Multibillion-dollar plan to convert coal into ‘clean’ hydrogen falters

A multibillion-dollar plan to create “clean” hydrogen from Australian brown coal and ship it to Japan is on the brink of collapse.

Japanese media have reported Kawasaki Heavy Industries has withdrawn from the trial, blaming procurement delays.

Kawasaki Heavy Industries has reportedly withdrawn from a plan to create “clean” hydrogen from brown coal from the Latrobe Valley.Credit: Eamon Gallagher

The controversial plan was billed as a lifeline for the Latrobe Valley’s ageing brown coal industry. Under the plan, hydrogen would be extracted from coal, creating the world’s first liquefied hydrogen supply chain.

Proponents said the joint venture, led by one of Japan’s largest industrial conglomerates, would use commercially unproven CO² capture and storage technology to sequester carbon in Bass Strait.

It was also to send the super-cooled hydrogen extracted from coal in purpose-built bulk carriers out of Hastings to Kawasaki in Japan’s industrial heartland.

The Hydrogen Energy Supply Chain (HESC) project was a partnership between international fossil energy companies, including Kawasaki Heavy Industries Ltd, Royal Dutch Shell and AGL.

Kawasaki Heavy Industries’ hydrogen factory in 2022 in Kobe, Japan.Credit: Christopher Jue

It was supported by a $2.35 billion investment from the Japanese government and $50 million in start-up investment from the Victorian government in 2018.

Japanese outlet Nikkei reported that Kawasaki Heavy Industries had abandoned its bid to establish an international supply chain to procure hydrogen from Australia because it had become “difficult to procure hydrogen in Australia within the deadline”.

“With the completion of the demonstration test by fiscal year 2030, as originally scheduled, being an absolute requirement for ensuring competitiveness, the company has changed hydrogen procurement to domestic,” Nikkei reported. “It has also downsized its hydrogen carriers and is now steering toward a more ‘realistic’ solution.”

The development comes amid growing doubts about Australia’s ambitious push to become a major producer and exporter of clean-burning “green” hydrogen, which is a promising future energy source that emits only water vapour and could substitute fossil fuels to help clean up heavy-polluting industries.

‘This disastrous project has never stacked up … Now the wheels are well and truly falling off.’

Ellen Sandell, Victorian Greens leader

The Albanese government plans to invest billions of dollars to turn Australia into a leading supplier of zero-emissions hydrogen, but the technology remains prohibitively expensive and is not yet viable at scale.

Origin Energy pulled out of a major hydrogen production venture in Newcastle in October, Woodside recently withdrew an application for a project in Tasmania, and Andrew Forrest, one of hydrogen’s biggest advocates, paused Fortescue’s 2030 production targets and blamed high costs and the vast amount of renewable energy needed to split hydrogen from water.

The HESC project was “blue” hydrogen, which is made from coal or gas in conjunction with carbon capture and storage technology.

Victorian Energy Minister Lily D’Ambrosio raised doubts about the project last year at an Australian Financial Review energy and climate summit, saying it was not clear the proponents would be able to adequately capture the carbon from the coal and safely sequester it.

A liquid hydrogen carrier moored at the Port of Hastings in 2022.Credit: Bloomberg

“That is a question that is yet to be answered,” she said.

The AFR reported that Kawasaki Heavy Industries’ chairman, Yoshinori Kanehana, told a separate event last year his business had been focused on winning “social licence” from Victorian communities and hoped to avoid “ideological divides”.

Friends of the Earth gas campaigner Freja Leonard said Kawasaki Heavy Industries’ decision to withdraw indicated the project wasn’t financially or practically feasible.

“It’s just an absolute nonsense to use brown coal in a climate crisis to produce hydrogen,” she said.

“Hydrogen is notoriously difficult to contain. It’s incredibly expensive to produce, and any project that expects to successfully ship hydrogen from one country to another without significant leakage is doomed to failure.”

A commercial-in-confidence report on the proposal compiled by Australia’s Department of Industry, Science and Resources in 2022 and released under freedom of information laws argued the plan was broadly supported in the Latrobe Valley.

“There are a limited number of groups within the Latrobe Valley that do not support the use of fossil fuels and are against CCS [carbon capture and storage],” the report stated. “However, the predominant sentiment in the valley is one that supports the HESC [Hydrogen Energy Supply Chain].”

Identifying challenges with getting stakeholders on board, the report noted the HESC had “revised [its] messaging” by “highlighting the carbon neutrality” the project could achieve by combining biomass with coal. This, it said, “softens the image of HESC as a coal-driven project”.

Under the plan, the cooled hydrogen would have been piped more than 150 kilometres from Gippsland to the Port of Hastings and shipped to Japan.

In January 2022, according to the confidential report, hydrogen was successfully generated under trial from brown coal and biomass.

However, it reported cost overruns and lengthy delays to the trial.

Victorian Greens leader Ellen Sandell said it was time for the project to be scrapped altogether.

“This disastrous coal project has never stacked up environmentally or economically, and I cannot believe Labor ever gave it money and support. Now the wheels are well and truly falling off.”

A spokeswoman for Energy Minister Chris Bowen stopped short of backing the project.

“The government honoured the previous government’s commitment to our Japanese partners on the HESC project,” she said. “This is a commercial decision by the Japanese consortium.”

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