Region primed for global green hydrogen leadership
15 August 2022
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There have been fewer hot topics in the Middle East and Africa (MEA) over the past 18 months than the development of green hydrogen production.
Ever since Neom, Acwa Power and Air Products announced their $5bn investment in a world-scale green hydrogen production complex as the anchor project of the $500bn Neom development in 2020, energy companies around the world have been racing to establish plans of their own in the region.
Today, there are at least 46 known green hydrogen and ammonia projects across the MEA region, with an estimated total budget of more than $92bn.
Almost all have been announced since the start of 2021, equivalent to nearly two new projects a month.
Competitive advantage
This sudden surge of interest in hydrogen needs little explanation. Due to its climate, the region enjoys the world’s highest solar irradiation levels, enabling the production of some of the cheapest renewable energy anywhere.
The 600MW Al-Faisaliah independent solar photovoltaic (PV) power project in Saudi Arabia, for instance, currently holds the world record for the lowest renewable energy levelised cost of electricity of just $1.04 cents a kilowatt hour.
This electricity from renewable sources is used to electrolyse vast amounts of treated and filtered seawater to extract hydrogen, which in turn is processed with air-derived nitrogen to produce the more easily transportable ammonia.
The ammonia can then be liquefied, compressed and exported by ship to the end-user market, where it can be converted back to hydrogen to be used as a clean fuel or utilised as ammonia for fertiliser or other industrial processes.
Other alternatives include converting the hydrogen to methanol, another more easily transportable fuel product, or piping the hydrogen directly to the end user, either for domestic purposes or for export.
Along with plentiful sunlight, the other main requirement to house the huge solar and wind farms is space, something the region is generally not short of. Oil and gas-importing nations such as Morocco, Ethiopia and South Africa can also benefit from the hydrogen project boom.
First mover status
Aside from the environmental benefits of green hydrogen as a carbon-free fuel, it also offers the oil-exporting states of the Middle East the tantalising prospect of diversifying their dominant crude production position with hydrogen, thereby safeguarding their economies for decades to come as well as enhancing their geopolitical significance.
Speed of capital investment to drive technological leadership and potentially first-mover advantage is arguably going to be another important factor.
From a demand perspective, there is no doubt about green hydrogen’s potential. Demand in Europe alone is forecast to double to 30 million tonnes a year (t/y) by 2030 and to 95 million t/y by 2050.
Thanks to its geographical position, the Middle East is ideally located to meet this demand either by ship or pipeline.
Until recently, green hydrogen may not have been considered financially viable. Today, it could be described as an economic necessity
MEA Energy Week insights
The massive potential and development of a green hydrogen production industry was one of five central themes and insights emerging from the Middle East & Africa Energy Week hosted by Siemens Energy in June.
Yet a live poll of up to 400 delegates as part of Siemens Energy’s Middle East & Africa Energy Transition Readiness Index, produced in partnership with Roland Berger, highlighted that a substantial majority felt that Power-to-X technology – of which hydrogen production is a major component – was slow in meeting its potential.
To put this into perspective, with the notable exception of the Neom-based Helios project and the pilot green ammonia scheme at Ain Sokhna in Egypt, none of the other 44 announced green hydrogen projects in the region have yet to start work on the ground. Many have not even reached a full investor agreement.
The principal challenges revolve around financing, supply and power purchase agreements, land allocations and permitting. Ultimately, even with cheap electricity, green hydrogen is still comparatively expensive to produce after factoring in electrolysis, processing and transportation costs.
There is also some debate over whether the end-user market is ready to pay a premium for cleaner fuel or chemical feedstock.
A related poll question among the Energy Week’s attendees underlined this. Of 11 energy priorities presented, Power-to-X solutions were ranked as the lowest priority in terms of the impact on their companies’ achievement of climate targets.
However, this could change rapidly. The Russia-Ukraine crisis has focused European capitals on the pressing need to diversify fuel sources. Until recently, green hydrogen may not have been considered financially viable. Today, it could be described as an economic necessity.
Transitioning to hydrogen requires huge investment to develop technology, build projects and establish marketplaces that collectively contribute to a cleaner energy future. This coordinated effort by all stakeholders must be supported by policymakers
Nabil al-Nuaim, Saudi Aramco
Encouraging local demand
Equally important is the development of local hydrogen demand. To date, few formal policies or strategies have been announced to stimulate a market for domestic demand, reflected by the fact that almost all of the planned green hydrogen projects pipeline are export orientated.
While this export focus may make sense commercially, there was unanimity among the event’s participants that more could be done to encourage home-grown demand.
“Transitioning to hydrogen requires huge investment to develop technology, build projects and establish marketplaces that collectively contribute to a cleaner energy future,” said Saudi Aramco’s chief digital officer, Nabil al-Nuaim. “This coordinated effort by all stakeholders must be supported by policymakers to achieve success.”
This view was echoed by Khaled Sharbatly, CEO of solar PV panel manufacturer and power developer Desert Technologies. “We need to accelerate the growth of energy in Africa, accelerate energy storage and innovation, and build a regulatory framework where everyone is in sync,” he said.
The development of regulations and policy reforms to provide impetus will be vital for the market to grow, as will associated strategies such as introducing carbon pricing, reducing electricity subsidies, unbundling power networks and incentivising electric vehicle usage.
If it fails to do so, the region may miss the opportunity to capitalise on hydrogen’s potential to create jobs and a local manufacturing industry, diversify economies, and, most importantly, reduce carbon emissions and achieve net zero.
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