Provaris Energy — Studies confirm viability of both hydrogen projects

In addition to developing its novel compressed hydrogen vessels, Provaris has been advancing various studies relating to its solar energy and green hydrogen production project in the Tiwi Islands, as well as the HyEnergy export project in Western Australia. In August 2022, Provaris confirmed the successful completion of the concept design study on the former and a technical and commercial feasibility study (called the HyExport study) on the latter. Both studies will allow Provaris to push ahead with the next stages of the projects, with the Tiwi H2 and HyEnergy projects targeting production in 2027 and 2029 respectively.

On 2 August, Provaris announced the completion of the concept design study for its proposed Tiwi H2 project on the Tiwi Islands, located off the north coast of Australia. The project is targeting the production and export of 100,000 tonnes of green H2, beginning in 2027. The positive completion of the study establishes a clear roadmap to progress the project to pre-FEED and FEED-level technical, commercial and economic studies, as well as the consideration of potential financing options. The study underpinned numerous observations and outcomes of Provaris’s 2021 compressed hydrogen chain scoping study. The award of MPS by the NT Government is a significant step forward.

The Tiwi H2 project is physically large, with the solar farm covering an area of 2,600 hectares and the transmission line linking the solar farm to the H2 production and export area spanning 30km. The study therefore has subdivided the five key activities into ‘precincts’. These separate precincts were also outlined in the project’s Northern Territory Environmental Protection Agency submission, filed at the end of June, and consisted of the following elements:

The study base case assessed the development of a fleet of H2Neo vessels supplying a hydrogen market in Singapore, some 1,800 nautical miles from Port Melville on the Tiwi Islands.

The study reinforces many of the observations and modelled outcomes of the compressed hydrogen chain scoping study undertaken by Provaris and published in 2021. The latest study underpins the technical feasibility of the Tiwi H2 project and therefore supports its ongoing progression towards the production, compression and exportation of green hydrogen from 2027.

The 10 key outcomes from the study are as follows:

With the help of supplied external estimates and studies, Provaris has concluded that the total project capital cost will be in the range of US$4.5–5.2bn for capacity of 100,000tpa of hydrogen export volumes, from early 2027. The upper range being the current cost estimate of all capital equipment. The company believes that the accuracy range of estimates is ±30% and that the figures exclude all grant funding or subsidies that may be available. We believe these figures are consistent with our original estimates of the cost of a fleet of vessels, which we discussed in our initiation note.

Exhibit 2 below details the levelized cost of hydrogen delivered to Singapore including ship capex, operational and maintenance costs, port fees and fuel. Other key assumptions in the calculation of the LCOH include a 30-year project life, a discount rate of 5%, inflation of 2% pa in operational costs and development over two phases of 50,000tpa of hydrogen from 2027.

It should be noted here that the cost of developing this project is vast when compared to Provaris’s market capitalisation. The company will therefore commence a process to seek interested partners in the areas of investment, offtake, construction and operational support, especially in the upstream components that include solar generation, transmission and electrolysis.

This project is clearly not without risks, but we believe these risks are well understood and that the energy and shipping industries are making progress to address them. We believe that Provaris is well placed to minimise and/or avoid the risks which are numerous and include:

The Tiwi H2 project was recently awarded MPS by the NT Government. MPS is awarded to projects in the NT that have significant, strategic impacts and potential benefits for the region. Projects with MPS gain whole of government support, which includes coordination and facilitation, assistance in identifying regulatory approvals, a dedicated case manager and facilitation of engagement with the Australian government.

Under the umbrella of the MPS, Provaris and the NT Government have entered into a project facilitation agreement (PFA) to work in a ‘spirit of co-operation’ to achieve the timely, efficient and effective development of the Tiwi H2 project to maximise the economic and community benefits for the Northern Territory.

In our opinion, this award is a significant step forward as it reduces the risk of delays in approvals and other milestones, and therefore increases the likelihood of the project being delivered in line with the anticipated timetable. MPS is also a significant requirement for international investors looking at the project for investment, offtake and other aspects as it demonstrates a streamlined process for approvals, incentives and potentially key elements including subsidies.

First export volumes are not expected until early 2027, but there are several key steps and milestones that are likely to be achieved along the way. The main elements are set out in Exhibit 3 below.

In August 2021, Provaris entered into a non-binding memorandum of understanding with Province Resources (ASX:PRL) and Total Eren (collectively the HyEnergy Project Partners) to support a technical and commercial feasibility study relating to the export of c 200,000tpa of green hydrogen from the Gascoyne Region of Australia to nominated Asian markets. This HyExport study has been completed and confirms that such a project is both technically and commercially feasible.

The HyEnergy green energy production facility is expected to be located close to the coast of Western Australia with a view to producing green hydrogen, largely for export. The study therefore needed to analyse numerous elements of the project, including hydrogen production, compression and loading of vessels, as well as the commercial aspects of the project.

The scope of the completed milestone deliverables and the feasibility study included:

The electrolyser and compression facilities will be co-located, c 6km inland with compressed hydrogen piped to the coast. After consideration of various loading facilities, which ranged from a fixed port option, through near-shore and offshore loading options, the decision was made to focus on an offshore option. This option has several advantages:

The HyExport study was completed within budget, with funding from the Western Australia Renewable Hydrogen Fund, as part of the Western Australian Government’s Renewable Hydrogen Strategy. A public knowledge sharing report, which will include a summary of the outcomes, is anticipated to be released by the Western Australian Government at a future date.

Despite the potential risks outlined above, which are not exhaustive, it should be noted that many market commentators are forecasting substantial growth in the production of and demand for green hydrogen, particularly from hard-to-abate sectors such as heavy industry (steel and cement making for example), power generation, heating and heavy transport. The chart below highlights anticipated growth in global hydrogen production, which bolsters the case for Provaris.

In 2020, global hydrogen production was c 87Mt, of which only 9Mt was generated via low-carbon methods. Of this 9Mt, the IEA believes that only 5%, or 0.45Mt, was produced via electrolysis, which is therefore barely visible in the chart above. The IEA anticipates that by 2030, total hydrogen production will grow to 212Mt, of which 150Mt will be generated via low-carbon methods, with 54%, or 81Mt being generated via electrolysis. This growth profile fits neatly with Provaris’s anticipated timeline of first export volumes commencing in early 2027.

By 2050, the IEA anticipates that global hydrogen production will more than double, while electrolysis-based production will quadruple between 2030 and 2050. In an effort to achieve greater cooperation, pursue best practice and drive down total end-to-end costs, many countries have signed bilateral agreements. Australia is one of the leaders in this regard, having already signed agreements with several ‘local’ governments including Japan, Korea, Singapore and India. It has also signed bilateral agreements with Germany and, more recently, the UK.

With anticipated market growth in mind and the Australian government’s drive to forge useful green energy agreements with other near and far away countries, Provaris is engaged in preliminary offtake discussions with potential customers in Japan, Singapore, South Korea and potentially Indonesia.