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Region’s $155bn hydrogen projects require focus

17 November 2022

Commentary

Jennifer Aguinaldo

Energy & technology editor

As of 16 November, close to 50 green hydrogen projects requiring an estimated investment of at least $155bn are being planned in the Middle East and North Africa (Mena) region.

Integrated green hydrogen-based ammonia production facilities comprise the majority of these projects, which means the total estimated investments may be broken down into renewable energy plants, $102bn; electrolyser plants, $23bn; air separation units, $14bn; and civil works, $16bn.

The estimated investment excludes the infrastructure required to store or transport the end products to their destination.

These projects offer major opportunities for the entire value chain, not least for solar and wind power plants, which could account for an average two-thirds of the total investment.

The ongoing Cop27 UN climate summit in Egypt is helping build the momentum. Preliminary agreements for over 23GW of wind projects and several green hydrogen deals in Egypt have been signed immediately before and during the conference.

The North African nation already accounts for about 42 per cent of the planned green hydrogen and ammonia projects in the Mena region.

While there is widespread pessimism about the feasibility of most of these projects – with only one project having secured financing so far – the gravity of the Paris Agreement commitments and the stature of companies involved in these so-called early-mover projects are hard to dismiss.

Potential investors range from the region’s sovereign wealth funds, which built their portfolio using oil and gas revenues, to energy trading companies and suppliers, equity investors, port operators and international and regional utility developers.

Export credit agencies, particularly from the net-zero economies in Asia and Europe, are expected to play a crucial role as they consider underwriting the substantial risks, and potential returns, that these projects carry at this early stage.

Scaling electrolyser capacity and production in time to meet the proposed projects’ timelines is a key question yet to be answered. Producing and consuming countries also need to set up mutually agreed standards and regulations on what constitutes clean and green hydrogen. 

These and other issues will influence how these projects can reach a final investment decision (FID). Offtake and financing negotiations have been dragging on for nearly two years for some of the earliest schemes, which holds back the projects from reaching the construction phase.

The understanding is that potential stakeholders for most of the projects are nowhere near reaching FID and, except for a very small number of exceptions, may need a few more years to get there.

Similarly, the inertia to ramp up fossil fuel capacities in the wake of the energy crunch induced by the Russia-Ukraine war is not necessarily helping these projects get over the line sooner, or as expected.

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Jennifer Aguinaldo

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