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Saudi Arabia Eyes Big Piece Of The Hydrogen Market

Saudi Arabia, the world’s top crude oil exporter, has been active in embracing new energy revenue opportunities in recent years after it became painfully clear the world was changing and it would not be able to rely on oil for its sustained wealth forever. Now, the desert kingdom has set its sights on green hydrogen.

Those of a skeptical nature may think of it as just another overhyped loser tech. However, governments around the world are planning billions in investments in green hydrogen—the kind that is produced through the electrolysis of water using energy generated by renewable sources such as solar and wind.

Saudi Arabia is an excellent candidate for green hydrogen: it has vast land resources that can accommodate the equally vast solar and wind power generation capacity that a large-scale hydrogen installation would need. It also has the water resources necessary for the process. It must have been a no-brainer then to plan a $5-billion green hydrogen facility at the site of its NEOM smart city project.

The project will use electricity produced by solar and wind farms with a total capacity of 4 GW, according to a Bloomberg report. Initially, it will produce some 650 tons of hydrogen daily. This will be turned into ammonia at the rate of 1.2 million tons annually. This ammonia will be bought by one of the three partners in the project—dubbed Helios. This company, Air Products and Chemicals, will then ship the ammonia overseas, convert it back into hydrogen, and sell it to end-users.

Going forward, Saudi Arabia plans to become a major green hydrogen supplier to Germany, which has declared some of the most ambitious plans in that respect as it seeks to reduce its use of fossil fuels as much as possible, regardless of the cost.

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Cost is a significant issue with green hydrogen. Currently, electrolysis is a much less efficient process than producing hydrogen from fossil fuels—and less efficient means higher costs. Rystad Energy recently estimated that green hydrogen produced from an offshore wind farm in the North Sea would cost about $6.18 per kilogram (5.1 euro).

Even more scathing, a study by the International Council on Clean Transportation calculated the price of green hydrogen at $8.81 per kilo for a grid-connected electrolyzer.

For perspective, blue hydrogen—the kind produced from natural gas that includes carbon capture and storage—costs $2.36 per kilo. Given the fact that carbon capture is a complex, costly technology, it is impressive how much cheaper CCS-included blue hydrogen is.

Yet analysts expect the costs associated with the production of green hydrogen to drop substantially in the coming years and decades. According to BloombergNEF, the cost of green hydrogen produced in the Saudi desert could, in fact, fall to as little as $1.50 per kilo by 2030. If this happens, it would definitely place the Kingdom ahead of most—if not all—potential competitors in the hydrogen space. But first, it needs to build all that generation capacity that it has planned.

Rystad Energy last year reported that there was some 60 GW in utility-scale green hydrogen capacity proposed globally, with most of it—87 percent—in gigawatt-scale facilities that must have included the Helios project. However, the energy analysts warned, only half of that is likely to get completed.

“Despite the growing pipeline, we forecast less than half of this capacity (30 GW) will be operational by 2035, as developers will need to lower production costs. Government support will be required to advance projects more quickly, particularly for those developments that will be powered by costlier offshore wind.”

Government support is indeed crucial for the success of green hydrogen, and not just in Saudi Arabia where the government is the main investor in the Helios project anyway. According to sources interviewed by Bloomberg’s Verity Ratcliffe, the success of Helios depends heavily on Europe sticking to its hydrogen plans, whatever the cost. Related: Biden’s Policies Unlikely To Cause Crash In U.S. Oil Production

Europe will never be able to produce all the green hydrogen it will need locally, says the person in charge of the Helios project, former RWE chief executive Peter Terium.

“By no means will they be able to produce all the hydrogen themselves,” he told Bloomberg’s Ratcliffe. “There’s just not enough North Sea or usable water for offshore wind.”

There is no question Saudi Arabia has the resources to become a major hydrogen exporter. Yet price does remain an issue and could eventually become the trigger that exposes the discrepancy between facts and fiction when it comes to the energy transition. Ambitious goals are all very good as long as you have the money to pay for them. Yet Europe—a key market for every exporter of a green commodity—is still battling the effects of the pandemic, using more than a trillion dollars to do that.

While it’s true that a lot of that money is directed precisely towards greening up the EU’s energy production and consumption, in the end, every government, even the most ambitious one, will need to ask themselves one question: can we afford this? It remains to be seen whether Europe—or China, another market Riyadh is eyeing for its hydrogen—will be able or willing to pay for Saudi green hydrogen.

By Irina Slav for Oilprice.com

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2021-03-10 16:00:00

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