Japan’s largest bank to back hydrogen, stays committed to gas

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“There are many parallels between this and the early development of the LNG sector. The involvement of large international, long-term and strategically committed sponsors in projects to ensure the levy and effectively support the fundamentals of the project, is essential at the early stage.

MUFG will end coal lending globally by 2040 and is one of the world’s two largest renewable energy lenders. Its support for large-scale gas is in line with commitments made to the Net Zero Banking Alliance, as it targets reductions in funded emissions intensity in the oil and gas sector of 15% to 28% by 2030 (the range reflects the difference between 2 degrees and 1.5 degrees of warming).

CCS as a critical technology

The bank recently joined the Global CCS Institute, the second bank to do so, and has a team of scientific experts in Tokyo working on carbon capture and storage technology with clients.

“Within this announced commitment, we can continue to support – and will continue to support – the gas sector in particular because it is a critical transition fuel,” Mr. Ward said. “We see carbon capture and storage as a key technology to enable the transition.”

MUFG’s consideration of CCS technology to support the gas sector goes further than recent policies issued by major Australian banks.

Westpac said last month it would limit lending to new oil and gas expansions after National Australia Bank’s decision last year to impose a $2.4 billion limit on financing new oil and gas projects. . Both banks said they would reassess whether the government or regulators deem new projects essential for national energy security, but did not present the CCS as an opportunity to keep lending.

MUFG was lead arranger for Global Infrastructure Partners’ acquisition of half of the Pluto 2 project in January and acted as agent for Ichthys LNG’s $1.3 billion private placement in the United States in May . Both projects have passed MUFG’s “enhanced due diligence on all things gas”, Mr Ward said. “Being a responsible corporate citizen with strong ESG (environmental, social and governance) strategies is indeed a prerequisite for us.”

The world’s first liquid hydrogen export – between Victoria and Japan – took place in January on the purpose-built Suiso Frontier. Eamon Gallagher

MUFG is currently considering lending to some green hydrogen projects in the Middle East. It is not yet evaluating funding for Australian projects, but is advising some Japanese companies on prospects. The focus will be on ‘blue’ hydrogen (made from natural gas using CCS) and ‘green’ hydrogen (made from purely renewable energy sources through electrolysis).

“We’re talking about a transition here, not just a switch. Technology like blue hydrogen using CCS will be critical in the transition,” Ward said.

“We are currently working with many clients on this transition and how they position themselves for it. We don’t foresee any major moves in debt capital in the very near future, but it’s a long-term game and it will be many years before this market becomes deep.

“But we’ve seen that in the energy sector over the past 50 years. Solar was prohibitively expensive but has become one of the cheapest forms of generation, we have seen LNG grow from a conceptual dream to one of the biggest maritime industries, and we have seen that CCS was physically impossible to achieve on a commercial scale. ”

Rethinking risk

Australian banks are also preparing to finance hydrogen projects, potentially in collaboration with offshore banks such as MUFG and the Australian government.

In a presentation on the government’s climate bill this month, NAB said co-investment between governments, business and industry “will be essential to accelerate the development of new low-, zero- and negative” and “a commercially viable hydrogen market is a priority, and we will play our part in supporting the growth of this critical industry”.

But NAB Chairman Phil Chronican said in an interview last month that banks should change the way they think about taking on risk when financing clean energy projects, given that the technologies are new and not proven.

Mr Ward said assessing the risk of hydrogen projects involved evaluating the technology, the cost of production against other fuel sources and ensuring that off-take agreements are in place to sell the resource.

“We want to do the right thing on decarbonization but, at the end of the day, you also have to make an informed credit decision,” he said. As for cost, “there are many views on this, but the simple fact is that we’re not there yet on any of these technologies.”

Andrew Forrest’s Fortescue Future Industries is gearing up to produce large-scale green hydrogen from the middle of the decade, with a first project planned in Tasmania. The German company E.ON is looking to source from FFI.

In January, Australia exported liquid hydrogen to Japan on a special purpose vessel, the Suiso Frontier, the first time in the world that hydrogen was extracted, liquefied and transported by sea to an international market.

The project was criticized by Mr. Forrest because it was produced with lignite. Mr Ward said using coal to make hydrogen was not the future, but was a very important step to “prove the technology, transportation and logistics pathways “.

Regarding the Albanian government’s legal 43% emissions reduction target, Mr Ward said this would reassure international investors that a huge sum had to be spent to achieve these targets.

“This objective provides a stable regulatory context for investment to occur, and underpins that investment is essential and gives the private sector more confidence than before to move forward,” he said. declared. “But at the same time, just saying we’re going to get to 43% doesn’t mean it’s going to happen.”

And as the domestic gas crisis raises questions about whether domestic supply should be prioritized over export markets, Mr Ward said Japan views Australia as a very low sovereign risk country, and that it was essential that this be maintained.

“Australia’s reputation and position as an LNG supplier is as good as any [country]. It is top notch and security and reliability of supply is one of the key factors for us. Along the way, this will hopefully apply in the hydrogen space as well.

He said MUFG would play a role in supporting Japan’s energy security as it seeks new projects to fund in Australia.

“Generally, there is greater business alignment in Japan between government policy. This is a cultural aspect of the Japanese business environment, and energy security has always been a key consideration for Japan. given its scarcity of energy sources and dependence on imported fuels, this will continue to be the case for a long time to come.

“There is no single solution to the decarbonization challenge for a country like Japan. Offshore wind and renewable energy developments will be part of this. But it’s pretty clear that hydrogen will be a central part of Japan’s decarbonization strategy – it won’t work otherwise.

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