White hydrogen could become a huge source of income for miners

Fortescue is a large Australian mining group that has articulated ambitious plans to become a clean energy giant, particularly in the hydrogen market, where it has launched several large international green projects and entered into numerous partnerships with other firms. However, earlier this year Fortescue began to show signs of getting cold feet. Metal prices haven’t been as high, which means less cash available to sink into non-cash-producing projects. Earnings missed expectations and could fall next fiscal year. Moreover, electricity prices have risen, and electricity is a key ingredient in the production of clean hydrogen. Higher energy prices make green hydrogen even less competitive. In the middle of the year, Fortescue announced a postponement of its green initiatives and laid off 700 employees.

Okay, it’s not the first company to back away from overly ambitious green energy plans. But we were more interested in what happened next. In late August, Fortescue agreed to buy for $14 million a 40% stake in a small Australian firm set up to drill for white hydrogen (hydrogen found underground resulting from the reaction of rainwater with certain minerals) which can be classified as a renewable energy source. Abandoned wells in the areas selected for drilling, moreover, show a high concentration of helium with hydrogen – the icing on the cake, one might say. The target company’s acreage is located in Kansas and Nebraska, near pipelines and potential users. Drilling to determine the commercial viability of the discoveries will begin in late 2024 or early 2025. Drilling for hydrogen by another Australian company in Fortescue’s home state of Western Australia will also begin in late 2024. (Abandoned wells in Australia also has high concentrations of helium.)

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Now back to motivation. If the estimates are correct, white hydrogen will cost a third more than green hydrogen (produced using non-fossil electricity), which Fortescue and others plan to commercialize from their hydrogen production facilities. So if white hydrogen turns out to be sufficient, why bother producing green hydrogen at much higher cost? And if there is enough white hydrogen, government subsidies for green hydrogen production projects may turn out to be a waste of money. Why buy expensive green hydrogen when you can buy cheaper white hydrogen? Lots of ifs. So here it is at the end.

White hydrogen, if found in sufficient quantities and in sufficient locations (potential locations have been identified in the eastern US and Europe) will turn hydrogen into an economic energy source rather than a specialty product purchased by those who do good for the environment.

In half a year, the uncertainty could turn to excitement, and OilPrice readers will be talking about the hydrogen rush. And if that happens, remember you read it here first.

By Leonard Hyman and William Tilles for Oilprice.com

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