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Fortescue (ASX:FMG) share price rises after FFI green hydrogen deal

The Fortescue Metals Group Limited (ASX: FMG) share price is rising after announcing a long-term green hydrogen supply agreement.

FFI’s green hydrogen supply agreement

Fortescue Future Industries (FFI) is the division of the business that is looking to make green hydrogen the most globally traded seaborne commodity.

This intended new deal is with Covestro, a major German supplier of high-tech polymer materials.

The memorandum of understanding (MoU) provides for an agreement which includes FFI supplying Covestro with up to 100,000 tonnes of green hydrogen per year.

This arrangement will enable Covestro to reduce its greenhouse gas emissions by up to 900,000 tonnes of CO2 per year.

The deliveries are planned for three potential locations, being Asia, North America and Europe.

Covestro uses hydrogen and its derivatives as feedstock in the production of high-performance polymers. As part of a broader circular economy strategy, Covestro committed itself to completely transition towards the use of fossil-free alternative raw materials and renewable energies.

A first step

This might be the start of a significant partnership between the two businesses. Over time, this could be beneficial for the Fortescue share price.

Fortescue said that FFI and Covestro view the non-binding MoU as the first step towards a broader strategic partnership to accelerate the green energy transition, particularly in energy-intensive industry.

Management comments

FFI Chair and visionary Dr Andrew Forrest said:

This is a ground-breaking collaboration which reinforces the power of green hydrogen to accelerate the decarbonisation of some of the most energy-intensive industries around the world.

“FFI and Covestro share the belief that green hydrogen and green ammonia will play a crucial role in enabling companies to reach their climate targets and preventing runaway global warming.

“We look forward to working with Covestro to supply their green hydrogen needs, and collaborating with Germany to enable it to become the world leader in global decarbonisation, green hydrogen and ammonia.”

Summary thoughts on the Fortescue share price

Every time Fortescue Future Industries announces one of these contracts, like the JCB and Ryze one, I think it shows proof of industrial demand for green hydrogen. It gives FFI more confidence to go after more global projects and partnerships.

The more green hydrogen Fortescue can produce, the greater the scale and cheaper it can produce it. That would make it more economical for many other businesses to buy green hydrogen. There is a positive path for FFI.

The Fortescue share price has surged in recent weeks after strength from the iron ore price. I’m not buying any more shares at the moment, but under $18 could be interesting with all of this green progress being made.

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At the time of publishing, Jaz owns shares of Fortescue.