The Kawasaki-led Hydrogen Energy Supply Chain consortium flagged in February that it was well advanced with local private sector partners as it sought to push the initiative towards a commercial project, and said details of the project would be released this year.

AGL chief executive Andy Vesey last Friday foreshadowed the announcement of the Japanese-backed project at Loy Yang, and also voiced interest in exploring the use of surplus renewable energy – for example, wind power generated at night – to produce hydrogen via electrolysis.

"What makes it real here is the fact that all these wind farms are going to be built and when the wind is blowing at night and producing energy, what are you going to do with it?" Mr Vesey said. "It doesn't cost anything, the capital is already there ... let's take water and turn it to hydrogen."

Less of a threat

Mr Vesey said the hydrogen opportunity, based around existing gas pipeline infrastructure, represented healthy competition with the drive to electrify transportation with consumers to see the benefit.

AGL CEO Andy Vesey has also voiced interest in exploring the use of surplus renewable energy – for example wind power generated at night – to produce hydrogen via electrolysis. James Alcock

International energy majors such as Shell, France's Total SA and Engie have also invested in hydrogen and fuel-cell vehicle ventures. For oil and gas companies, hydrogen, a green fuel with a "natural adjacency" for the petroleum industry, is perhaps a better fit than batteries, which are seen as more of a competitive threat, said Saul Kavonic at consultancy Wood Mackenzie.

The Hydrogen Council, a global CEO-led initiative, estimates the fuel could supply up to a fifth of global energy needs by 2050 and generate a market worth $US2.5 trillion ($3.1 trillion) a year by 2050.


The Japanese-backed project at Loy Yang A is expected to include gasifying coal from the Latrobe Valley mine into a mix mostly of carbon monoxide and hydrogen, extracting the carbon and then liquefying the gas in the Port of Hastings area, near to where AGL is planning its $250 million LNG import terminal.

The liquefied hydrogen would be stored then loaded into a special purpose-built ships for transportation to Japan, advancing its ambitions to create a "hydrogen society", while the carbon waste would be injected underground for storage, potentially in depleted gas fields in the Gippsland Basin. Shell is understood to be involved in the early stages of evaluating shipping of hydrogen, along with other partners.

Just how carbon-intensive the process is depends greatly on how the hydrogen is produced. Converting coal is just one way, along with using electricity to split water into hydrogen and oxygen, gasifying biomass and then separating hydrogen from carbon gases, or by "reforming" natural gas in large plants.

Mr Kavonic said it is "early days" in the journey towards any large-scale commercial production based on Victoria's vast lignite resources, but that new technology applications such as gasification to create hydrogen are needed to avoid the resource having to stay in the ground.

"Hydrogen remains a green fuel technology with plenty of potential, but will require further technological advancements and economies of scale or government support to overcome economic hurdles," he said.

The project at Loy Yang A is understood to include Japan's New Energy and Industrial Technology Development Organisation, and Japanese and Australian government industry departments.

Officials from the federal and Victorian resources departments travelled to Japan last year to examine Kawasaki's technical work on the technology as part of the process to make government funding available, according to an industry source.