Corporate giants reshape for new investment world

The $40bn merger of BHP and Woodside’s oil and gas interests, together with Andrew Forrest’s ambitious plan for global scale in hydrogen energy, illustrates the titanic shifts under way in the corporate sector. The deals are vastly different but when taken with electricity company AGL’s plans to separate its renewable and fossil fuel energy generation businesses, the trend is clear.

BHP insists the proposed assets merger with Woodside is driven by the synergies and economies of scale that can be achieved through combining the two companies’ oil and gas interests. The deal leaves BHP much better placed to position itself as a company more tightly focused on the minerals that increasingly will be in demand as the world makes the transition to a lower emissions future. There is no benefit for BHP in talking down the oil and gas business because shareholders will emerge with a controlling interest in an expanded Woodside. Separating the assets will help to ensure the Big Australian, which also has announced plans to scrap its dual listing in Britain, is less exposed to the potential for reputational risk from angry protest groups. BHP already is facing a shareholder proposal at its 2021 annual general meeting on climate lobbying that calls for the company to suspend membership from trade associations whose lobbying is not aligned with the global goals set out in the Paris Agreement.

Dr Forrest’s ambitious plans to take his Fortescue group to the forefront of what he anticipates to be a hydrogen revolution is another face of the transition. By Dr Forrest’s own admission in his Boyer Lectures, Fortescue is a world-scale emissions company generating just over two million tonnes of greenhouse gas every year. When scope three emissions from smelting Fortescue’s iron ore into steel in China are considered, that number is multiplied a hundredfold. Dr Forrest is reimagining his future as a big part of the climate change solution. As Glenda Korporaal wrote on Wednesday, Dr Forrest’s upstart green energy arm has long-term plans to produce 50 million tonnes a year of renewable clean hydrogen, making it equivalent to the output of some of the world’s largest oil and gas companies. Dr Forrest’s ambition is to help “build Australia into the renewable green hydrogen superpower of the world”.

There is significant global interest in hydrogen as a replacement fuel for oil and gas but the technology remains a long way from commercial reality. Dr Forrest says the global green hydrogen market has the potential to generate revenues of $US12 trillion ($16.5 trillion) a year by 2050, much larger than any other industry that exists today. This is 100 times greater than the current $150bn export market for Australia’s iron ore industry.

Many people are sceptical that the numbers for hydrogen production from renewable energy sources such as wind and solar, both in terms of energy input and water use, will stack up. Dr Forrest is betting they can. He correctly says that for decarbonisation of the global economy to work, zero-emissions energy needs to be available at an industrial, global scale and at a price that competes with fossil fuels. He is on the same page as Energy Minister Angus Taylor in arguing that when renewable energy becomes less expensive than fossil fuel energy the world will begin the journey in earnest to become zero-carbon – not only because it’s the right thing to do but because it makes economic sense. The federal government’s technology road map has an ambition for hydrogen production under $2 a kilogram and includes hydrogen production from fossil fuels with sequestration of CO2 emissions. If it works, this would allow the export and use of energy from coal deposits without associated carbon dioxide emissions.

Dr Forrest is critical of hydrogen production from anything other than renewable energy sources, which uses a different technology and is more expensive. In an address on Wednesday, Dr Forrest said the most recent argument that hydrogen made from fossil fuel whose carbon emissions had attempted to be sequestered was “the new green” was false.

Dr Forrest also has his detractors and it remains to be seen whether his plans turn out to be anything more than greenwash, but he is prepared to have a go. As a multi-billionaire, Dr Forrest can afford to use his own money to undertake the journey. As long as this remains the case, taxpayers can only salute his ambition. Just as BHP shareholders can appreciate their board’s initiatives to restructure in a way that delivers immediate value and flexibility and attempts to future-proof the company in what are rapidly changing times.