The Yield – LNG or hydrogen? ASX small cap embraces both

In this case, we’re referring to how Australian industries are looking at the viability of establishing a new energy source that commercialises the production of hydrogen.

To get the technical lowdown, we caught up with Steve Dropulich, managing director of ASX-listed energy and infrastructure services group Valmec (ASX:VMX).

Valmec is in a unique position, being one of very few companies that have experience constructing facilities for both commodities.

Gas and hydrogen aren’t your typical match – can you describe what the outlook includes for an ASX-listed company with this portfolio combination?

Steve:

The short answer is that gas is in our DNA – always has been. And now we’re planning to leverage our IP and expertise in this space to establish structures that allow us to successfully embrace the planned emergence of hydrogen as a viable alternative energy source.

With the traditional gas sector also about to be direct beneficiaries of the Government’s “Gas Fired Economic Recovery”, which is intended to unlock further gas supply on the East Coast, the outlook for Valmec just got a whole lot stronger.

Has Valmec’s exposure to hydrogen already begun?

Steve:

Yes. Last year, on the back of our extensive IP and expertise in constructing infrastructure assets, we were announced as the key project partner to develop South Australia’s first renewable hydrogen production facility.

With the Project also recently having received the Australian Engineering Excellence Award, Valmec is now recognised as an experienced and requisite partner for new Hydrogen proponents.

In your opinion, what’s the attraction of hydrogen?

Steve:

The major interest is the ability to produce greener energy that contributes to establishing a low carbon economy for the long-term. That’s the bigger picture and general appeal for all renewables.

There is also no doubt our country’s significant gas resources can provide an important “enabler” role that’s required to achieve a lower cost, future decarbonised energy economy.

The Government’s National Hydrogen Strategy has set a determined vision for a clean, innovative, safe, and competitive hydrogen industry that benefits all Australians, with our country being a major global player by 2030. Valmec is well-positioned to be part of this new growth industry.

At the moment, given the growing attention and interest in renewables, how are you reading the energy market?

Steve:

There’s no doubt that the energy mix in Australia, and globally, is going through a period of change. At the same time, this transition towards more renewable energies will take time. Therefore, key commodities like gas, which is so well known in our country, will continue to play an important role for some years to come.

With coal-fired power generation being phased out and the underlying narrative of gas shortfalls on the east coast only set to get louder, we expect all the services and engineering that go into maintaining the gas sector to continue to grow.

We think Valmec is in an extremely strong position to service the established gas market, but also flexible enough to adapt to cater for renewables like hydrogen as they emerge.

We regularly hear in our conversations with business leaders about the changes they’ve made in the wake of the pandemic. Can you share insights into what Valmec has done to enhance its operations?

Steve:

Firstly, we moved fast. It became glaringly obvious that we had to adapt our operations within a new environment but also think to create a stronger culture where change would be embraced and encouraged.

There was no other choice. And to drive change, we also added to our leadership team to lead Valmec into the next phase of its growth.

We believe that COVID has really crystallised the focus on local content – having a workforce of qualified people across Australia to ensure we stay close to our clients at all times is a massive advantage.

The days of having to fly in interstate and overseas employees to deliver a service skill-set to clients are fast diminishing. From a costing, timing, and even social license perspective, clients are turning to local workforces for longer-term and sustainable relationships with their service providers.

From an operational perspective, our focus continues to be reducing downtime while enhancing productivity. Now that’s not a direct response to the pandemic, rather greater affirmation that we must always strive to deliver this. We want to run our programs so they are less intrusive for the lifetime of an asset.

As we steamroll our way into 2021, we think the energy market no longer wants a suite of contractors – rather one simple, streamlined structure that’s efficient and experienced. And that’s Valmec’s sweet spot right there.

To sum it up, in simplest terms what are Valmec’s points of difference?

Steve:

Skin in the game to ensure a win: win. Clients want efficiencies, reliability, and accountability.

Our rich track-record in the energy game is a differentiator and our team that presents you the solution will be the team that delivers the solution.

Our mandate is to deliver value across the whole asset lifecycle. Clients gain an extra benefit of reducing their total cost of ownership, having less people on site, and less interruptions to their operations.

A parting word as we look to put the lid on one helluva year and start a new one?

Steve:

Stay focused on both your clients and employees – adapt and support them through these changing times and they will be with you for the longer term.

Although 2020, so far, has had so many unprecedented moments, client deals are still happening and the economy is finding a way.

Valmec is a great example of a company with a clear growth strategy that is balanced by our exposure to a proven and known industry in gas, with the exciting upside of the rapidly emerging hydrogen market.