Q&A with AECOM Future Fuels Leader, Adam Karl

The energy sector is rapidly transforming towards a decarbonised future. Renewable energy and future fuels will provide energy security and sustainability to ensure a safer future for generations to come. 

We sat down with Adam Karl, Future Fuels Leader in our Australia and New Zealand team, to explore the role of future fuels in our society.   

What are future fuels?
At AECOM, we define future fuels as low and zero-carbon fuels, typically intended to displace fossil fuels. These fuels include green hydrogen produced through electrolysis, and its derivatives such as ammonia, organic hydrogen carriers, and synthetic renewable fuels. Future fuels also include biofuels and other fuels derived from sustainable waste streams.

Aside from the decarbonisation benefits, future fuels can also improve the resilience and sustainability of our energy supplies, promote economic growth, support regional energy independence, and enhance global energy security.  

What is the biggest challenge facing future fuels?
There are many challenges, but to me, the biggest challenge currently is the economics of future fuels – both from the production and supply chain perspectives.

Hydrogen is the obvious example; green hydrogen is currently expensive to produce and is not competitive with incumbent fossil fuels in most applications. While we can expect production and supply chain costs to come down over time with innovation and scale, there are some fundamental economic challenges. For example, the efficiency of the green hydrogen production process is 60-70 percent, not accounting for transport and distribution losses. Also, because hydrogen is a very light and volatile element, there are inherent handling and transport challenges that can be managed, but add costs, particularly for long distance transmission and export opportunities.  

A simple way to look at this is from a pure energy perspective. Assuming you have low-cost renewable energy powering your hydrogen production process, at say $AU30 (USD$22)/megawatt hour, if this could be “magically” converted to hydrogen without capital and operating costs, but accounting for losses, you would produce hydrogen at about AU$1.70/kilogram, or AU$13/gigajoule. For comparison, typical term pricing for natural gas contracts is about AU$9/gigajoule on the east coast of Australia and about half that on the west coast. While gas prices are currently spiking well above this in Australia and globally, this is a short-run market phenomenon largely caused by geopolitics and supply disruptions, and these prices are not indicative of the long-run marginal cost of gas supply. On the bright side, many estimates put green hydrogen production costs currently at AU$6/kilogram, which equates to about AU$50/gigajoule, comparable to current diesel prices.    

How can we enable the successful adoption of future fuels?
To be successful, we need to target suitable applications for the adoption of future fuels – those that make technical and economic sense, for example displacing the use of diesel in certain applications. We also need innovation and policy support to foster the adoption of future fuels at scale. For example, this could be a mandated requirement for natural gas suppliers to provide a 10 percent hydrogen, 90 percent natural gas blend, like we had with the Renewable Energy Target for electricity suppliers.

While politically challenging, another option would be to tighten our existing carbon pricing mechanism (the Safeguard Mechanism) by reducing grandfathering of emissions rights over time, as the incoming Labor Government has suggested. Ideally, we would also apply carbon pricing much more broadly across the economy than is currently the case. As we saw with renewable energy, policy mechanisms and technology improvements will mean future fuels will become more competitive and more widely adopted.    

What do you see as the role of future fuels in the future?
I don’t see future fuels replacing all fossil fuels in the long run. Where you can electrify energy, this is generally a more efficient solution. To create green hydrogen, we use renewable electricity. Given this, it’s clear that producing hydrogen and burning it in a turbine or using it in a fuel cell to produce electricity will never be as efficient as directly using renewable electricity in the first place. In this use case, the hydrogen is acting as energy storage, so the question is – is this the best form of energy storage? That’s a big topic for another discussion!

The decarbonisation hierarchy would usually be to reduce consumption, electrify where you can and, where you can’t, use future fuels. A great example is electric cars – it makes sense for passenger vehicles to be electrified and charged directly by renewable electricity, rather than be fuelled using hydrogen derived from renewable electricity. In the future, I think we’ll see the demand for fossil fuel-based energy replaced by a combination of renewables (as electricity) and future fuels.  

An example of where we expect early adoption of future fuels is in heavy transport applications. Current batteries have very low energy densities and can become impractical for transporting large loads over long distances. Comparatively, hydrogen is significantly more energy dense and therefore more suited to heavy, long-haul transport applications. Future fuels could also be essential in industrial applications where high-temperature heat is needed, particularly if the hydrogen also provides chemical input requirements, like in steel marking. It’s also essential to decarbonise our existing use of hydrogen in industrial applications, primarily oil refining and fertiliser production. Green hydrogen has a significant role to play here.  

Finally, we must consider the role of future fuels as a potential global energy commodity. Many countries don’t have sufficient domestic energy supplies, renewable or otherwise, and rely on imported energy sources, typically coal, oil, and Liquefied Natural Gas (LNG). Given this, our next big challenge is to figure out how to export clean energy economically.  

Do you see Australia becoming a prominent hydrogen exporter?
Yes, if the economic challenges can be overcome. In Australia, we have all the ingredients to become a large producer and exporter of future fuels. We have great renewable resources, a skilled workforce, plentiful land for renewable infrastructure, a stable regulatory and low-risk investment environment, and existing regional energy trading partners. New Zealand also has many of the same advantages. The question is, how do we make the best use of those advantages? 

We need to learn from our history in developing the LNG export industry. We know we must establish effective and efficient regulations, provide policy certainty to encourage investment, and foster collaboration amongst industry participants, using shared infrastructure where possible.  

We also have an opportunity to think outside the box regarding our energy exports. Australia has traditionally focused on exporting raw or minimally processed commodities. As future fuels can be difficult and expensive to transport, we could also look to add further value to our energy commodities by producing and exporting manufactured goods. This could offer additional potential for renewable energy and future fuels to drive growth and diversify our economy.