However, the terms of the bid exclude fuel from a showpiece $1 billion hydrogen plant Australian energy giant Woodside plans to build near Perth.

Woodside’s proposed H2Perth hydrogen plant in Kwinana, south of Perth will mainly be powered by gas.

On last Friday JERA announced it needed up to 500,000 tonnes of ammonia a year from 2027, into the 2040s.

JERA, a fuel procurement and power generation joint venture between the power utilities that serve Tokyo and Chubu, plans to replace some coal burnt in its power stations with ammonia that releases no carbon emissions.

Martin Tengler, a hydrogen analyst with energy research house BloombergNEF, said if a deal is concluded it would be significant.

“It’s the first large Asian buyer asking for supply, rather than a supplier looking for a buyer,” he said.

Mr Tengler said 500,000 tonnes of ammonia a year, which requires 88,000 tonnes of hydrogen, was enough to supply 20 per cent of the fuel to a one-gigawatt power plant.

Green hydrogen is produced from electrolysers powered by renewable energy to separate hydrogen from water and is emissions-free.

Currently, nearly all the world’s hydrogen is produced by splitting natural gas into hydrogen and carbon dioxide, with significant carbon emissions. If some carbon dioxide is captured and stored the product is marketed as blue hydrogen.Advertisement

Proponents of blue hydrogen say its production can be increased more quickly and at lower cost than green hydrogen for this decade at least.

Fortescue chair Andrew Forrest, a vocal detractor, said at last year’s COP26 climate summit that blue hydrogen was a “highway to climate disaster,” delaying the rapid reduction in carbon emissions needed to halt dangerous global warming.

A JERA spokesman said it would require at least 60 per cent of carbon dioxide emitted from blue hydrogen production to be captured and either stored or used for so-called enhanced oil recovery where the pollutant is injected into oil reservoirs to drive increased production.

Counting carbon dioxide used for enhanced oil recovery as a reduction in emissions is controversial as the emissions from using the additional oil will negate the benefit of storing the CO2. The federal government in 2021 excluded the practice from its emissions reduction fund.

Last week Woodside chief executive Meg O’Neill said any moves by the gas company into hydrogen production would need to be customer-led.

“We’re not going to be risking billions of dollars of shareholder capital without confidence that our product has a viable market,” Ms O’Neill said.

However, most hydrogen from Woodside’s $1 billion H2Perth plant it plans to sanction in 2024 will be ineligible to supply the biggest market opportunity to date for the nascent clean hydrogen trade, despite Woodside partnering with JERA two years ago to study the use of ammonia in coal-fired power plants.

Woodside plans to offset emissions from the plant with vegetation planting, a practise regarded by some as less reliable than underground storage as the plants are exposed to fire and drought.

A JERA spokesman said it would not accept offsets such as tree planting.

Some hydrogen at Woodside’s plant will be produced by electrolysis, but it would not meet the Smart Energy Council’s zero carbon certification scheme for renewable hydrogen as much of the electricity used would not be renewable.

InterContinental Energy is the main proponent behind two of Australia’s biggest green ammonia projects, including the $US36 billion ($50 billion) Asian Renewable Energy Hub in WA’s Pilbara.

InterContinental Energy chief commercial officer Philip Jones said the JERA tender was an important milestone for the development of an ammonia fuel market and a tangible indication of the economic opportunity for green ammonia exports.

The Asian Renewable Energy Hub will eventually grow to produce 10 million tonnes of ammonia a year if it sanctioned as planned in 2025.

BloombergNEF analyst Martin Tengler said further growth in Japanese ammonia demand would require stronger incentives such as a carbon price or subsidies.

However, BNEF expects Japan will be able to generate renewable energy, including from offshore wind farms, cheaper than burning imported ammonia.

JERA is the largest buyer of Australian LNG with equity stakes in four plants. In 2020 JERA set itself a target of zero carbon emissions by 2050 but in December 2021 purchased a 12.5 per cent stake in Santos’ Barossa project that will produce Australia’s most carbon-intensive LNG.