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PIF hydrogen move changes game

12 July 2024

Commentary
Jennifer Aguinaldo
Energy & technology editor

Saudi Arabia's Public Investment Fund (PIF) has created Energy Solutions Company (ESC), focused on co-investing in low-carbon hydrogen projects in Saudi Arabia.

The Saudi sovereign wealth vehicle has yet to officially launch ESC, which is envisaged to become a national champion and world leader in low-carbon hydrogen production, storage, transportation and marketing services and solutions.

It will own and operate green hydrogen projects in the kingdom, low-carbon hydrogen current and planned infrastructure, as well as the global marketing of its products. 

In addition to driving the development of the green hydrogen market in the kingdom, ESC will also co-invest with Saudi Aramco in the state energy giant's blue hydrogen developments.

PIF's move supports the kingdom's clean hydrogen strategy, which includes a clean hydrogen production target of 2.9 million tonnes a year (t/y) by 2030 and 4 million t/y by 2035. 

PIF's entry into the nascent global hydrogen landscape could be a game changer, according to an industry expert.

It could either fuel the green hydrogen hype or make a tangible difference in terms of moving Saudi Arabia's planned hydrogen projects forward to the execution phase.

It is worth mentioning that the world's largest integrated green hydrogen and ammonia production facility, worth $8.4bn, is under construction at Saudi Arabia's $500bn Neom gigaproject. Neom, a PIF company, owns a third of the project company implementing that project, which aims to produce over 200,000 t/y of green hydrogen to be converted into ammonia.        

There are also at least three green hydrogen projects in the conceptual design or study stage in Saudi Arabia, proposed by teams separately led by France's Engie, Japan's Marubeni and South Korea's Posco. 

PIF's move could also pose a risk and potentially make other green hydrogen projects being planned in other GCC states and Egypt less competitive, notes the expert.

Oman, for instance, aims to achieve a green hydrogen production of at least 1 million t/y by 2030, while the UAE eyes 1.4 million t/y of clean hydrogen production by 2031, consisting of 1 million t/y of green hydrogen and 0.4 million t/y of blue hydrogen.

While multiple green hydrogen megaprojects are planned in both jurisdictions, none have reached financial investment decisions so far, pending the approval of specific regulations and investment framework and signed offtake agreements.  

The expected green hydrogen demand trajectory from Europe and Asia courtesy of stringent net-zero policies could imply – subject to multiple factors such as standards and production, storage and transport costs – that the region's clean hydrogen projects can find a way to co-exist despite PIF's obvious financial advantage.

Equally important, Saudi Arabia's clear hydrogen plan appears to tie in with the Energy Ministry's new target to procure 20GW of renewable energy capacity annually, leading to the near tripling of its original 2030 renewable energy installed capacity target of 58.7GW. 

A scenario in which green hydrogen accounts for half of the kingdom's clean hydrogen target by 2030 implies that it will require over 24GW of renewable energy to power the electrolysers producing that much green hydrogen.

Related read: Riyadh's 130GW renewable target needs justification

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Jennifer Aguinaldo

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