Green hydrogen: who will buy the ‘fuel of the future’?

Eden

Green hydrogen has long been seen as the “fuel of the future”, set to replace hydrocarbons as the dominant force in the global energy mix.

On the face of it, this should be good news for the energy giants of the Arabian Gulf, which are blessed with all the basic ingredients and conditions to make it work. In fact, it presents another challenge for policy-makers.

Green hydrogen is produced, not by drilling deep into the earth, refining and transporting (all of them emissions-intensive activities), but by separating the energy-rich hydrogen molecule from oxygen in water. If that process is carried out using non-fossil fuels, hydrogen is net zero throughout – with water the only by-product.

But – there is always a “but” in energy matters – it is not that simple.

An energy expert explained to me once that the basic problem with hydrogen is that it is “expensive and explosive”.

It costs a lot to produce whether the feeder fuel is fossil, renewable or alternative; and it is extremely flammable in its raw state. Remember those pictures of the hydrogen-fuelled Hindenburg airship going up in flames in mere seconds?

The cost of producing green hydrogen – using renewables such as wind and solar in the electrolysis process – is coming down significantly as renewable technology develops and costs decline. But not fast enough.

Likewise, improvements in storage and logistics technology make hydrogen safer, but add significantly to costs. Meanwhile, the risk of a catastrophic occurrence will never be zero.

Nonetheless, the potential benefits make it worthwhile for regional energy groups to invest significantly in hydrogen. And they certainly have.

Saudi Arabia is planning the biggest green hydrogen production facility in the world at Neom, the $500 billion metropolis in the kingdom’s north-west, with the Public Investment Fund, Acwa Power of Saudi Arabia and Air Products of the USA. Other hydrogen facilities are planned elsewhere in the country.

The UAE also has big plans in clean hydrogen. It intends to develop two production facilities by 2031 and the national oil company Adnoc recently splashed $3.6 billion to buy Fertiglobe, one of the world’s biggest fertiliser companies that manufactures and distributes blue ammonia – a clean hydrogen relative.

Perhaps most ambitious in relative terms are the plans of Oman – a much smaller energy player than its two neighbours – to exploit its natural resources and geographical location as a green hydrogen hub.

At least six major hydrogen projects are to be developed in the sultanate by 2030 at a projected cost of $38 billion.

All these projects – and the several more that are planned in Middle East countries – are admirable symbols of a move away from fossil fuels and a search for innovative solutions to the increasingly urgent challenge of climate change.

But is the rest of the world ready for them?

The buzzword in the Middle East hydrogen scene is “offtake”. Policy-makers planning multi-billion-dollar investments want to have the certainty that there will be customers for the low-cost super-fuel they will be producing in just a few years.

So far, the appetite from Asia and Europe – the two main potential export destinations for hydrogen from the Gulf – has not been overwhelming.

Recent research from Bloomberg suggested that just 2 percent of the annual clean hydrogen production by 2030 is covered by a binding purchase agreement, which makes the financial planning extremely challenging.

Although the rate of commitment to future green hydrogen contracts varies according to sector – chemical companies are most enthusiastic, oil refiners the least – there has been a marked reluctance generally to commit to hydrogen on the part of global consumers.

Saudi Arabia even suggested building a pipeline between Neom and Germany to ease the transportation problems and encourage long-term purchase agreements, but with little result, at least so far.

Asian consumers, sitting on mountains of coal and importing oil and gas with abandon, probably regard the issue as low priority.

But surely the environmentally aware Europeans must appreciate the opportunity to simultaneously reduce global emissions while powering their economies with this futuristic fuel? Time for them to step up.

Frank Kane is Editor-at-Large of AGBI and an award-winning business journalist. He also acts as a consultant to the Ministry of Energy of Saudi Arabia