As the world attempts to decarbonise its energy production, hydrogen is sure to be part of the future system that will emerge after the primacy of fossil fuels. Just how widely it will be adopted worldwide as a fuel and as an energy carrier remains an open question. Europe, in particular, plans to utilise more “clean” hydrogen than it can hope to produce, presenting an opportunity for the Gulf Cooperation Council (GCC) countries.
Green and Blue Hydrogen
Two types of hydrogen generation are examined here: green and blue. Green hydrogen is produced by electrolysing water, using renewable energy, a process that generates very few greenhouse gas (GHG) emissions. Blue hydrogen is produced from natural gas, which is how we currently produce the vast majority of hydrogen for industrial use. To be considered blue hydrogen, the process must include carbon capture and storage (CCS), a process that produces more GHGs (though significantly less than without CCS), but is currently more affordable and easier to scale up. These are referred to as “clean hydrogen.”
To generalise the ongoing debate, blue hydrogen is viewed as a stepping stone to facilitate widespread hydrogen adoption while green hydrogen technology develops and becomes commercially competitive. This is the current European Union (EU) stance, though it has been criticised as a fig leaf for the oil and gas industry that will divert funds from truly renewable technology.
“Clean” hydrogen has a range of potential uses, including in industry, where it can replace the current “dirty” hydrogen and help decarbonise steel and cement production. It also has a role in transportation, stepping into sectors where electrification is problematic, like heavy vehicles, ships and aeroplanes. Hydrogen can be used directly in fuel cells, but also as a component of other synthetic fuels like methanol. Finally, hydrogen can be used as a form of renewable energy storage, either in salt caverns or specialised tanks, evening out the peaks and dips of power generation through renewable sources.
Hydrogen in Saudi Arabia
The GCC countries are heavily dependent on oil exports for their fiscal budgets—more than 50% on average. This has caused a flurry of attempts to diversify their economies before the global shift away from this flagship resource. Part of this effort will be focused on exporting clean hydrogen, and there are several reasons why the GCC states are well-positioned for this.
Saudi Arabia is a case in point. Its flat, sun-soaked deserts enable large photovoltaic power plants, it has natural storage capacity, and its well-funded Public Investment Fund can allocate ample resources to further the country’s ambitions.
Neom, the futuristic smart city and Crown Prince Mohammed bin Salman’s passion project, will be located along the Gulf of Aqaba in the northwest of the country. This location features ‘considerable sunshine during the day and regular winds at night,’ ideal for renewable energy upon which the city will rely exclusively, including green hydrogen. Neom is also the site of Helios, which will become the world’s largest clean hydrogen plant when it comes online in 2025. A joint venture between Neom, Saudi Arabian energy developer ACWA Power and United States’ Air Products, this $5 billion project will produce 650 tonnes of green hydrogen per day using 4 gigawatts (GW) of solar and wind power. For reference, Saudi Arabia’s total renewable electricity capacity in 2019 was 397 megawatts (MW), less than 10% of this single project’s capacity.
The EU enters this picture as a market that will demand a large volume of hydrogen imports, and one that is growing increasingly averse to carbon emissions “leaking into” the bloc. To address the first aspect, the EU’s strategy, outlined in the 2020 European Commission document titled: A Hydrogen Strategy for a Climate-Neutral Europe, envisions 40 GW of domestic renewable electrolyser capacity and another 40 GW in its southern and eastern neighbourhoods, which is understood primarily as Ukraine and Morocco. This is one of the factors working against the GCC; The EU is partially looking to involve its partners in this venture and use it as a development tool. The Commission document specifically mentions cooperation with the African Union.
Germany is an early pioneer in hydrogen in the EU, and its National Hydrogen Strategy envisions demand for 90-110 terawatt-hours (TWh) of hydrogen by 2030, while targets for domestic production are at about 14 TWh in that timeframe. This shortfall will be met with imports, both from inside and outside the EU, including the Middle East and North Africa (MENA) region: Germany signed a Hydrogen cooperation agreement with Morocco in June 2020 and recently, in March 2021, a Memorandum of Understanding with Saudi Arabia.
The other side of the EU’s involvement is its ambitious green policy, which will inevitably extend to its neighbours and trade partners. An example of this is the Carbon Border Adjustment Mechanism (CBAM), endorsed by the European Parliament on 10 March 2021, which is due to be launched in 2023. The exact specifics of the CBAM are yet to be determined, but it is essentially a tariff on carbon emissions involved in the production of a particular import. This is a clear signal that green energy will not only be exported to the EU, but will need to be used to decarbonise domestic industry in the GCC as well.
Where does this leave Saudi Arabia? In the MENA region, Morocco has the political edge with regard to the EU. Riyadh could focus on leading the production of clean hydrogen at scale and at a competitive price. It has comparative advantages, such as the experience and infrastructure for energy export, as natural gas infrastructure can be variously retrofitted to transport hydrogen or its derivatives. Morocco also lacks the water to produce green hydrogen, and will need to turn to desalination. This is a technology that Saudi Arabia, along with its GCC partners, already widely utilises.
Ultimately, Saudi Arabia is well-positioned to achieve green hydrogen production at a competitive price. According to ACWA Power CEO, Paddy Padmanathan, green hydrogen could fall to a very competitive $1 per kWh as soon as in 2030. While this estimate is ambitious, it is not based on unfounded optimism. Saudi Arabia recently announced the possibility of a green hydrogen pipeline to Europe, if the economic rationale was there, and Europe is far from the only interested buyer. Hydrogen represents a huge opportunity and Saudi Arabia has the tools to take full advantage of it. The demand will be there and the race is on.
1 April 2021
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