36 Billion USD Green Hydrogen Dream Shattered: BP PLC Bids Farewell to Australia’s Mega Hydrogen Hub, Returning to the ‘Black Gold Era’.
According to AASTOCKS, BP PLC (BP.US) is refocusing on its core business of fossil fuels and will exit its central role in a large-scale green hydrogen production infrastructure project within Australia’s energy plan.
A spokesperson from BP PLC stated that the company has informed its partners in the Australian Renewable Energy Hub (AREH) that it plans to no longer serve as the operator and equity holder of the project. This is the latest setback for global green hydrogen projects, which were once seen as a key pathway for oil giants to profit from the energy transition. However, the high costs associated with large-scale production and consumption have led many energy companies, including BP, to abandon green hydrogen projects.
According to an AREH spokesperson, the AREH project company will take over as the operator in the coming months, with support from the founding partner InterContinental Energy. They stated that BP’s decision to exit does not affect the center’s potential to reduce carbon emissions in the Pilbara region and support the creation of a green iron ore industry.
BP entered the project when the cost of the large-scale green hydrogen project was estimated at around USD 36 billion, as the company sought to rapidly build a zero-carbon energy business centered on green hydrogen and reduce its oil operations. However, after years of underperforming in the stock market compared to peers like Exxon Mobil and Chevron, and following the departure of CEO Bernard Looney, who designed the energy transition strategy, BP PLC has refocused its energy strategy on traditional, high-profit oil and gas sectors rather than on green energy goals.
BP is not alone in abandoning its green hydrogen ambitions. Many energy companies that once viewed this fuel as the “next big thing” in the energy sector have scaled back their clean energy investment plans, as the expected reduction in green hydrogen costs has not materialized.
On nearly the same day, Australian mining giant Fortescue Ltd. announced it would abandon a USD 550 million hydrogen project in the U.S. and a USD 150 million PEM50 project in Gladstone, Australia, potentially leading to a pre-tax impairment of approximately USD 150 million. Meanwhile, Australian energy giant Woodside Energy Group Ltd. reported significant profit losses after abandoning a large hydrogen project in the U.S.
Nigel Rambhujun, a hydrogen analyst at the energy consulting firm Rystad Energy, stated that approximately one-third of the announced green hydrogen pipeline projects in Australia have been suspended or canceled. He emphasized that the lack of commitment from energy buyers is the biggest challenge facing such projects in the country.
Green hydrogen is produced by using electricity to split water molecules into hydrogen and oxygen. This means that the reduction in costs is constrained by the cost of electricity production.
The core objective of the Australian Renewable Energy Hub is to install up to 26 gigawatts of large-scale solar and wind capacity over an area of 6,500 square kilometers (approximately 2,500 square miles) in the Pilbara region of Western Australia. This area is larger than the state of Delaware in the United States.
Over the past two years, the enthusiasm for green hydrogen, once hailed as a ‘zero-carbon fuel,’ has cooled significantly. The key bottleneck constraining its market size is that to produce truly zero-carbon green hydrogen, a large amount of cheap renewable electricity must be used to power the electrolyzers, with electricity costs still accounting for 50%–70% of the total cost of producing green hydrogen. Mega-projects like the Australian AREH, which simultaneously plan for 26 GW of wind and solar installations, aim to use self-generated, nearly zero-marginal-cost solar and wind energy to power the electrolyzers, otherwise, the price of hydrogen cannot compete with fossil fuel-based hydrogen.
Green hydrogen is produced through the electrolysis of water, with the electricity entirely sourced from renewable energy (wind, solar, hydro, geothermal, etc.). For green hydrogen to be cost-effective, it requires access to ultra-low-cost, stable supplies of renewable electricity. The 26 GW of wind and solar capacity planned by AREH is intended to provide the necessary ‘fuel’ for future electrolyzers. Only by scaling up and reducing the cost of renewable power generation can the production of green hydrogen be competitive.
Major international energy institutions, such as the International Energy Agency (IEA) and IRENA, have stated that the most valuable application of green hydrogen is not in ‘massively replacing oil, natural gas, or coal,’ but in providing energy transition solutions for ‘hard-to-decarbonize’ sectors that face significant challenges in direct electrification and have a rigid demand for carbon-free chemical reductants or long-duration energy storage. For example, the steel, chemical, shipping, and aviation industries require high-temperature heat or molecular fuels, making direct electrification difficult. The IEA’s ‘Global Hydrogen Review 2024’ lists green hydrogen as an indispensable component in achieving the 1.5°C target. Replacing coking coal with green hydrogen as a reductant in steelmaking can reduce CO₂ emissions by 90%, and demonstration furnaces are already in operation or under construction in several countries. The IEA considers this a critical pathway for emission reductions in heavy industry.
