There’s certainly a lot going on in energy markets.
And it’s probably the most important industry in the world right now.
I think we can all agree that the days of fossil fuels are numbered.
But what comes next?
And how long will any transition take?
These are the key questions for both investors and policymakers.
And the cost of getting this wrong is immense — as Europe is in the midst of finding out.
As Yahoo! News reported:
‘Record-breaking electricity prices across Europe are damaging the continent’s attempts to build a reliable low-carbon supply chain and reach its decarbonization targets, as solar and battery manufacturers face mounting costs.
‘Rystad Energy research shows that 35 gigawatts (GW) of solar PV manufacturing and more than 2,000 gigawatt-hours (GWh) of battery cell manufacturing capacity could be mothballed unless power prices quickly return to normal levels.’
Unfortunately for Europe, they’re fast becoming the poster child of bad energy policy.
It’s an example of how decisions by bureaucrats in complex markets like energy tend to ignore or misunderstand the second- and third-order consequences of their decisions.
But it seems clear that the energy mix of the future is set to change.
And one word that keeps popping up time and time again is hydrogen.
Goldman Sachs put out a report earlier this year saying it could become a US$1 trillion-per-year industry.
And if it lives up to even half the hype, it could be a huge opportunity for you today.
Let me explain…
Twiggy buys it
The latest advocate for hydrogen was BMW Chairman Oliver Zipse.
After saying a future of hydrogen-powered cars will become the ‘hippest thing to drive,’ he added:
‘After the electric car, which has been going on for about 10 years and scaling up rapidly, the next trend will be hydrogen.’
Why so excited?
Well, a major benefit of hydrogen is that it doesn’t need a public charging infrastructure to be built.
The current network could be repurposed easily enough, which means adoption rates could be fast.
Certainly, faster than electric cars.
What’s more, it doesn’t need to rely on raw materials such as lithium or cobalt like electric batteries do.
Our very own Andrew ‘Twiggy’ Forrest is also a big believer in hydrogen and has been a bit of a trailblazer in pushing the concept along.
Earlier this year, he announced the creation of a $3 billion green energy centre in Gladstone, Queensland.
The centre would make the equipment to make ‘green’ hydrogen.
This is a process of using renewable energy to electrolyse water to create hydrogen, as opposed to other methods that use gas or coal.
Forrest has inked multiple deals this year, including a humungous $50 billion deal to supply hydrogen to German energy giant E.ON by 2030.
Forrest noted the opportunity for Australia was huge, saying:
‘We have enough wind and solar in Australia to completely overwhelm the fossil fuel sector in its entirety.
‘It will be transported initially as green ammonia. The Plan A is to build on the successful bulk shipment we have seen from Australian to Japan most recently.
‘Liquid hydrogen will become the largest seaborne trade in the world. If it starts as green ammonia great, but I can assure you soon the bulk ships of green hydrogen will be sailing as liquid green hydrogen.’
Personally, I’m a big fan of Andrew Forrest’s judgement.
His rise from the ashes after a failed nickel venture — to become Australia’s richest man on the back of a once-in-a-lifetime iron ore boom — is the stuff of legend.
Big, single-resource bets are his stock in trade.
But not everyone’s convinced he’s got it right on hydrogen…
Greenie or grifter?
Climate evangelist Saul Griffith said that it’s not going to work.
He recently told AER’s energy summit:
‘We do not have a viable technology for green steel. Green hydrogen is not going to temper any domestic emissions this decade.’
His main argument is that you’d be better off just using solar and wind on their own for power generation rather than using them to make hydrogen.
He even said the German power deal struck by Forrest’s Fortescue was just a publicity stunt.
Then there was a critique in the Doomberg newsletter that stated:
‘With no realistic ability to ship hydrogen directly anytime soon,
aspiring griftersgreen hydrogen proponents intend to transform hydrogen to ammonia and ship that, a concept we’ve had fun ridiculing in a prior piece.’
The gist of their ire was that shipping hydrogen isn’t feasible in any commercial way — a similar line of attack as Saul Griffith.
But Twiggy Forrest and major governments worldwide seem to be convinced otherwise.
In August, Germany inked a deal with Canada to import green hydrogen.
On Saturday, Aussie PM Albanese and his Japanese counterpart Kishida agreed to boost Japan’s access to LNG, minerals and, yes, hydrogen.
And last week, both Victorian and WA premiers mentioned hydrogen as part of their future energy plans.
The WA government is planning to turn the Oakajee site near Geraldton into a world-class hydrogen export hub.
Land at Oakajee is set to be allocated to six proponents, including BP, Fortescue Future Industries, Copenhagen Infrastructure Partners, Green LOHC, Kinara Power, and Blue Diamond Australia.
Meanwhile, Premier Andrews of Victoria sees hydrogen as the renewable ‘gap filler’ to replace retiring coal plants as part of his new State Electricity Committee plan.
As I said at the start, hydrogen seems to be popping up everywhere…
So, should you buy it?
As a speculative investor, it ticks all the boxes for me.
And I’ll be running the rule over the smaller opportunities in play for my Exponential Stock Investor service in the coming months.
But hydrogen is just one part of a huge and fast-changing energy market that I don’t think many observers — especially government policymakers — fully understand.
This means I expect mistakes to be made as we transition to the next phase of energy…whatever that turns out to be.
The upside?
This period of flux will provide big opportunities for investors that can separate fact from fiction.
To that end, my colleague Greg Canavan is set to release a detailed new report on the entire energy industry.
It’s a must-read right now, and the findings might surprise you.
Anyway, look out for that free energy report in your inbox over the next day or two.
And keep an eye on the hydrogen sector…
Good investing,
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Ryan Dinse,
Editor, Money Morning
Ryan is also co-editor of Exponential Stock Investor, a stock tipping newsletter that hunts down promising small-cap stocks. For information on how to subscribe and see what Ryan’s telling subscribers right now, click here.
