Fortescue approves $1.14b investment in large-scale green energy projects

The board of Fortescue Metals Group (ASX: FMG) has approved a final investment decision (FID) on a trio of large-scale green developments in the US and Australia worth a combined $1.14 billion over the next three years.

The Phoenix hydrogen hub in Arizona, the Gladstone PEM50 project in Queensland and a green iron trial commercial plant in Western Australia have become the first green hydrogen deals ever to be progressed to FID in the two regions.

They will be followed by a pipeline of projects in South America, Africa and Europe to scale-up Fortescue’s global green energy production volumes.

The list includes the Pecem green hydrogen and green ammonia project in Brazil, the Project Chui geothermal steam to fertiliser facility in Kenya and the Holmaneset green ammonia project in Norway.

Fortescue said the developments represent a geographical and technological diversity which is expected to establish a “global glide path” for the establishment of Fortescue Energy’s green hydrogen and adjacent industries.

Liquefied green hydrogen

The Phoenix project comprises an 80 megawatt electrolyser and liquefaction facility with an annual production capacity of up to 11,000 tonnes of liquefied green hydrogen.

Fortescue acquired the project in July for approximately $36.5 million (through subsidiary company Fortescue Future Industries) and plans to turn the US into a global green energy producer and displace the equivalent of 37m litres of diesel consumption per year.

The total capital investment for Phase 1 is approximately $840m (inclusive of the purchase price).

Half of that amount will be allocated to equipment including electrolysers, a liquefaction plant, power infrastructure and hydrogen storage.

The remainder will be used for site construction and costs incurred by Fortescue and its chosen engineering, procurement and construction contractor.

Capital expenditure is estimated at $121m for the 2024 financial year and the work will initially be fully funded by Fortescue, with plans to raise project debt and equity funding.

Construction of the Phoenix project is expected to commence in late 2024 with first production targeted for 2026.

A Phase 2 expansion to meet anticipated future demand is already on the cards.

Electrolyser project

The Gladstone PEM50 project is based around a 50MW green hydrogen development utilising Fortescue’s electrolyser technology.

Phase 1 will see the installation of a 30MW electrolyser plant, with the remaining 20MW capacity to be installed and commissioned in 2028 pending upgrades to the state’s water infrastructure.

The plant will have a production capacity of up to 22t per day (8000t per annum) of green hydrogen and will employ Fortescue’s proton exchange membrane (PEM) technology.

Construction will commence next year adjacent to Fortescue’s existing electrolyser manufacturing facility at Gladstone, with first production of green hydrogen scheduled for 2025.

Capital expenditure has been estimated at up to $228m over two stages, of which approximately $60m will be required in the 2024 financial year.

Fortescue will access a remaining grant of $19.8m previously awarded for the electrolyser manufacturing facility under the Australian government’s $1.3b modern manufacturing initiative.

Green iron investment

Fortescue has approved an investment of up $76m to construct a green iron trial commercial plant at the Christmas Creek iron ore mine in WA’s Pilbara region.

With a planned production of more than 1500tpa, the plant will utilise the mine’s existing green hydrogen infrastructure to lower Fortescue’s overall capital requirement and demonstrate a green pit-to-product supply chain.

The plant’s technology options will support magnetite and hematite ores from the Christmas Creek production run and is expected to represent a significant milestone in Fortescue’s green iron journey.

Portfolio diversity

Fortescue Energy chief executive officer Mark Hutchinson said the new projects provide the group’s asset portfolio with diversity in technologies and geography.

“The Phoenix hydrogen hub will establish Fortescue in one of the most attractive energy markets in the world and the proximity to California’s primary heavy haulage trucking route primes us well to deliver value into the US domestic market,” he said.

“The Gladstone PEM50 project will produce hydrogen at an industrial scale, allowing us to demonstrate the high quality of Fortescue’s hydrogen systems and the green iron plant will allow us to embrace innovative technologies to step away from the use of fossil fuels.”

Fortescue Metals chief executive officer Dino Otranto said the iron project would be of particular value to the group.

“We are confident that our approach will drive growth for Fortescue through new and high-value products being sold into new markets, ultimately leading to an increase in the number of iron units we sell,” he said.

Capital guidance

Fortescue Energy’s capital expenditure guidance for the 2024 financial year has been updated to approximately $762m (previously $610m) to reflect incremental investments in the Phoenix and Gladstone projects.

The capital expenditure guidance for Fortescue Metals over the same period has remained unchanged at between $4.27b and $4.88b.