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[Contribution] Why hydrogen alliance among Korea, Japan, and Australia is importantBy Korea Herald
Published : June 1, 2022 - 20:36
However, the fact that Korea and Japan lack renewable power, gas production as well as carbon storage capacity makes it impractical to produce significant amounts of hydrogen domestically. Having acknowledged the fundamental aspect of limitations, governments and private companies in both countries have decided to turn to overseas to import vast amounts of hydrogen.
It is in this context that Australia has recently started multiple rounds of hydrogen-related conversations with the governments of Korea and Japan; many private companies from the two countries have established hydrogen-related footprints in Australia as well. The Australian government also strategically placed hydrogen as its future energy source to export, replacing carbon-intensive liquefied natural gas and coal. This likely suggests the coming of the international hydrogen market between Korea, Japan, and Australia -- gradually replacing the LNG ecosystem that currently exists.
The burgeoning of such an international hydrogen market, however, will require many hurdles to be overcome. In our perspectives, delays are being experienced due to various uncoordinated and suboptimal actions and inactions by critical stakeholders across the value chain, which can be mitigated and solved by actively collaborating and engaging with related parties.
The first hurdle is the lack of globally unified technical standards.
Standards are crucial for the industry to have coordinated objectives on the critical technical specifications that, for example, govern safety and quality issues. Without unified standards, industry might end up developing various siloed systems that are not interoperable. This will not only have the potential for double investments, but will also face a significant scale efficiency disadvantage as it fragments the market. Developing unified standards shared among Korea, Japan and Australia will provide clear guidelines to companies so that they can work toward putting together widely known specifications.
The second problem includes challenges surrounding the certification of hydrogen’s “cleanness,” or carbon content. Currently, each country has its own definition of what constitutes “clean hydrogen” and the ways to professionally certify hydrogen’s carbon content are still being defined. Building an agreed scheme among Korea, Japan and Australia for measuring, verifying and reporting clean hydrogen production will give clarity to everyone in hydrogen value chains so they know against which criteria they should develop their business.
The third stumbling block is the uncertainty behind the transportation carrier.
For transportation efficiency, hydrogen is often converted into other forms. The most widely discussed such forms are ammonia, liquid hydrogen and organic carrier.
Ammonia is commonly viewed as the most immediate and mature technology, but the long-term winner, in terms of economics and technological maturity timeline, is still being debated. These uncertainties prompt players to be reserved from making large, committed investments in midstream and “wait-and-see” until the winning technology emerges. Having a high-level aligned road map on which carrier types will be supported in the short-, mid- and long-term among the three countries will offer greater certainties to players, allowing them to invest in the same technology concurrently to catalyze collaboration and synergies.
The last important roadblock concerns hydrogen demanders (“off-takers”) as they find it difficult to make multiyear -- often 10-20 years -- binding contracts to buy fixed volumes of hydrogen at fixed prices. This is because hydrogen is currently very expensive, yet it is clear that the price will fall sharply, year-over-year, as technology improves. (Carbon-free hydrogen from Australia landed in Korean will cost about $4.50 per kilogram in 2030 vs. about $2.50 per kg in 2050).
Off-takers are also weary of possible policy changes that affect the hydrogen business. Such costs and regulatory uncertainties ahead make it difficult for demanders to sign fixed agreements over 10-20 years, which is a requirement for producers to make investments. Hence, having both the exporting and importing governments aligned on guaranteed subsidy plans over a sufficiently long period will greatly facilitate such off-take agreements to happen.
Despite the problems mentioned above, passionate activities exhibited by the companies and governments recently in the three countries suggest high hopes for resolutions.
The issues are complex and are part of the natural process, as the world is now seeing the emergence of a completely new energy source. Fortunately, from the history of developing the LNG market among the three countries we already know that the solution lies in collaboration.
The active formation of a “hydrogen alliance” will catalyze the international market’s development. This way, there’s no doubt that East Asia could rise as the world’s hydrogen hub.
By Marco Moder and Will Kwon
Marco Moder and Will Kwon are a partner and an associate partner at McKinsey & Co. Views expressed in this article are their own. -- Ed.
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