‘Tomorrow’s oil’ is a new insurance opportunity

‘Tomorrow’s oil’ is a new insurance opportunity

Green hydrogen is the new energy market buzzword, and Australia is at the forefront

By Stefan Feldmann, Managing Director, HDI Global SE Australia

Many analysts view hydrogen as a great opportunity for Australia. The diverse use of hydrogen – in the generation of heat and electricity, as a chemical raw material for industrial companies as well as in the transport industry to power vehicles – can create numerous growth markets.

Hydrogen is intricately linked to energy, and as an energy powerhouse Australia can offer the full spectrum: in addition to fossil fuels there is solar, wind, tidal, wave and geothermal energy.

Hydrogen fits perfectly into this mix, enabling Australia to share its surplus of energy with the rest of the world.

Hydrogen (chemical element H2) is the most common chemical in the universe. It can be produced as a gas or liquid, or made part of other materials, and has many uses such as fuel for transport or heating, a way to store electricity, or a raw material in industrial processes.

The Federal Government has identified hydrogen as one of the pillars of its future energy and emissions policy. In the so-called roadmap published last September, the Government painted hydrogen as a priority area and earmarked more than $70 million for the construction of a hydrogen export hub.

H2-ready: HDI’s Stefan Feldmann

As the next step, a network of hydrogen technology clusters will be set up in all states and territories. Around $1.85 million will flow into these 13 clusters – a small investment given the growth a Deloitte report from 2019 promised the country. It envisages an increase in GDP by up to $26 billion and up to 16,900 new jobs.

In addition to economic growth, Canberra hopes that hydrogen, production of which is expected to cost less than $2 per kilogram by 2030, could help Australia reduce its emissions. This new energy source could also alleviate the “growing pain” whole regions will feel when the global market enforces the switch from fossil fuels to renewable energies.

That’s why it is maybe no wonder that the planned hydrogen clusters overlap with the previous centres for coal and gas production. These lend themselves to the new technology, as they already have the right infrastructure in place as well as the necessary energy supply and engineering knowledge.

The development of these new clusters will also present an opportunity for energy insurers as electrolysis plants and pipelines are constructed and later operated for green hydrogen production and transportation. All these new structures, as well as transport methods, will need insurance.

“Natural catastrophe assessment will be at the forefront of our minds when

underwriting, as there will be an accumulation present in regions of Australia where hydrogen projects are likely to be developed,” says Jane Ravi, the Underwriting Manager, Power & Energy at HDI Global SE in Australia.

“With much of heavy industry playing a vital role in the transition of Australia’s energy mix, we will naturally become vigilant in our assessment while being able to find solutions to support in paving the way into the future.”

Mark Mackay, the Head of Energy at HDI Global SE Singapore, says HDI will approach this type of risk in a similar way it handles liquefied natural gas (LNG) risks. “From an underwriting perspective, we have an appetite for this type of risk.”

HDI also supports the development of other hydrogen processes such as biomass gasification and electrolysis of water, as part of its power generation portfolio.

Hydrogen is transported in bulk liquid form similar to LNG. At present the main mode of transport is cryogenic tankers.

Japan launched the world’s first liquified hydrogen carrier, Suiso Frontier, in 2019 with the intent to start carrying hydrogen – for the time being produced from Australian coal – to Japan. The test vessel is designed to transport liquefied hydrogen at 1/800 of its original gasstate volume, cooled to -253°C, which shows that the technology is in many ways similar to the carriage of LNG.

There are, of course, several risks involved that underwriters need to take into account: Fire, explosion and spills could affect production facilities and transport methods as well as other existing structures that fall out of scope of the contract works and are deemed third party.

Another risk that needs to be weighed up is the inevitable insurance cover for workers’ injuries. “Risk mitigation measures are well described in the literature and with a good risk management program, safe handling hydrogen is achievable,” says HDI Global SE Australia Risk Engineering Manager, Asia Pacific Philipp Glanz. “Our risk engineers are well trained in assisting our clients in implementing adequate risk mitigation measures.”

Risk might also be reduced by the fact that many clusters will be in remote areas which, from an insurance perspective, is a positive.

How quickly Australia can put its hydrogen plans into reality is harder to define. A recently published report by ratings agency S&P said building a “hydrogen chain” requiring pipelines, the retrofitting of ports and specialised ships could take a long time – perhaps decades.

Despite that, many parties are already lining up. On the other side of the world in Berlin, the German Government has pinned its energy hopes on hydrogen. Its Federal Ministry of Education and Research has high expectations for the transition into a greener energy future.

“Green hydrogen can be produced in regions with lots of wind, sun and water and from there exported to meet the world’s energy needs,” the ministry writes on its website.

In September last year Germany and Australia agreed on a feasibility study on a supply chain for green hydrogen. The project, called HySupply, was launched in December and is scheduled to run for two years.

In addition to Germany, South Korea and Japan are also interested in hydrogen from Australia. Both countries have set themselves net-zero emissions targets by 2050 and have reached out to Australia to help achieve these.

For example, South Korean steel manufacturer Posco and the Japanese companies Kawasaki Heavy Industries and Iwatani have already forged co-operation deals with Australian iron ore mining giant Fortescue to produce hydrogen.