthusiasm there is around the potential of hydrogen to improve mining operations, concerns remain, mostly related to safety and cost. But according to experts, hydrogen developers are solving both issues at a fast pace, and the industry could soon reach a turning point.

MAKING MINING MORE RESILIENT

What makes hydrogen such an attractive investment opportunity in mining is its versatility: from powering a haul truck or train to producing ammonia for industrial applications. “We think that there’s a reasonable potential to use varying hydrogen applications on site in a way that adds dynamism, resiliency and doesn’t undermine the structural function of the mine,” comments Patrick Mulloy, Associate at the Rocky Mountain Institute. “Hydrogen is a dynamic resource: you could use it to power your trucks, you could use it in some aspects of industrial processing, etc. Consequently, the resource itself is adding to the overall resilience of the system.”

The fact that it can be produced from a variety of feedstocks, including natural gas, coal, biomass and renewables, adds to this versatility - and could explain why coal miners in particular are showing such strong interest. In April this year, the mining industry’s COAL21 initiative advocated for the production of hydrogen from coal - a much cheaper process than from renewable sources. With so many jurisdictions moving away from coal as a power source, the argument is likely part of an effort to find ways to repurpose coal resources. But the process to make coal-based hydrogen is a polluting one, going against the philosophy behind the development of hydrogen as a clean energy source.

“Both the LNG industry and the coal mining industry have this asset that, through a chemical process, can generate hydrogen. The byproduct of that process is carbon, but they have the ability to identify the source of that carbon and capture it at the source,” says James Arnott, a partner in KPMG’s energy and natural resources management consulting team, adding that “there is still a way to go”.

Given that Australia is the fourth-largest global coal producer, it’s understandable that miners would make this argument in government consultations around hydrogen, and a significant portion of investment is betting on this development. In February, a pilot project to turn coal from Victoria’s Latrobe Valley into hydrogen was green-lighted by the Environmental Protection Agency.

But it’s unlikely that these efforts will lead to the wide adoption of coal-based hydrogen in the long term. “The major emphasis and focus has been on producing green hydrogen using zero-carbon resources, in particular, renewable energy in an electrolyzer. In the transition towards that, there is talk of attaching carbon capture resources to existing chemical plants,

but it’s hard to see where that coal plays in the trajectory we’re talking about and the benefits of zero-carbon hydrogen production,” adds Rocky Mountain Institute’s Mulloy.

FAST-IMPROVING ECONOMICS

Many still see hydrogen as an extremely expensive energy source, and there is indeed a broad price variation depending on the base material used to make it, and where it is made. But hydrogen costs are on a downward trajectory that could be compared to that of solar energy - now cheaper than most other energy sources in Australia.

Attilio Pigneri, CEO of H2U, the Hydrogen Utility and President of the Australian Association for Hydrogen Energy, says: “We’re now at a point where we can produce hydrogen significantly cheaper than diesel on an energy-equivalent basis. Diesel retails for AUD$1.5 per litre, and in Australia we can now produce hydrogen from renewables below AUDS$1 per litre diesel equivalent.”

In California, the price currently stands at US$12-13 per kg (approximately a gallon or 3.75 litres), but this price is expected to drop as low as US$3.5 per kg, according to Mulloy at the Rocky Mountain Institute. “When you take into account energy density, you get to parity with diesel around US$6-8 per kg,” he adds.

Research firm Markets and Markets estimates that the hydrogen generation market will grow by 8% per year in the next four years, reaching US$199.1bn by 2023, driven by the growing demand to decarbonize energy end-use, government regulation for desulphurization of refinery activities, and increased demand for hydrogen in the transportation sector. With more demand and more generation, prices are likely to reach a viable level sooner than we think.

The rapidly declining costs of wind and solar are building the momentum for green hydrogen, and this is also putting downward pressure on electrolyzer prices. A great example of how quickly the cost landscape is changing is H2U’s 30MW hydrogen power plant project in Port Lincoln, South Australia.

“The industrialization of the electrolyzer supply chain of the supply chain, with automation and saturation of production capacity, has the potential to push the cost of electrolyzers down more than 50% of their price today,” add Pigneri. “As an example for our Port Lincoln project we’re going to deliver a project that’s almost three times larger than the capacity of the project that we had announced in late 2017, pretty much within the same budget envelope.” H2U’s project also includes two 16MW 100% hydrogen-fired gas turbines - the first two units of what could become a commercial product line.

HYDROGEN FOR MINING ROADMAP

While progress is undeniably accelerating, many improvements are still needed in terms of infrastructure, scaling, and end-use. Many initiatives are hoping to tackle these: Toyota Australia recently announced a A$7.4mn hydrogen centre in Victoria, which includes an electrolyzer and a commercial-grade hydrogen refueling station - a necessary but missing part of the hydrogen for transportation puzzle.

Safety research is ongoing, particularly around venting requirements for hydrogen-powered underground equipment, and hydrogen is already considered safer than most battery chemistries. Organizations like HySafe and Standards Australia are constantly working on the developing production and safety standards, as well as educating stakeholders. But large-scale commercialization won’t happen overnight.

Matthew Walden, Investment Director at ARENA, is working with mining companies and other industry participants to test and understand the technology and believes that the commercialization journey has commenced. “In the mining sector, in particular, there’s an evolution needed in hydrogen technologies, the way it happened with solar and wind: we need to understand how these various technology elements work at a small scale to de-risk them before it then supports large-scale deployment opportunities,” he says.

In this de-risking phase, public development entities like ARENA are needed to support the evolution, by facilitating the knowledge-sharing and the commercialization of the technology, but also by providing financial support, since commercial lending is still very hard to get for hydrogen projects.

“It is early days, so the key to bankability is the alignment between the lifetime of the asset, the offtake of the product, and the input cost,” points out Pigneri. It’s also important to identify sites that could become a stepping stone to a commercial demonstration site. The technologies are there but they need to be phased in, in such a way that they deliver operational capability, comfort and confidence for commercial projects.” Then again, less than 20 years ago, solar projects were highly dependent on subsidies, yet they are now a highly bankable asset class.

The reasons why Australian miners are interested in hydrogen are clear: not only can they leverage it as an energy source to reduce emissions and costs, but the emergence of the hydrogen economy is also likely to create demand for products the sector can provide. They are now in a prime position to benefit from the country’s push towards the development of a hydrogen industry, ready to benefit from numerous pilot projects and investment schemes. And with such a strong focus on exports, mining companies could even find a new revenue source in hydrogen production.