ESG Focus: Forrest’s Green Steel Plan

ESG Focus | Jun 02 2021

This story features FORTESCUE METALS GROUP LIMITED. For more info SHARE ANALYSIS: FMG

FNArena's dedicated ESG Focus news section zooms in on matters Environmental, Social & Governance (ESG) that are increasingly guiding investors preferences and decisions globally. For more news updates, past and future: 
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The Nuts and Bolts of Twiggy Forrest’s Green Steel Plan

-Andrew Forrest wants Australia to become a green hydrogen and green steel giant
-Fortescue Metals is working towards mass producing green hydrogen on an industrial-scale
-Forrest's green plan said to generate over 1,000 gigawatts of energy and create 40,000 new jobs

By Ed Kennedy

Billionaire Andrew ‘Twiggy’ Forrest has a high octane plan for the future of the Australian mining industry. A plan where it indeed has a future.

Yes, the idea that an industry which made $202bn in 2019-20 – a 10.4% share of the Australian economy during that year – could make a dive into the economic doldrums sounds unimaginable today. But the reality is there are numerous trends in play which indicate the decade ahead for the sector will be far more turbulent.

Enter Andrew Forrest: The founder of iron ore giant Fortescue Metals Group ((FMG)), the recipient of over $4.52bn in dividends since 2011, and a man on a mission to see green hydrogen and green steel boom downunder

It’s perhaps an eyebrow-raising notion that a former CEO of a company which exported 178.2m tonnes of iron ore in fiscal 2020 is pursuing with zest a new identity as an eco warrior. But a deeper examination of Forrest’s life and the industry which made him his fortune shows there’s rich potential behind this new push.

A Sustainable Interest in Green Pursuits

Although Andrew Forrest has made a fortune in iron ore, an interest in eco-friendly pursuits has been an enduring feature of his life. These days able to go by the title Dr Andrew Forrest, the completion of a PhD in marine science during 2019 is the latest chapter in what Forrest says is an ongoing love of the marine world, first starting when he was a child.

A passion for this field hasn’t only been visible among university corridors, but also in the work of the Minderoo Foundation, the not-for-profit organisation led by Forrest and his wife Nicola. In 2018 the Foundation commenced an $100m ‘Flourishing Oceans’ initiative — a venture created to track global fishing patterns, fund research into the oceanic effects of plastic pollution, and provide for the construction of a research facility in Exmouth, Western Australia.

These achievements notwithstanding, Forrest now wants to usher in a new era of green hydrogen and green steel production in Australia. If he does it, it could come to be seen as the most impactful step taken in a life abundant with pioneering steps.

Green Hydrogen and Green Steel Defined

For anyone yet to be familiar with the particulars of green hydrogen and green steel, a quick primer could be useful to understand the nuts and bolts of Forrest’s plan. Green hydrogen is made via electrolysis from renewable energy sources. Fitting for its name, it’s a cleaner version of hydrogen production than brown hydrogen made with fossil fuels, and blue hydrogen which pollutes less than brown, but is also inferior to green due to the emissions it produces.

Green steel is made using renewable energy that produces hydrogen, which then sees that hydrogen used instead of metallurgical coal to make the steel. The end-result of this process is water being the byproduct, instead of carbon dioxide.

Forrest, and fellow enthusiasts of this duo, contend that green hydrogen and green steel can help build the road to a cleaner and greener world, and generate immense rewards for those who help construct it. 

Forrest’s Green Plan

Forrest laid out the vision for growing Australia’s green hydrogen and green steel industry during an ABC Boyer lecture in January. In a program entitled Oil vs Water — Confessions of a carbon emitter, he began with a self-aware acknowledgement of the unlikely background he holds for the task ahead.

“The iron ore company I founded 18 years ago, Fortescue, generates just over two million tonnes of greenhouse gas every year. Two million tonnes. That's more than the entire emissions of Bhutan and its 800,000 inhabitants.”

But in detailing the push behind his new green agenda, Forrest noted his bold drive into this new arena is complemented by his prior ventures in mining. 

“I'm used to fear, I feel it as much as anyone else. But my job is to persevere through it. Eighteen years ago, I was just a young upstart trying to set up Fortescue. Everyone told me I was crazy to take on BHP and Rio Tinto. That between them had a stranglehold on the Pilbara. Almost everyone I met in the industry said it was impossible. But we did it.”

For Forrest the move towards green hydrogen is about optimising the use of existing resources. Essentially sustainability 101. As Forrest said  “…right now, what do we do with hydrogen? Well, we treat it as just an ingredient in various industrial processes, not as an energy source. And we make it from burning fossil fuels, quaintly calling it grey hydrogen to hide the fact it's a pollutant.”

