Fortescue’s green hydrogen ambitions: Prosperous or preposterous?

Fortescue Metals Group Limited (ASX: FMG) shares are under the spotlight as one of its main resource rivals questioned the future of green hydrogen.

As some readers may know, Fortescue has a division called Fortescue Future Industries (FFI) which is planning to create a portfolio of green energy-producing locations around the world.

Fortescue thinks that green hydrogen and green ammonia is the answer of how to decarbonise a number of sectors that are hard to lower emissions, including aircraft, ships and heavy machinery.

Questions raised

According to reporting by The Australian, Rio Tinto Limited (ASX: RIO) chief scientist Nigel Steward doesn’t think that hydrogen can be used as an “energy carrier” in the near future because of its production costs and problems with shipping. Steward said:

Hydrogen is much hyped, particularly as an energy carrier. We don’t see hydrogen as being used as an energy carrier.

If we want to use hydrogen as an energy carrier, and we’re going to transport it around the world as liquid hydrogen, that’s problematic because 1% of the hydrogen per day is lost to the atmosphere.

He also noted that green hydrogen production requires a lot more energy to produce than aluminium smelting. But he does think green hydrogen can be used in certain areas and is “best consumed where it was produced.”

Fortescue and other potential hydrogen producers are expecting to tackle energy loss in transporting liquid hydrogen by producing ammonia. Though that would reportedly require more chemical processes, and therefore use more energy.

He also claimed that it’s better to burn natural gas than it is to transport hydrogen around the world and then consume it later.

Green hydrogen has its supporters

On CBNC, Goldman Sachs’ commodity equity business unit leader for the EMEA (Europe, Middle East and Africa) region, Michele DellaVigna, spoke positively about the outlook for green hydrogen, which could be positive for the Fortescue share price over time.

DellaVigna pointed to the Inflation Reduction Act in the US as a turning point. It’s investing hundreds of billions of dollars into the “modernisation of the American energy system”. The policy included a hydrogen production tax credit. DellaVigna said:

All of the progress in clean-tech technology, economics, that we’ve seen for the last two, three years, had been driven by higher oil, gas and coal prices. That is what makes, comparatively, renewables and hydrogen more profitable.

It finally makes technologies like green hydrogen, local green battery production [and] carbon capture, profitable in large scale.

Fortescue is hoping that Australia can become a major exporter of green hydrogen and help the energy transition.

It’s getting the attention of world leaders, with the likes of the German leader Olaf Scholz commenting at the COP27 climate summit (according to CNBC) that it’s “one of the most important technologies for a climate-neutral world”:

Green hydrogen is the key to decarbonizing our economies, especially for hard-to-electrify sectors such as steel production, the chemical industry, heavy shipping and aviation.

Of course, green hydrogen is still an infant industry, its production is currently too cost-intensive compared to fossil fuels.

There’s also a ‘chicken and egg’ dilemma of supply and demand where market actors block each other, waiting for the other to move.

Fortescue share price snapshot

Over the last month, Fortescue shares have risen by around 27%.

The post Fortescue’s green hydrogen ambitions: Prosperous or preposterous? appeared first on The Motley Fool Australia.

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More reading

• How the Fortescue share price defied the bears and jumped 32% in November
• What’s boosting the Fortescue share price on Wednesday?
• The 10 ASX 200 shares responsible for 60% of all Aussie dividends last quarter
• Here’s what’s boosting these ASX 200 mining giants today
• Did Fortescue just lose out on this multi-billion dollar green hydrogen project?

Motley Fool contributor Tristan Harrison has positions in Fortescue Metals Group. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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