Hydrogen or hot air

Hydrogen explodes

Over the last two years, dozens of projects have been proposed across the region for the development of hydrogen production and export. The most advanced, a $5bn anchor project in Saudi Arabia’s NEOM development, has signed offtake agreements and expects to reach financial close in Q3 with construction to begin soon afterwards, targeting its first exports in 2026. And the frequency of announcements and degree of government involvement is growing, including sector strategies and state-owned enterprises, such as Hydrogen Development Oman. By contrast, as recently as 2018 there was hardly any discussion in the region of large-scale exports of hydrogen as a major energy source.

Currently, hydrogen is a niche product with global trade totalling just $9bn in 2020, for uses such as cooling and rocket propellant. It has a natural appeal as a vehicle fuel, either through combustion or powering fuel cells, with only water as a waste product. However, it has had limited traction in powering mass market passenger vehicles to date. Former US President George W Bush announced a major hydrogen economy initiative way back in 2003, but the first commercial hydrogen fuel cell car, the Toyota Mirai, wasn’t launched until 2014. It had a longer range than battery electric vehicles of its day but the lack of infrastructure – there are few hydrogen filling stations, mainly in Japan and California – means that it has not taken off. Meanwhile, battery technology has caught up in terms of range, price and charging speeds. While it is possible that major investments could be made in hydrogen infrastructure, electricity- powered passenger vehicles are more likely to be the future.

However, as the global community has begun to take net zero targets more seriously, new commercial use cases are being explored, comprising about 15% of global energy consumption. These focus on processes that require intense heat, such as steel production, or high energy density, such as aviation. The IEA’s Net Zero scenario, published last May for COP26, envisaged a major role for hydrogen. The EU’s REPowerEU plan, launched in May 2022, sees a role for hydrogen in power generation in efforts to diversify from Russian energy supplies and envisages importing 10m tonnes of hydrogen/ammonia a year by 2030 while producing a similar quantity domestically - a sharp increase on earlier EU planning. Japan and other Asian countries have also shown interest in hydrogen. This creates a real opportunity for the Middle East.

Hydrogen’s properties

The hydrogen sector is rich in jargon, particularly the colour tags used to label its various production processes. Almost all current global production is “grey hydrogen”, extracted from natural gas with carbon dioxide as a by-product, a process which is less carbon-efficient than just burning natural gas. Even worse is “black hydrogen”, extracted from coal. Adding carbon capture and storage (CCS) into the mix allows it to be categorised as “blue hydrogen”. Hydrogen can also be produced by electrolysing water, the reverse of combustion, and if this is powered by renewable energy then it counts as “green hydrogen”. There has also been a proposal to use nuclear power (including in the UAE), to make “pink hydrogen”, which would be low-carbon but have some environmental impact due to nuclear waste.

However, there are some difficulties in transporting hydrogen because although it stores a lot of energy relative to its mass, it has to be cooled to -253⁰C to liquefy and has a very low energy density relative to its volume, meaning significant volumes need to be shipped or piped to transport the same amount of energy compared to other carriers. It is also highly flammable and can corrode pipeline materials. An alternative for long distance hydrogen transport is ammonia, a combination of hydrogen and nitrogen that is used for fertilizer, which also happens to be widely produced in the Middle East. Ammonia has 50% higher energy than hydrogen and liquifies at just -33⁰C, which is even easier than the -160⁰C needed to liquefy natural gas. Methanol, a molecule combining hydrogen with carbon and oxygen, is another option being considered for marine fuel as it is liquid at room temperature, like gasoline. Abu Dhabi’s ADQ and Alpha Dhabi are investing $375m in a project with Dutch company OCI to explore this use case.

Regional advantages

Middle East countries have several advantages for the development of hydrogen. Many have, or will have, excess gas that can be turned into blue hydrogen using their expertise in CCS—which has long been used to maintain pressure in oil fields. Green hydrogen is attracting even more interest as the region’s abundant sunshine and large quantities of cheap marginal land mean that solar power costs are among the lowest in the world. In addition, they have expertise in producing ammonia, for fertiliser, and exporting liquified gases, as well as long standing commercial relationships with many of the countries in Europe and Asia that have an interest in hydrogen imports. The region, particularly the Gulf, has surplus capital to invest in projects and a focus on non-oil diversification. A 2020 report from PwC’s Strategy& looked into more detail into some of these advantages. However, green hydrogen production requires substantial amounts of water which will require desalination for any projects.

The UAE, Saudi Arabia and Oman have been the most aggressive in advancing hydrogen. The NEOM hydrogen project was announced as early as July 2020, a partnership between ACWA Power and US firm Air Products, which will also buy the output. The vision is for green hydrogen production in NEOM to serve the European market and blue hydrogen production by Aramco on the Gulf coast, potentially drawing on the giant Jafurah gas project, to serve Asian markets, which are less selective on colour. Aramco made the world’s first blue ammonia shipment to Japan in September 2020 and has expressed an ambition to be the world’s largest hydrogen producer. Agreements have been signed with several firms such as InterContinental Energy and Samsung to develop hydrogen projects and Saudi Arabia is also exploring domestic consumption, including for the proposed hydrogen-powered railway in The Line, the horizontal city planned within NEOM.

The UAE has also been busy, including forming the Abu Dhabi Hydrogen Alliance in January 2021 and the startup of a pilot green hydrogen plant in Dubai in May 2021, powered by the emirate’s giant solar park. The UAE has announced an ambitious plan to capture a quarter of the global hydrogen fuel market by 2030. There have been many agreements signed with companies to explore hydrogen opportunities and the first major plant could be a 200MW green hydrogen facility in Ruwais which aims to be operational in 2025 to supply Fertiglobe.

Hydrogen is particularly important for Oman which has far smaller hydrocarbon reserves than the UAE and Saudi and urgently needs to diversify. It is launching a dedicated public company, Hydrogen Development Oman, to help drive the sector forward. Duqm and Salahah – ports with plenty of nearby land for industrial plants and renewables generation - are ideal locations. Half a dozen green hydrogen projects have been proposed over the last few years including a 3.5GW plant in Duqm led by India’s Acme Group. Other projects in Oman are attracting interest from Saudi and Kuwaiti investors. Gas from the Mabrouk Northeast project, previously planned for gas-to-liquids (GTL) production, could be utilised for blue hydrogen. Other major hydrogen projects are in planning or development in Egypt and have been proposed for Jordan, Kuwait and even Libya. QatarEnergy just formed a working group on hydrogen with Germany during the Emir’s recent visit.