Noting furthermore, “We're missing a colossal opportunity. The green hydrogen market could create revenues of US$12 trillion by 2050, way more than any industry that exists today. “ 

With Forrest and the Fortescue board deciding it would be a “first mover” in mass-producing green hydrogen, their plan boasts truly impressive numbers – ultimately seeking to generate or help generate over 1,000 gigawatts of zero emissions energy in the long term.

Forrest’s plan also aspires to create Australia’s first green steel project in the next few years. Located in the Pilbara, Forrest says its status as the world’s largest iron ore province and the fact it's “perfect” for placing renewable energy installations make it the ideal locale. It’s here the plan to scale green steel will begin — one that could bring immense economic benefits if successful. 

Forrest holds “if we do it, the immediate and multiply impact on the Australian economy will be nothing short of nation-building on a grand scale, capturing just 10% of the global steel market, which we could easily do as we produce 40% of all iron ore globally every year, it would create enough jobs to employ Australia's entire coal industry, some 40,000 jobs.” 

Ironing Out the Issues

There’s no question Forrest’s plan has potential, but also a number of hurdles that persist.

There are those who remain weary that all the hype surrounding green hydrogen’s future could be a case of hot air. Others who retain concern that – in his own words – Forrest has “made an allowance for natural gas, as a critical stepping-stone” to seeing this plan brought into being. 

Then, there are those who are sceptical of the speed in which Forrest’s plan can be rolled out.

Forrest certainly has form in achieving rare feats given Fortescue’s growth. Yet, analogous to tech titan Elon Musk and his ambitions for Mars, there is doubt whether this plan – and Fortescue’s aspirations to meet the domestic target of reaching net zero emissions by 2030 – can really come off on its current timeline. 

Ultimately, perhaps the greatest barrier to the green hydrogen and green steel industries growing nationally as Forrest expects is the current ‘Canberra consensus’.

Both the Coalition government and Labor Party under Anthony Albanese’s leadership back the ongoing role of Australian coal in coming decades. Forrest and Fortescue can blaze their own path, but it may be a narrow road for many years without greater support from Canberra. 

What It Could Mean for Australian Mining

Any fair assessment of Forrest’s plan must also occur with a wider context. Specifically, surrounding the current state and future of the Australian mining industry. There’s no doubt the industry is going strong today, and that won’t be changing overnight. Nonetheless, there are also a number of challenges emerging early in his new decade which suggests the years ahead will pose new threats to its current profitability. 

Domestically, the industry would be cautious to regard the Rudd-Gillard era mining tax as gone.

Should Labor leader Anthony Albanese win the keys to The Lodge at the next federal election, the desire to revisit the tax introduced in 2012 – and ultimately rescinded by the Abbott government – could prove profoundly tempting. 

This could be the case even if Albanese must walk a fine line as his current support for coal is seen as a ‘lesson learned’ following Labor’s shock loss at the last election, where it saw its party vote plunge in coal heartlands of regional Queensland and the NSW Hunter Valley.

It’s certainly clear former prime minister Kevin Rudd – a longtime close ally of Albanese – regards the taxation issue as unfinished business. The exact structure a future tax takes on may make concessions for green operations – but it also may not. 

Yet, the greatest challenge for Australia’s mining future ultimately resides offshore. Right now Australia provides around 60% of China’s iron ore.

That’s not going to change swiftly. But Beijing’s present continuation of a ‘deep freeze’ in relations with Canberra, apparent frustration in the Chinese steel industry surrounding its dependence on Australia, and China’s quest for access to untapped mineral resources in Africa to diversify its iron ore imports, all loom as significant problems in looking ahead. 

The Need for Nerves of Steel 

Andrew Forrest’s plan is audacious. That’s right on brand with his life and career. His ambition for Fortescue to turn Australia into a green steel superpower could provide the foundation to grow a very promising industry rapidly.

It could also serve as a hedge against economic downturn in the mining industry if the growth of the local industry pans out as he describes, and the problems on the horizon with Canberra and China do eventually deal some heavy hits.

Some scepticism will persist around Forrest and Co realising the potential of green hydrogen and green steel on the current timeline. But even if such critics feel his plan is unlikely, the same could be said for Forrest’s startling ascent with Fortescue.

Forrest will surely be leaning into that history as he seeks to convince others to buy in his great green plan for Australia’s future.

FNArena's dedicated ESG Focus news section zooms in on matters Environmental, Social & Governance (ESG) that are increasingly guiding investors preferences and decisions globally. For more news updates, past and future: 
https://www.fnarena.com/index.php/financial-news/daily-financial-news/category/esg-focus/

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