Eyes on $7 bln hydrogen market in Asia by 2030 Production cost...

• Eyes on $7 bln hydrogen market in Asia by 2030
• Production cost seen as biggest hurdle
• Japan's Kawasaki Heavy Industries working to drive down costs
• Woodside sees "blue hydrogen" from gas as key to scale

Australia, the world's biggest coal exporter and second-biggest liquefied natural gas (LNG) exporter, wants to build its next big energy industry around exploiting solar and wind power along with brown coal to produce hydrogen.

The same fuel used to power rockets into space, hydrogen has untapped energy potential without the downside of the carbon emissions from natural gas and coal.

Australia is seeking to supply what could be a $7 billion market for hydrogen to China, Japan, South Korea and Singapore by 2030, according to a report done for the Australian Renewable Energy Agency by consultants ACIL Allen.

While initially just a fraction of Australia's LNG exports, forecast at A$48 billion ($35 billion) in 2019, hydrogen exports could grow the same way that Australia's LNG industry has over the past 30 years, according to ACIL Allen, the Australian government, and local gas producer Woodside Petroleum (WPL) .

The global drive to cut carbon emissions and the falling cost of wind and solar power has turned hydrogen fuel into an opportunity now after the idea was mooted more than four decades ago.

"Many of our traditional gas markets -- Japan, Korea -- have adopted strategies that put hydrogen and ultimately renewable hydrogen at the core of their energy future. So we want to make sure we've got the capability of providing for that market," Western Australia's Regional Development Minister Alannah MacTiernan told Reuters.

The state on Oct. 25 launched a Renewable Hydrogen Council, including Woodside, French power producer Engie SA ENGIE.PA , and Norway's Yara International YAR.OL , to form a plan to use land, wind and solar resources to produce hydrogen.

"The development of a hydrogen business is similar to the early days of the LNG business," said Shaun Gregory, Woodside's executive vice president for exploration and technology.

To reduce global warming, hydrogen could be used in fuel cells for vehicles and manufacturing plants, and could eventually replace natural gas for space heating, water heating and cooking in homes.

Output may start through the gasification of brown coal with the hydrogen and carbon dioxide separated out. But eventually wind and solar power would be used to crack water to become the biggest hydrogen source.

Currently, hydrogen derived from coal gasification is cheaper to produce than from water. The goal is drive down the costs of a hydrogen cargo by 2030 to a level that Japanese buyers would accept, said Australia's Chief Scientist Alan Finkel, who is advising the government on a hydrogen strategy.

"The biggest potential show-stopper is that we can't meet the price target," he told Reuters.

Japan's Kawasaki Heavy Industries (KHI) 7012.T is leading a A$500 million demonstration project to produce hydrogen from brown coal from Australia's largest coal mine, Loy Yang in Victoria.

"At this point it is clearly cheaper (than hydrogen from renewables), but in the future they might be the same," KHI Executive Officer Eiichi Harada told Reuters at the GHGT-14 conference in Melbourne on Oct. 25.

Meanwhile, Woodside is working with Korea Gas Corp to potentially produce "blue hydrogen" in a carbon-neutral process of reforming methane from natural gas while eventually shifting to solar or wind to crack water to make "green hydrogen"

"We believe blue hydrogen – carbon neutral hydrogen, sourced from gas - is the key to building scale and lowering costs in hydrogen transport and distribution, which will enable an earlier transition to green hydrogen," Woodside's Gregory said in an email. ($1 = 1.3806 Australian dollars)

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