Australia has more than 80 hydrogen projects in the works, with Queensland and WA out in front

Dozens of hydrogen projects are in the works across the country, but Macquarie analysts say they see little chance an export industry will emerge before 2030.

Fortescue Metals Group executive chairman Andrew Forrest at Liddell Power Station, where AGL and Fortescue are exploring green hydrogen development. John Feder/The Australian.

Queensland is the preferred destination for planned Australian hydrogen projects, with 25 potential projects in the pipeline, narrowly ahead of resources rival WA as the future Australian hydrogen sector takes shape.

There are 84 hydrogen projects in planning stages around the country, according to the CSIRO’s hydrogen projects register, with Macquarie analysts noting this week that Queensland’s 25-strong pipeline is marginally ahead of the 24 currently on the books in WA.

But predictions that Australia may be in a position to begin to replace LNG exports with green hydrogen by 2030 may be optimistic, Macquarie said in a client note this week, despite recent momentum being built by some of the country’s biggest players.

“There are now 18 Australia hydrogen export project proposals – of mixed project likelihood, reminiscent of the Australian LNG sector in 2014,” the Macquarie note says.

“While some have been targeting first exports prior to 2030, this is looking unlikely to us – more likely 2032-35. Some large, high-quality projects have made progress and now have real momentum toward the initial renewables build-out phase, which can support the required ramp up for green hydrogen/ammonia exports post-2030.”

Macquarie’s analysis of the CSIRO register points to a vast gulf between the hydrogen ambitions in WA and Queensland and those of other states, with Victoria running third on the list with 12 projects. New South Wales has seven, Tasmania and South Australia six apiece, and the ACT and Northern Territory only two each.

But smaller ASX-listed companies looking to cash in on the booming outlook for green hydrogen may struggle to compete with cashed-up majors eyeing the space, according to Macquarie analysts, as the sector is likely to offer lower returns than traditional fossil fuel projects – making investment in the sector more suited to major players with lower capital costs such as oil and gas companies, existing power providers and cash-up new entrants such as Fortescue Metals Group.

“Green hydrogen projects – the majority of proposals – are likely to earn utility style returns, making it difficult for small caps with high costs of capital to compete,” Macquarie analyst said.

“Some proposals – lacking capital access, expertise or competitive advantage – look unrealistic without major restructuring. There is real innovation in this space; however, less proven technologies pose high risk for investors.”

While Macquarie noted that the recent change of federal government, and Labor’s ambition to reduce Australian carbon emissions by 43 per cent by 2030, will provide a supportive environment for hydrogen projects, Macquarie said costs of production for green hydrogen mean it may still struggle to compete against hydrogen made from natural gas.

“Very few projects have announced capex budgets for individual hydrogen projects. IEA points to levelised costs of $US3 to $US8 a kilogram for green hydrogen, $US1 to $US2 a kilogram for blue hydrogen and US50c $US1.7 for grey hydrogen from gas reforming (without CCS),” Macquarie said.

“We expect many projects may begin with the initial renewables phase, supplying electricity – and then expand to include green hydrogen production when large scale electrolyser costs are lower. Based on current progress, it is hard to see commercial scale hydrogen exports from Australia pre-2030.”