Hydrogen – The fuel for the future?

At the conference of the parties meeting in 2015 (COP21), 195 countries signed the Paris Agreement intending to keep "the global average temperature rise this century as close as possible to 1.5˚C above pre-industrial levels." As of date, more than 110 countries, including the USA, UK, EU, and Japan, have pledged to achieve carbon neutrality by 2050 or sooner, with the European Union targeting a reduction of CO2 emissions of 55 percent by 2030 compared to 1990 levels. According to a report by the International Energy Agency released in May 2021, "investments in new fossil-fuel supply projects must immediately cease if the world is going to slash net carbon emissions to zero by 2050". This would have a massive impact on projected oil & gas statements in the upcoming decade, especially in the Gulf Corporation Countries (GCC).  

As per Accenture research, carbon emissions are driven by power generation (34 percent), industry (22 percent), transportation (21 percent), hydrocarbon extraction (14 percent), and buildings (9 percent). On our way to net zero, there needs to be a tectonic shift in the approach. According to Accenture, this could be primarily driven by five levers: increasing energy efficiency, improving the renewables share in the power mix, switching to zero energy emission carriers, boosting end-user electrification, and investing in carbon sink technologies (e.g., carbon capture utilisation and storage). In achieving these targets, hydrogen is perceived to be the missing link for the energy transition. It could play a pivotal role in the global adoption of sustainable clean energy through its availability, chemical advantages, decreasing costs and applications across industries, i.e., steel production, long-distance transportation, power generation, and industrial feedstock. Decarbonizing existing hydrogen production from fossil fuels with CCUS is called 'Blue hydrogen', whereas producing it from electrolysis technology using renewable energy is 'Green hydrogen'. Hydrogen is expected to meet ~20-25 percent  of the world energy demand by 2050, with projected annual sales of US $700bn, with Goldman Sachs calling it a 'once in a lifetime opportunity'.  

Current hydrogen investments in the GCC 

The Kingdom of Saudi Arabia (KSA) and the United Arab Emirates (UAE) are leading the way for hydrogen in the GCC. The US $500bn futuristic city of Neom in KSA is being built on the backdrop of hydrogen as the fuel. Air Products, ACWA Power, and Neom have agreed on a US $5bn Helios Green Fuels Hydrogen project.

By 2025, the facility is projected to produce 650 tons/day of green hydrogen, enough to run 20,000 hydrogen-fueled buses. For Neom, there is also an agreement between Hyzon Motors and Modern Industrial Investment Holding Group to develop an assembly plant building up to 10,000 hydrogen fuel cell-powered commercial vehicles a year. Aramco had already dispatched the world's first shipment of blue ammonia to Japan in September 2020. In March 2021, Japanese oil giant ENEOS signed a deal with Aramco to establish blue hydrogen and blue ammonia supply chains. 

In the UAE, ADNOC is heavily investing in blue hydrogen and plans to build a world-scale blue ammonia production facility in Ruwais with a production capacity of 1 million MT /year. ADNOC has also signed several agreements to develop blue hydrogen with South Korea's GS Energy and the Ministry of Economy, Trade, and Industry of Japan. These projects would cement ADNOC's position as a leader in Carbon Capture Utilization and Storage (CCUS) technologies as it operates the world's first fully commercial CO2 facility capturing up to 800,000 tons through its Al Reyadah facility. Furthermore, ADNOC has formed a 'Hydrogen Alliance' with Mubadala and Abu Dhabi holding company (ADQ) to foster green and blue hydrogen growth. The alliance would develop the hydrogen market domestically with small pilots already signed with Petronas, Siemens to produce green hydrogen in Abu Dhabi and for Expo 2020. In addition, ADQ has announced a 2 GW green hydrogen project (between TAQA and Abu Dhabi Ports). 

In Oman, a 25GW green hydrogen project is planned by OQ, InterContinental Energy, and EnerTech to produce 1.75 million MT/year. This would be the most significant green hydrogen project in the world. Similarly, small-scale pilots are being undertaken in Qatar and Kuwait to boost the hydrogen ecosystem. 

How to win in the hydrogen economy?

Despite the high production cost of green and blue hydrogen compared to traditional sources, ranging from US $1.3-$2.9/kg for blue and $3-$6/kg for green hydrogen, the next decade could see large-scale investments. Accenture's recent survey of 179 oil and gas companies concluded that two-thirds of them are planning to either fundamentally change or radically reinvent their businesses over the next three years. Among low-carbon businesses, hydrogen and renewable power were identified as having the highest growth potential. More than half of the leaders expect hydrogen (cited by 62 percent) and renewable power (54 percent) to account for more than 7 percent of their revenues within the decade. To shape the potential opportunities in hydrogen and position themselves as a leader in the 'new fuel', the GCC economies should take these five critical steps in the coming years:  

• Develop a comprehensive hydrogen strategy: Each country needs a comprehensive hydrogen strategy to define the long-term vision for hydrogen in building an ecosystem to enable the sector's growth. More than 18 countries have already developed a hydrogen roadmap. For example, in the UAE, the hydrogen alliance (ADNOC, ADQ, and Mubadala) has been mandated to develop a hydrogen economy; however, there is still a need to develop national strategies. This would ensure improved coordination with industry, a clear regulatory framework, and the necessary infrastructure to ensure industry growth.  
• Build a competitive advantage in blue hydrogen: While most of the research across the world has been focusing on developing green hydrogen through electrolyzer technology, its cost structure makes it less feasible in the immediate future. Thus, widespread adoption of blue hydrogen could be a game-changer for most of the nations to realize their net emission targets. The GCC economies are ideally positioned to drive the blue hydrogen and blue ammonia supply chains with its abundance of natural gas (e.g. Qatar has 24.7 TCM of natural gas reserves), existing hydrogen plants across refineries, proven CCUS technologies, and abundant storage capacities to store the CO2 generated from CCUS. 
• Invest in piloting green hydrogen technologies: Although the current focus is expected to be on blue hydrogen to instigate the demand in other developed or developing countries, the public sector should continue to pilot and invest in small-scale green hydrogen projects. These could yield significant advantages in the long run beyond 2030. MoUs and strategic partnerships should be proceeded with and expanded to study its economic feasibility in the region in depth. 
• Develop long term strategic alliances with the EU and Far East Asia: With the EU's ambitious goals to be carbon neutral in the upcoming decades, the EU is considering imposing a carbon border tax which could adversely impact the balance sheet of some countries for whom the EU is the largest trading partner. The GCC economies are currently considered the most exposed and the least resilient to the EU carbon tariffs. Investing in hydrogen and exporting ammonia could help the GCC economies establish long-term strategic partnerships with the EU and other developed countries to negate the carbon footprint from exporting hydrocarbons. 
• Develop GCC as an export hub in hydrogen economy: After developing the market for hydrogen and establishing the region as the leading producer of low-carbon hydrogen, the GCC nations need to invest in developing production and transportation infrastructure to build a substantial hydrogen economy. Currently, hydrogen is difficult to transport over long distances. It needs to be compressed 700 times and liquefies at a temperature of -253˚C , with the most viable form being transporting it as liquid ammonia. As technological advances reduce current production costs, the region could rise as an investment hub for hydrogen and green-related products. This could stimulate the production and export of green steel, green polymers, green methanol across geographies and help reduce the reliance on hydrocarbons in the GCC economies. Thus, hydrogen could live up to its promise and be essential to achieving true decarbonization with continued investments and research.