Major project cancellation exposes fatal flaws in Australia’s hydrogen export strategy

The cancellation of the poorly thought through CQ-H2 hydrogen export project in Queensland, one of many recently, marks an opportunity for a pragmatic realignment of Australia’s hydrogen strategy.

Promoted as a landmark initiative that would anchor Australia’s energy transition and deliver billions in export revenues, CQ-H2’s failure underscores a broader trend that has become increasingly obvious worldwide. 

Hydrogen-for-energy export schemes do not hold up under economic scrutiny. 

The project’s collapse, costing more than $12 billion in intended investment and thousands of potential regional jobs, is not an isolated event. Rather, it forms part of a global pattern that reveals deep flaws in assumptions underpinning hydrogen-for-energy and ammonia export strategies.

Australia has witnessed a rapid succession of hydrogen project cancellations or indefinite postponements. Alongside CQ-H2, South Australia’s widely promoted Whyalla Hydrogen project was terminated when state backing dried up. At Port Pirie, Trafigura shelved a $470 million electrolyser planned to feed hydrogen into local ammonia production, primarily intended for export markets.

Hunter Valley’s ambitious hydrogen-to-ammonia project, championed by Orica and Origin Energy, stalled when Origin exited citing market uncertainties.

In the Northern Territory, the Provaris’ Tiwi Islands hydrogen proposal has both been placed on indefinite hold and Desert Bloom is stuck in planning and development, further eroding investor confidence in Australian hydrogen exports.

These setbacks in Australia reflect a global pattern. In Canada, similar hydrogen ventures faced widespread abandonment. EverWind Fuels’ Nova Scotia project aimed at hydrogen-based ammonia exports to Germany saw its European contracts evaporate as buyers balked at the economics.

British Columbia’s renewable hydrogen initiatives experienced similar outcomes, with major proposals scaling back or failing altogether due to inadequate customer demand. 

In the United States, NextEra’s Florida green hydrogen projects and Louisiana’s G2 Net-Zero hydrogen-ammonia facility struggled with escalating costs, regulatory hurdles, and uncertain export markets, ultimately leading investors to retreat.

Internationally, European hydrogen projects face comparable outcomes, with German initiatives and Dutch electrolyser facilities downsizing significantly or disappearing entirely.

Caption: Australian energy flows from Government of Australia

In 2023, I published an analysis in CleanTechnica examining Australia’s National Net-Zero report, highlighting its unrealistic expectations about the country’s ability to leverage hydrogen for economic growth.

At that time, Australia’s fossil fuel exports stood at around $200 billion annually, mainly coal and natural gas. That’s about four times as much energy as its entire economy consumes. 

The report optimistically projected rapid replacement of these exports by renewable hydrogen and ammonia, forecasting dramatic expansion in electrolyser capacity and hydrogen export volumes. More than that, it pretended that total energy exports would grow.

As I noted at the time, those projections ignored fundamental economic realities, including the high costs of hydrogen production, significant energy conversion losses, complex logistics, and nonexistent global willingness to pay premium prices well above the cost of LNG. Two years later, the evidence now aligns entirely with those warnings.

The fundamental misconception at the core of Australia’s hydrogen export dreams was believing that the world would adopt hydrogen as a dominant energy vector. Advocates assumed international markets would rapidly embrace hydrogen, creating abundant demand.

Instead, global experience consistently demonstrates hydrogen’s economic disadvantages relative to local renewables, direct electrification and battery storage. 

The losses in energy conversion, high electrolyser and infrastructure costs, and the complexity of safely transporting hydrogen or ammonia across oceans made it a nonstarter, economically.

Australia’s ambitious hydrogen export vision ignored these obvious market realities, hoping instead for technology breakthroughs and subsidies that never fully materialised.

Hydrogen’s economic failure as an export commodity also extends directly to ammonia-based strategies. Hydrogen-to-ammonia conversion was widely promoted as the optimal solution for storage and transportation. However, ammonia production itself adds substantial cost and complexity to energy distribution.

Once reconverted to energy at the destination, ammonia delivers only a fraction of the original input energy, undermining its value as an energy export medium. Projects explicitly targeting ammonia exports like those at Port Pirie and Hunter Valley faced insurmountable barriers and ultimately collapsed or downsized dramatically.

While exporting green hydrogen has proven economically unviable, Australia still holds real opportunities domestically. Australia’s agriculture and mining sectors depend heavily on ammonia produced from hydrogen currently sourced from fossil fuels, primarily natural gas.

Decarbonising Australia’s existing ammonia production with domestically produced renewable hydrogen presents a practical, economically viable path toward rapid emissions reductions. 

Australia’s major ammonia production plants currently use around 85% of the nation’s total hydrogen production. These sites, located near existing renewable resources, represent a stable, predictable market that should adopt right-sized electrolysis facilities powered by solar and wind, and firmed by increasingly cheap batteries, directly replacing fossil-derived hydrogen without the costly complexities associated with exports.

Decarbonising Australia’s domestic ammonia industry through renewable hydrogen production directly supports critical national industries. Farmers rely heavily on ammonia-derived fertilisers for crop productivity, and the mining sector requires ammonium nitrate explosives.

Transitioning to renewable hydrogen at these existing plants would significantly cut emissions, enhance energy security, and deliver stable employment without exposure to uncertain global markets.

Unlike speculative export schemes, these domestic projects would leverage existing infrastructure, avoid substantial transportation costs, and have clearly defined offtake agreements with local industry. This realistic, targeted approach to hydrogen deployment is precisely what Australia needs to meet its net-zero ambitions practically and affordably.

Yes, the fertilisers and explosives will be more expensive, but that’s always been true. There is never going to be anything cheaper than millions of years old stored sunlight when we are allowed to use the atmosphere as an open sewer. That’s no longer viable as floods, fire and heat waves devastate countries globally, not just Australia.

Most of the rest of the local demand for hydrogen is going away. It’s used in crude oil refineries to help make fossil fuels. The best way to reduce the emissions related to hydrogen in refineries is to stop burning gasoline and diesel as rapidly as possible, not decarbonise the hydrogen where the investment won’t be of long-term value.

As I noted recently in Renew Economy, it’s unlikely that steel in Australia will require green hydrogen when electrified biomethane reduction of iron, molten oxide electrolysis and flash iron making provide cheaper pathways to low-carbon, high-value steel for export.

Australia must learn from the extensive failures experienced globally. Europe’s hydrogen strategy, hailed as revolutionary by people who didn’t understand the techno-economic illiteracy of it, now increasingly pivots toward direct electrification of industries and targeted hydrogen use as an industrial feedstock.

Canada’s experiences also illustrate clearly the importance of realism, showing the risk of relying on hypothetical export demand rather than proven domestic needs. The United States is similarly shifting to hydrogen use in domestic industrial sectors, reflecting market realities that Australia cannot afford to ignore.

The lesson from CQ-H2’s failure and other global hydrogen collapses is clear. Instead of seeking to become a global hydrogen for energy export superpower, Australia must pivot to decarbonising its domestic ammonia industry, securing real emissions reductions while supporting vital national industries.

By focusing on decarbonising Australia, first, rather than the world, the nation can achieve genuine economic and environmental benefits. The hydrogen export dream has faded, but Australia’s real hydrogen opportunity, practically and economically sound, remains within reach.