Coleman smells ammonia in Woodside’s future

As climate concerns dampen the prospects for large LNG projects Woodside needs to protect itself with new products, and for chief executive Peter Coleman one answer is ammonia.

Coleman told the annual Credit Suisse Australian Energy Conference yesterday that ammonia could be done a sufficient scale for oil and gas companies to invest in, and indicated a preference for making it out of gas, not hydrogen produced with renewable energy.

The interest in ammonia is driven in part by the shrinking window to develop LNG mega-projects.

Credit Suisse head of Australian energy research Saul Kavonic asked Coleman if investments in LNG projects with 20 to 30-year timeframes were risky given they sometimes were based on demand projections incompatible with Paris Agreement climate goals.

"I think we have a risk of over-running, there's no doubt about it," Coleman answered.

"Is the world out there crying out for gas?
"The answer is no."

Coleman said there was a push against gas in the developed world because it was a hydrocarbon. Big-picture demand forecasts needed to be treated with caution as they did not allow for government policy and public sentiment that could change very quickly.

He said it was already difficult to justify expenditure on greenfield exploration as there was doubt about having enough market demand to support a sizeable long-payback development 10 years later when the gas would be ready to develop.

"We need to protect the business by having different product lines," Coleman said.

"The world wants a carbon-neutral fuel; gas can produce a carbon-neutral fuel.

"So, as you start to think about industrialising hydrogen, don't think of hydrogen, hopefully, think of ammonia."

Be coal's friend, not its enemy

For more than a decade, gas producers have promoted their product as being more climate-friendly than coal.

Coleman raised the possibility of Woodside's proposed new product, ammonia, complementing rather than competing with coal.

"Don't think that the coal-fired power station owners are going to simply roll over on their backs and scratch and let you scratch their belly," he said.

"If you are in a coal-fired power station...you're going to make sure that you do everything possible to keep that thing on the grid for as long as possible."

Coleman said ammonia could contribute to the fuel mix of a coal-fired power station.

Japanese manufacturer IHI in 2018 successfully fed a coal-fired power station with 20% of ammonia in the fuel mix. Six Japanese utilities are considering the technology.

Woodside joined with IHI, Marubeni and JERA in April to study the large-scale export of hydrogen as ammonia for use in decarbonising Japan's coal power stations.

Woodside's role in the study, according to the company's media release, is to investigate moving from so-called blue hydrogen made from gas to green hydrogen made using renewable-generated electricity.

Hydrogen is difficult to transport, and one solution is to combine it with nitrogen from the atmosphere to produce ammonia that is transported to a customer that strips the hydrogen out.   Using the ammonia directly as a fuel avoids the final step of separating the hydrogen.

"It doesn't require any fancy IP that some of these other stabilising technologies for hydrogen do," Coleman said.

Growth limits to wind and solar

Less than three months after the commitment to look at green hydrogen to produce ammonia, the Woodside boss has strong doubts about the scalability of renewable energy.

"If you replace train one at Pluto with solar cells it would require an area of Greater Sydney," Coleman said.

"It just doesn't work because you're going to start to get into these other competing uses of land."

Coleman said the growth of wind power created concerns about the visual impact of the turbines and the safety of migratory birds.

An added barrier to oil and gas companies wanting to invest in large-scale renewable projects was that the relatively low rate of return on the projects meant investors borrowed a large proportion of the cost to increase their return on their capital invested.

"We can't get the leverage to be able to compete in some of that market to get the return on equity required to make it sensible for our investors," Coleman said.

"You have to split out the business model and change it so that you can suddenly leverage yourself up to 70% to be an investor in solar, for example, because you need that return on equity for your investors."

The alternative to green hydrogen is blue hydrogen that combines established technology to produce hydrogen from gas with the development technique of storing the carbon dioxide produced underground.

Coleman said Woodside had the skills to implement carbon capture and storage.

Main image: Woodside chief executive Peter Coleman. Source: Woodside Energy Limited.