Australia risks losing edge in global hydrogen race as projects stall, warns Wood Mackenzie

Despite its early leadership ambitions, Australia is falling behind in the global hydrogen economy, with 80% of its low-carbon hydrogen projects still in early development and multiple high-profile cancellations, according to new analysis from Wood Mackenzie.  

Released at the Australia Energy Producers Conference, the report, ‘How can Australia compete in the global hydrogen market (before it’s too late)?’ highlights that while the country boasts world-class renewable energy potential and abundant land, it is struggling to convert those advantages into competitive hydrogen production. 

 High costs undermine Australia’s competitive edge  

“Australia's strategic proximity to Asian demand centres is a clear advantage,” said Joshua Ngu, vice chairman for Asia Pacific at Wood Mackenzie. “But this is offset by a significantly higher Levelized Cost of Hydrogen (LCOH), driven by elevated engineering, procurement and construction (EPC) and power costs. This leaves Australia trailing behind global hydrogen front-runners such as the Europe and the Middle East.”  

Globally, just 6 million tonnes per annum (Mtpa) of low-carbon hydrogen capacity is either operational or under construction. Of that, Australia contributes less than 5%. Even marquee domestic projects such as Fortescue’s PEM50 and the Yuri Green Ammonia project have capacities of under 10,000 tonnes per annum (ktpa).  

The recent cancellations including Grange Resource Renewable Hydrogen Study and Nyrstar Port Pyrie. These cancellations, once seen as key milestones in establishing Australia as a global leader in hydrogen, have raised concerns about the future of the industry. 

 Five pathways to close the competitiveness gap 

Wood Mackenzie’s report outlines five key areas where policy and market interventions could help reposition Australia as a hydrogen leader in a global stage: 

Stimulating domestic demand 
The report discusses a lack of domestic demand to pay the higher costs of green hydrogen as the primary barrier to scaling hydrogen production. Hydrogen offers significant potential to decarbonise hard-to-abate sectors such as steelmaking, long-haul transport, and power generation. 

“At current costs, hydrogen production in Australia is economically unviable without policy support,” said Ngu. “For instance, the displacement cost for hydrogen in power generation is around US$0.80 to 1.00/kg, while Australia’s LCOH exceeds US$10/kg.” 

The report suggests that Australia could draw inspiration from hydrogen market leaders like Germany, Japan, and South Korea, which have introduced Contracts for Difference to stimulate domestic demand.  

Cost of Australian green hydrogen exports versus other exporters landed in Japan 

Source: Wood Mackenzie  

Enhancing hydrogen production incentives 

Wood Mackenzie's analysis indicates that Australia must provide stronger incentives to stimulate domestic hydrogen production. While the government has introduced programs such as the Hydrogen Production Tax Incentive (HPTI) and the Hydrogen Headstart Programme, these initiatives need to be scaled up to compete with international offerings. 

The US offers up to US$3/kg through its Hydrogen Production Tax Credit,” noted Ngu. “Meanwhile, Australia’s current incentives are around A$2/kg, or approximately US$1.30/kg. Additionally, Australia’s carbon intensity thresholds are relatively high, making it more challenging for projects to qualify for these subsidies.” 

Supporting blue hydrogen as a transition pathway 
The report highlights the potential of blue hydrogen for Australia, produced from natural gas with carbon capture and storage (CCS), to help bridge the gap toward green hydrogen. 

“With vast gas reserves in Western Australia, Australia is well-positioned to produce blue hydrogen domestically,” said Ngu. “This approach could also accelerate the development of CCS infrastructure, essential for long-term decarbonisation and economic benefits.” 

Alignment with global certification standards 
As Australia aims to become a major player in the global hydrogen market, the report stresses the importance of aligning its hydrogen standards with international frameworks. This includes standardising safety standards, fuel quality and purity standards, and trade standards. 

Australia's hydrogen standards currently require a carbon intensity threshold of 0.6 kg CO₂e/kg H₂ – considerably lower than Japan’s 3.4 or Europe’s 3.38 thresholds. 

“Harmonising standards with key trading partners would unlock export potential,” explained Ngu. “Aligning with international schemes such as Japan’s Green Hydrogen Certification Scheme would enhance Australia’s ability to compete in export markets.” 

Strengthening collaboration with global partners 
Wood Mackenzie's analysis highlights the importance of collaboration between governments, developers, and international partners for the growth of Australia's hydrogen industry. Long-term success will depend on building stronger ties with overseas buyers and governments to secure bankable offtake agreements and investment. 

“Hydrogen is a globally traded commodity, and Australia must act quickly to establish itself as a reliable supplier,” said Ngu. 

Without urgent and coordinated action to accelerate demand and supply, Wood Mackenzie warns that Australia is at risk of wasting its early-mover advantage. The global hydrogen economy is evolving rapidly, and countries that fail to keep pace with investment and policy momentum may be left behind. 

“Unless Australia ramps up policy support and market development now, it may find itself locked out of the next wave of industrial transformation,” Ngu added.