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Explosives manufacturer Orica will look at fast-tracking two green hydrogen projects in Australia after the Albanese government this week allocated $2 billion to kickstart the fledgling industry.
But the company, which supplies explosives, blasting systems and other services to mining, quarrying and construction firms around the globe, believes the government’s incentives are still not big enough to counter America’s multibillion-dollar effort to supercharge its clean energy economy and corral the critical minerals needed to power the transition.
Orica uses gas to create explosives for mining firms.Credit: Michele Mossop
The government unveiled its “hydrogen headstart” program in Tuesday’s federal budget to provide credits for each kilogram of green hydrogen production.
The incentive seeks to narrow the large cost gap between current hydrogen prices and the commercial production of green hydrogen, which is still at prohibitively high levels when compared with hydrogen made from fossil fuels.
Green hydrogen, made by using a renewable energy-powered electrolyser to split water into hydrogen and oxygen, is seen as the best replacement for carbon emitting fossil fuels in heavy transport, heating and power generation, and a variety of other manufacturing processes.
Governments and businesses around the world are scrambling to find environmentally friendly ways to produce hydrogen and rapidly decarbonise energy-intensive industries, a key aim of the Biden administration’s big ticket $US369 billion ($584 billion) Inflation Reduction Act in the US.
Hydrogen burns cleanly and emits only water, but most of today’s “grey hydrogen” is made from natural gas through a process that emits carbon dioxide into the atmosphere.
Orica has a partnership with power giant Origin Energy to explore developing a green energy-powered hydrogen production hub in NSW’s Hunter Valley and a separate deal with H2U Group to develop a green ammonia product plant that would supply its Yarwun ammonium nitrate manufacturing facility near Gladstone, in Queensland. Ammonium nitrate is a chemical compound derived from ammonia used to make explosives, matches, fertilisers and antibiotics.
The Hunter Valley hub is being assessed for its environmental impact and the Gladstone project’s feasibility is under review, but neither has been given final investment clearance.
“Obviously, we will look very carefully at that [government] funding and see how that can help us to come to a final investment decision soon so that we can start manufacturing green hydrogen in this country,” Orica’s chief executive, Sanjeev Gandhi, said.
Orica CEO Sanjeev Gandhi says more support is needed to bridge the manufactured green hydrogen price gap.Credit: Eamon Gallagher
Orica hopes to use green hydrogen as a feedstock to replace natural gas – it uses about 15 per cent of NSW’s total supply at its Kooragang Island facility near Newcastle – in its manufacturing processes, and sell the resulting carbon-light products to customers such as mining giants BHP and Rio Tinto, in turn, helping them reduce their scope 3 climate emissions.
Despite the government’s hydrogen credits, there is still a big difference between the price of manufactured green hydrogen and what the market can pay for it, Gandhi said.
“We need further support to bridge that gap,” he said.
“We are competing here with the US who has the Inflation Reduction Act. The US has allocated $US350 billion ($516 billion) to support the hydrogen industry. We are starting with $2 billion. It’s a great start, but we need to scale that up quickly.”
Orica has released its half-year results to the end of March, detailing a rise in underlying earnings before interest and tax of 32 per cent on the previous corresponding period, up to $323 million. Gandhi said the company’s strong performance is expected to continue in the second half.
“I expect that demand for the products and services will stay strong. Our fastest growing commodities year-on-year have been copper and gold again,” he said.
Like many other manufacturing businesses, Orica is keeping a watchful eye on the price of gas – a key ingredient for its explosives manufacturing business. Costs of the fuel soared as Australia and Europe faced an energy crunch caused by the war in Ukraine and COVID-19 pandemic.
Gandhi welcomed the Albanese government’s recent interventions in the gas market to tame runaway energy costs, but said Orica must renegotiate its long-term gas supply agreements in 2026 and needs gas prices to settle before then. “The arbitrage [between prices in the US and Australia] is just too big. It needs to close because this is not sustainable,” he said.
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